Your Editor recently spotted a thoughtful anti post on the wisdom of using contingent fee arrangements to hire private counsel to prosecute public claims.  The post, in Bogartyag's Weblog , summarizes the recent spate of attention to the issue.  Then it gives four arguments against contingent fee deals with public entities:

I don’t have much to add to our previous post on this issue, but we’d like to highlight a few points as to which we don’t see much disagreement in the blogosphere.

First, even those who favor governments hiring contingent fee lawyers (and we do not count ourselves in that crowd) can’t seriously object to adding more transparency to that process. If the government is going to enter contracts that have the ability to make select private citizens richer than Croesus, that process should be open and public.

Second, no one seems to object to competitive bidding for these lucrative contracts. If the government is going to hire private lawyers, surely it should strive for a reasonably low price. (We didn’t write the “lowest price” there, because we believe that the cheapest lawyer is not necessarily the lawyer most likely to win your case.)

Third, when governments hire private contingent fee lawyers, those lawyers have a personal interest in maximizing the recovery of money damages, from which the fee will be paid. Maximizing damages, instead of seeking, say, broader injunctive relief, will not necessarily represent the preferred public policy. We know that the client — the government — is ultimately making the decision to settle, but even the most sophisticated client relies heavily on counsel — the boots on the ground — for advice. When that counsel has a personal interest in maximizing monetary recovery, sound government policy can be placed at risk.

Fourth, permitting the executive branch — attorneys general — to extract private money for government use infringes on the legislative branch’s historic control of the government’s taxing authority. We understand that this already occurs, to a limited extent, when the government imposes civil fines and the like. Call us fools, if you like, but we just think people act differently when billions of dollars are placed on the table.

The first three points strike me as worth talking about.  Indeed, I would like to see someone develop a set of guidelines for hiring private counsel on a contingent fee basis, including discussion relating to (1) transparency, (2) competitive bidding, and (3) oversight and allocation of decision-making authority on matters of strategy, trial, and settlement.

The fourth argument -- that contingent fees infringe on legislative prerogatives -- seems a tad over the top.  Do we really want senators and representatives dictating to attorneys general which specific lawsuits to prosecute and which ones not to?  That way lies madness.

A few weeks ago, Your Editor received the Texas-only data from a recent essay on the "influence" of each state's highest civil and criminal courts around the nation.  I learned some tres interesting stuff.

Methodology.  Let's look at how the essay measured influence first.  Jake Dear and Edward W. Jessen tallied all decisions, between 1940 and 2005, that the folks at Shepards desiginated as "followed" by another state's highest civil or criminal court at least three times.  It then ranked each state according to how often its court or courts of last resort met the three-or-more-times-"followed" criterion.

Some have criticized the methodology.  Several supposed that it gives undue weight to rulings that expand liability -- by, say, recognizing new causes of action.  That, they suggested, explains the disproportionate number of liberal jurisdictions at the top.  Places, in rank order for 1986-2005, like California, Washington, Massachusetts, Kansas (oops), New Jersey, Arizona (oops again), and Colorado (triple oops).

Lead paint me skeptical.

T for Texas.   Which brings us to that Texas data I mentioned at the outset.  It shows a fascinating -- and in its way encouraging -- phenomenon:  The Supreme Court of Texas  (official site here) wielded by far the most influence during the six years when a balance of Democratic and Republican justices sat on it.

From 1940 until 2005, the Court issued 16 opinions that attracted the full agreement of a non-Texas high court on a point of law at least three times.  The relevant decisions line up thus:

1940 -- 1
1970 -- 1
1984 -- 2
1985 -- 1
1993 -- 1
1994 -- 3
1995 -- 3
1996 -- 1
1997 -- 1
1998 -- 1
2001 -- 1

As you can see, during the six years from 1993 through 1998, the justices rendered 10 of the 16 decisions that won three "followeds" in the 65 years between 1940 and 2005.  That comes to 62.5 percent in less than 10 percent of the survey period.

Dems/Repubs.  What made one six-year period so remarkable?  Let's add the number of Democrats/Republicans on the Court in each of those years:

1940 -- 1   9/0
1970 -- 1   9/0
1984 -- 2   9/0
1985 -- 1   9/0
1993 -- 1   5/4
1994 -- 3   5/4
1995 -- 3   4/5
1996 -- 1   3/6
1997 -- 1   3/6
1998 -- 1   3/6
2001 -- 1   0/9

Hmmm.  In every one of the years from 1993 through 1998, the Court's composition included a substantial number of justices from each of the major political parties.  And the Court's two most prolific years, 1994 and 1995, happened just at the time of greatest uncertainty about which party would hold a majority.

