Ted Frank And The Real Risk Of Class Actions
Tort reformer Ted Frank and I have had our disagreements over the years. (See here and here.) In recent years, he has focused his work on filing objections to class action settlements through the Center for Class Action Fairness. Some of his work has focused on getting a better deal for class action members who, he alleged, weren’t receiving fair portions of the proposed settlement, but the bulk of his objections — at least to my knowledge — have focused on reducing the attorney’s fees claimed by the class counsel.
As Alison Frankel reported yesterday, it seems that, in the course of his contingent-fee work on behalf of people objecting to class action settlements, Frank has found himself in a situation he himself describes as “lurid, complex and Grishamesque.” The situation seems to have arisen from his personal goals as a lawyer being different from one of his client’s goals, and from his fee-splitting relationship with another firm, the very same issues he so frequently raises in his objections.
It would seem like a perfect opportunity for schadenfreude, but, in fact, all I can feel for him is sympathy — and his misfortune in the In Re: Capital One Telephone Consumer Protection Act Litigation presents a tremendous opportunity for tort reformers, politicians, the press, and the public to see just how difficult class actions, mass tort, and other large-scale litigation can be. In that case, Frank filed an appeal on behalf of a class member objecting to the fee claimed by Lieff Cabraser, and then everything went south.
In a 22-page declaration filed earlier this month, Frank lays out in detail how difficult it has been to obtain clients who will put the policy-oriented goals of the Center for Class Action Fairness (CCAF) over their personal financial interest (paragraphs 16-18). He explains how, because CCAF was “poorly funded and thinly staffed,” and “because courts failed to provide adequate compensation for successful objectors” (21-22), he entered into an agreement with a so-called ‘professional objector’ plaintiff’s firm to sometimes serve as an expert witness, sometimes consult with them (for a cut of the fees), and sometimes take their riskier appeals (23-33). Frank then took on representation of a class action settlement objector who, he thought, shared CCAF’s values, but, after an apparently long and tortured process, in the end accepted a settlement of his appeal (34-93).
It all looks like a mess and a huge waste of Ted Frank and CCAF’s time — which is no surprise to me. As I wrote back in 2012 when questioning his suggestion that lawyers low on work try filing class action settlement objections:
He might be right that there’s money to be made in representing objectors to class action settlements, because there’s the potential for objectors’ attorneys to be awarded attorney’s fees for their efforts. It strikes me as a plausible line of work, although, like all contingent fee work, a risky one, and one where you’re always worrying about the origin of your next cases. I must also admit that the long-term economics are a bit concerning to me: while your potential for reward is sharply limited (because you’re unlikely to be awarded anything above a reasonable hourly rate for the time worked, and even that is only paid months or years after the work is performed), your potential for loss is not (because you can walk away from cases without recovering a dime for your work or your expenses).
As I titled the post, “First Lesson For New Plaintiff’s Lawyers: If It Was Easy, Everyone Would Be Doing It.” It seems Ted Frank has become an example of that maxim.
Is Ted Frank a fool? A cheat? Did he and CCAF do something wrong?
In my opinion, no, no, and no.
Ted Frank ran into ordinary, run-of-the-mill problems inherent to mass litigation of all sorts. It is difficult, risky work, and cases can blow up in your face despite the very best “due diligence,” as Frank claims he did and as I believe he did.
And that’s the deeper point here. In his post explaining CCAF’s appeal, Frank argued:
This award is not because the underlying TCPA action was extraordinarily risky: the evidence showed that class counsel won settlements in 16 out of 38 TCPA class actions over the last four years and collected handsome fees for 64% of the hours they devoted to TCPA litigation.
[Class counsel] Lieff Cabraser and the other firms reported spending an average of about $251,000 per losing case, valuing their work at $480 an hour (already well above typical rates for non-partners), compared with $613,000 on the winners. That suggests plaintiff firms are good at piling on the hours after they’ve reached a settlement agreement with their target, when the risk of not getting paid is far lower.
Lieff Cabraser won the coveted role of lead counsel even though it technically didn’t have a client in the multidistrict ligitation at the time, CCAF said. (The California firm was in the process of adding its client, who’d filed an earlier class action, to the master complaint soon filed in the case.) Then it agreed to split fees with five other firms in a manner still unknown to the objecting class members. In other cases identified only by letters, Lieff Cabraser split its share of fees with other firms not according to how much time each spent on the cases but some other formula. …
Frank and CCAF urged the Seventh Circuit Court of Appeals to reject the fee in this case and order the lower court to rexamine it in terms of the true ex ante, or before-settlement, risks the law firms took on. That would reveal a relatively routine case that settled for about what the lawyers on both sides expected it would justified a far lower fee …
But as Ted Frank’s declaration shows, mass litigation is anything but “routine.” Even when lawyers are extremely selective about the cases they take — like Lieff Cabraser was, and like Ted Frank was — cases can still blow up in their faces, producing nothing but headaches, sunk costs, and an extraordinary loss of time. It is no more fair to punish Lieff Cabraser for being selective about its cases, for cutting losses when it knows a case is sunk, and for reaching agreements with other firms to streamline the litigation, than it is to fault Frank and the CCAF because a case it took imploded and because it entered into a profitable relationship with another firm.
Like I said before: if this kind of work was easy, everyone would be doing it. I invite anyone who thinks it’s outrageous for Lieff Cabraser to be awarded 20% of the fee of a $75 million settlement — a number that is likely actually much lower than it appears, given the deals it had to reach with other firms to assume the lead role — to think, for a moment, of how it feels to be in Ted Frank’s shoes, writing off every minute and every expense on that case and still having to draft a 93-paragraph declaration for a case he won’t make a penny off of. That’s the reality faced by every class action and mass torts firm in every case they take.