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In the United States: With Liberty and Justice for… Corporations? for Lawyers? ( 0) Printer friendly page Print This
By Les Blough (Axis of Logic). Rania Khalek (Common Dreams)
Common Dreams
Friday, May 6, 2011

Axis of Logic Commentary

Actually, the story below involves not one but two examples of corrupt legislation in the United States. The first is explained by the report, i.e. laws that are written and court and arbitration decisions made in service to corporations. The second, not discussed in the report is about class action suits that may favor lawyers far more than the clients they serve. In this commentary, we take the Common Dreams analysis a step further by looking at the gains and losses of lawyers and their clients in class action lawsuits.

Class action lawyers receive a percent of the amount won in the law suit but that percentage is determined by a complex system that few except lawyers themselves can understand. A report by Public Citizen based on a study of 370 class action lawsuits settled between 1993 and 2002 showed that lawyers fees are different in state and federal courts and also differ on a system of "fee-shifting" and "non-fee shifting cases" and other complexities:

"Attorneys’ fees as a percent of recoveries were higher in federal rather than state court settlements. This is the opposite of the “anything goes” attitude that’s supposed to prevail in state courts, according to the Chamber’s Institute for Legal Reform. Fees were about 20 percent in federal courts and 19 percent in state courts for nonsecurities, non-fee-shifting cases and 38 percent compared to 32 percent in fee-shifting cases"

So a lawyer fee in a class action law suit can range between between 19 and 38 percent of the settlement, depending on the court and other complex issues. If in a class action suit for example where the defendent ends up paying say, $10,000,000, the lawyer at 20% receives $2 million. Hmmm, that leaves an impressive $8 million for the plaintiffs, i.e. sounds impressive until you divide it up among tens or hundreds of thousands of members in a nationwide lawsuit. In the Aaron's Computer Spying Class Action Lawsuit an estimated 50,000 consumers were eligible to join the action. In March, 2011, a sex-bias case being considered by the U.S. Supreme court for approval for class action against Wall Mart, could end up being shared by be as many as a million people - that is if the retail giant were to be defeated in court. Do the math. Public Citizen reports that the median recovery for plaintiffs in a class action was about $13 million in 1993 and about $15 million in 2002. Again, a 20 percent legal fee would amount to $2,600,000 in and $3 million in wins of $13 million and $15 million, respectively.

In the case of Vincent and Liza Concepcion, their claim against AT&T involved a $30.22 sales tax imposed on a "free" telephone they received. The amount won from AT&T would be shared among many other members of their class action - and of course, the lawyers fee.

From Wikipedia:

There are several criticisms of class action lawsuits.[27] The preamble to the Class Action Fairness Act stated that some abusive class actions harmed class members with legitimate claims and defendants that have acted responsibly; adversely affected interstate commerce; and undermined public respect for the country's judicial system.

Class members often receive little or no benefit from class actions. Examples cited for this include large fees for the attorneys, while leaving class members with coupons or other awards of little or no value; unjustified awards are made to certain plaintiffs at the expense of other class members; and confusing notices are published that prevent class members from being able to fully understand and effectively exercise their rights.

For example, in the United States, class lawsuits sometimes bind all class members with a low settlement. These "coupon settlements" (which usually allow the plaintiffs to receive minimal benefit such as a small check or a coupon for future services or products with the defendant company) are a way for a defendant to forestall major liability by precluding a large number of people from litigating their claims separately, to recover reasonable compensation for the damages. However, existing law requires judicial approval of all class action settlements, and in most cases class members are given a chance to opt out of class settlement, though class members, despite opt-out notices, may be unaware of their right to opt-out because they did not receive the notice, did not read it, or did not understand it.

So in some cases, class action members are not even paid their share of the settlement in cash but rather in coupons entitling them to additional legal services or products from the company being sued. Public Citizen also points out that corporations actually prefer coupon settlements because they allow a company to save substantial sums – if the coupon is of little real value to class members or if it will not been redeemed. About 7% of class action plaintiff gains were paid out in coupons and the worst cases were in federal courts.

Class action lawyers attempt to justify their fees based on the risk they take by investing time and other resources into a law suit which they may or may not win. Therefore, a lawyer or law firm is unlikely to pursue a class action suit unless they think there is a high probability of winning in court or settling the case for a handsome sum out of court. When law firms discover an illegality such as fraud on the part of a corporation that may be worthy of a class action suit, they contact potential members who have been wronged like Vincent and Liza Concepcion. On the one hand, ordinary people who have been cheated by a big corporation have little means to sue and win except through a class action suit that a law firm deems worthy to pursue. On top of this, the amount won by a member of a class action suit is typically miniscule compared with the lawyers fee.

The report below shows how this corrupt system goes a step further with the Supreme Court ruling against the plaintiffs in the AT&T case and how cases that went to arbitration (instead of court) robbed the plaintiffs in a whopping 94% of the cases due to corrupted arbitrators who sided with big business. Again, Public Citizen:

When California changed its law to require that arbitration results be publicly recorded, Public Citizen reviewed 34,000 California cases, and the results were stunning. The study found that consumers had lost more than 94 percent of cases in arbitrations plagued by conflicts of interest, with arbitrators benefiting financially from ruling in favor of businesses.

Ultimately, the battle for money in these cases takes place between the law firms and the corporations, the lawyers seeking their own gains and the corporations avoiding or minimizing their losses. Ordinary consumers like you and me are the pawns on their chessboard. From our point of view, when you receive a letter from a law firm telling you that you may be eligible to be part of a multi-million dollar class action suit - think about who the real winners and losers are in these cases and ask yourself who you are serving by digging out receipts for money you've paid to a corporation like AT&T and if participation is really worth your time and energy before you fill out their forms.

Disclaimer: This analysis is not and is not meant to be a legal document or legal opinion. Potential plaintiffs in a class action lawsuit should educate themselves through their own research and consultation with qualified legal counsel.

- Les Blough, Editor

With Liberty and Justice for… Corporations?
Common Dreams
by Rania Khalek
May 5, 2011

When California changed its law to require that arbitration results be publicly recorded, Public Citizen reviewed 34,000 California cases, and the results were stunning. The study found that consumers had lost more than 94 percent of cases in an arbitrations plagued by conflicts of interest, with arbitrators benefiting financially from ruling in favor of businesses.

On April 27, 2011, the Supreme Court of the United States once again ruled in favor of big business. In the highly anticipated case of AT&T Mobility v. Concepcion, the Roberts led conservative block of the Supreme Court ruled 5-4 that federal law trumps state law in allowing companies to use arbitration clauses to prohibit consumers from joining class actions against the companies.

The case involved a California couple, Vincent and Liza Concepcion, who were charged $30.22 sales tax on the full retail price of a cellphone that was advertised as “free.” They filed a lawsuit against AT&T for deceptive practices on behalf of a class of consumers who had also overpaid. But the couple, along with their fellow plaintiffs, had signed a contract with AT&T that contained a “mandatory arbitration clause” which required them to settle any disputes through arbitration (a private legal proceeding) and barred them from seeking class-action treatment with other consumers, whether through arbitration or in a lawsuit brought in a traditional court.

Initially, both a federal district court and the Ninth Circuit Court sided with the Concepcions, saying it was unfair under a 2005 California Supreme Court ruling, for contracts to ban class-action litigation. However, this was overturned by the recent Supreme Court decision, which says federal law, specifically the Federal Arbitration Act of 1925, trumps state law.

Aside from the fact that the conservative Justices who purport to be staunch defenders of “states rights” abandoned their principles for corporate interests, this ruling has chilling implications for future corporate accountability. Corporations are now free to legally bar victims of their abuse from collectively suing in a court of law if the abused have signed a contract that includes a mandatory arbitration clause, regardless of state laws to the contrary. This could literally render companies immune from class actions and overall accountability.

At first glance, it seems reasonable to conclude that individuals should simply steer clear of these types of contracts in order to avoid waiving their rights. But most people are unaware that mandatory arbitration clauses are commonly used in product and service contracts, and sometimes in employment contracts – usually found buried in the fine print of billing inserts, employment handbooks, health insurance plans, and dealership agreements.

In a statement after the ruling, Deepak Gupta, a lawyer with the public interest group Public Citizen who argued the case on behalf of the Concepcions, called the decision a “crushing blow to American consumers and employees, ruling that companies can ban class actions in the fine print of contracts. Now, whenever you sign a contract to get a cell phone, open a bank account or take a job, you may be giving up your right to hold companies accountable for fraud, discrimination or other illegal practices. Class actions are an essential tool for justice in our society. Brown v. Board of Education was a class action. The fate of class actions should not be decided through the fine print of take-it-or-leave-it contracts.”

Pro-Business groups, most notably the US Chamber of Commerce’s Institute for Legal Reform, argue that arbitration is an efficient, effective, and less expensive means of resolving disputes for consumers as well as businesses. Of course, what they mean is that it’s efficient, effective and less expensive for corporations, since companies are far less likely to use arbitration clauses in contracts with each other than they are in contracts with consumers. And if arbitration is truly superior to the courts, it should be up to consumers and employees to voluntarily choose their preferred method of redress should a dispute arise.

In reality, arbitration is a closed, private process often with little or no written record. When California changed its law to require that arbitration results be publicly recorded, Public Citizen reviewed 34,000 California cases, and the results were stunning. The study found that consumers had lost more than 94 percent of cases in an arbitrations plagued by conflicts of interest, with arbitrators benefiting financially from ruling in favor of businesses. Overall, they found that forced arbitration creates a systemic bias in favor of businesses while offering few, if any, meaningful deterrents against negligence or even foul play.

Needless to say, these contracts are intended to undermine consumer protection, civil rights, and other laws that level the playing field between big business and individuals. And because arbitration clauses are presented on a take-it-or-leave-it basis, individuals are left with no choice but to waive their rights. Given these circumstances, it’s no suprise that AT&T had the backing of the Chamber of Commerce, Comcast, Dell, and DirectTV. A clear pattern of the Supreme Court’s conservative majority ruling in favor of corporations while stripping away the power of individuals has emerged, and AT&T Mobility is icing on the Chamber’s eight layer cake.

In an article that appeared in Mother Jones late last year, Stephanie Mencimer quoted Paul Bland, a lawyer with the public interest law firm Public Justice, who argued that “In Concepcion, AT&T and the Chamber of Commerce are asking the Supreme Court to do the same thing for consumer protection that Citizens United did for election law…the Chamber wants the Court to overturn a number of precedents and eliminate the most important safeguards that have limited corporate abuse in the past.”

Mencimer points out that the Chamber has been systematically fighting to limit consumers access to the courts for years, particularly through class actions. She goes on to say, “In 2005, it finally succeeded in winning legislation that made it much harder to bring such cases in state courts, after investing more than $20 million in lobbying Congress. But it didn’t stop there. It has defended the right of big companies to use contracts to wipe out whatever legal rights for consumers remained.”

At the behest of their corporate overlords, the Supremes have stripped away consumers last remaining recourse against corporate wrongdoing: class actions. Corporations are actively rigging our civil justice system to shield themselves from accountability for fraud, discrimination, and other illegal practices, and so far they have been successful.

If you believe the effects of these contracts are isolated to small dollar rip-offs, then think again. There are a plethora of horror stories about individuals that have been victimized by forced arbitration. Take the case of Jamie Leigh Jones. She was 19 when she signed a job contract with Halliburton and went to work in Iraq, where she was drugged and gang raped by her co-workers. After actively participating in the cover-up, Halliburton used the mandatory arbitration clause in her contract against her filing suit, eventually leading to legislation ordering the federal government not to work with contractors who force employes to sign arbitration agreements involving cases of sexual assault or Title VII violations.

In an article for the Boston Globe, Beth Healy highlights the heart-wrenching plight of Philip Grossman, who committed suicide after his family lost much of their savings from its encounter with a Bank of America broker. The family tried to sue Bank of America but was denied access to the court because of an arbitration clause in Mr. Grossman’s brokerage account documents. As Healy observed, “The Grossmans’ case shows how entrenched arbitration has become in the financial industry, demonstrating that even in an extreme case alleging wrongful death, aggrieved clients have no recourse other than a system that critics say favors investment firms.”

Keep in mind these cases took place before the current ruling. In the aftermath of AT&T Mobility v. Concepcion, class action waiver provisions in arbitration agreements will almost always be found enforceable. Except that now, these types of abuses are likely to be system-wide, since companies have no reason to fear potential class actions, and therefore little incentive to act ethically from the get-go.

Corporate attorneys recognize the significance of this ruling and are advising their clients to include class action bans in their arbitration clause. This explains why companies, thrilled at the opportunity to avoid liability, are rushing to review and revise existing arbitration clauses in standard contracts to include class action bans.

The good news is efforts are underway to reverse this disgraceful Supreme Court ruling. Senators Al Franken (D-MN) and Richard Blumenthal (D-CT), along with Rep. Hank Johnson (D-GA), have announced their plan to reintroduce the Arbitration Fairness Act. The bill, which was first introduced in 2007, would ban forced arbitration clauses in employment, consumer, and civil rights cases, and immediately faced heavy opposition from business interests, including the Chamber of Commerce.

Another ray of hope is Elizabeth Warren, head of the Consumer Financial Protection Bureau (CFPB). According to Reuters, the Dodd-Frank law gives Warren’s consumer agency the power to regulate arbitration in consumer financial-services contracts, and the agency could conclude that class-action bans are harmful to consumers. Given Warren’s vocal support of consumer safeguards, businesses are already nervously anticipating what her new agency may have in store.

In the meantime, I suggest you visit Fair Arbitration Now for ways to join fight against forced arbitration and end the abuse once and for all.

Source: Common Dreams

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