The good news for balance on the Court unfortunately doesn't obscure the overall bad news.  As Blawgletter reported recently, the original essay ranked the Texas high courts -- including the Court of Criminal Appeals -- fourteenth for 1940 through 2005 and twentieth for 1986-2005.  But a fresh look at the data prompted the authors to adjust the rankings.  Texas fell to twenty-seventh and twenty-third for the same periods, respectively, as a result.  The UC Davis Law Review recently published the update.

What've we learned?  Three things, I think.  First, that having to listen to and consider colleagues' differing views, as the Texas justices had to do from 1993 through 1998, produces higher quality decisions.  Second, that, due to the extraordinary Court of 1993-98, the Court's performance improved from the period 1940-1985 to the period 1986-2005.  And, third, that making judges run for office in partisan elections may diminish their freedom to act as neutral arbiters.

 
Consumers spend trillions of dollars in small transactions.  Class actions can help keep the sellers honest.

A question of leverage.  Chief Justice John G. Roberts volunteered the other day, at a moot court competition, that "a class action is a dramatic departure from the normal rules of litigation." He went on to suggest that the device serves merely to increase plaintiffs' leverage in settlement talks.

Hmmm. True, aggregating small claims of thousands (or millions) into one class case does increase the plaintiffs' bargaining power relative to the defendants'. True also that almost every civil case settles. But does the Chief Justice see aggregation -- a "dramatic departure from the normal rules of litigation" -- as a bad thing?

His Honor's remarks do suggest that he tends to see more downside than upside. Why else would he call a 42 year-old procedure that originated in old equity practice "a dramatic departure"? Why else would he stress its plaintiff-side leverage-enhancing properties?

Consumer friendly.   A counterpoint to the Chief Justice's skepticism about class actions came in the form of a Second Circuit decision.  In Ross v. Bank of America, N.A. (USA), No. 06-4755 (2d Cir. Apr. 25, 2008), the plaintiffs, representing a putative class of credit cardholders, sued 20 of the largest issuing banks under section 1 of the Sherman Act for conspiring to use arbitration clauses that prohibit class actions.  They alleged:

Why should strangers benefit?  But that, too, strikes Your Editor as problematic.  How can you justify a civil lawsuit that benefits -- only or even mostly -- strangers to it?

Under usual principles of "standing", you can't.  But what happens if you do have a group, or class, who did suffer loss from a defendant's wrongdoing?  Should the wrongdoer go free because few class members submit a proof of claim or because the cost of writing and mailing checks would consume the face amount?

The ALI says no.  I agree.  And I especially see little or no danger of abuse in cases that go to judgment or in ones that end in settlement and distribute residual funds in cy pres fashion after most of the money goes to class members.

Problem cases.  The worries come in lawsuits that settle for a purely cy pres remedy.  Because in those cases the rigor and discipline of litigation play a weaker role.  Class members may not care about funds they won't receive.  Settling defendants probably just want to get the process over with.  Class counsel shift focus from maximizing the recovery to getting something for their efforts.  And judges have few guideposts on where to send the cy pres funds.

The ALI's tentative draft addresses the concerns in two principal ways.  First, by providing that residual settlement funds "should presumptively [go] . . . to participating class members unless the amounts involved are too small to make individual distributions economically viable".  Id. sec. 3.07(b).  Second, by allowing for (but not requiring) a "cy pres approach if the parties can identify a recipient involving the same subject matter as the lawsuit that reasonably approximates the interests being pursued by the class."  Id. sec. 3.07(c).

Attack the bar.  The American Enterprise Institute, on the other hand, sees cy pres as a problem of enriching "the plaintiffs' bar":

[The Class Action Fairness Act] bases fee awards in coupon settlements on the actual redeemed value of the coupons; if coupons are donated to charity, those coupons cannot be used to calculate a fee award.  The same principle should apply when cash is involved.  Contingent-fee attorneys should be rewarded only for benefits going directly to the class.  Moreover, if a cy pres settlement benefits the plaintiffs' bar directly or indirectly, that settlement should off set the contingent fees.  A $20 million cy pres award to Public Citizen or the Impact Fund should count as part of the attorneys' fee award, not as a justification for additional attorneys' fees.  Such a mechanism would give plaintiffs' attorneys the proper incentive to align their interests with those of the class when devising a settlement:  if the class members do not get paid, the attorneys do not get paid.

I think the AEI's solution confuses the process of negotiating a maximum settlement amount with class counsel's fee application.  Those are separate things.  Indeed, if class counsel ask for a fee guarantee before the parties arrive at the settlement amount, the defendants' counsel should so advise the court.  Absent such collusion, the "common fund" that class counsel created is the total settlement amount.

The AEI proposal also conflates class counsel with "the plaintiffs' bar".  Perhaps repeat defendants view private lawyers who serve as class counsel and public interest groups such as Public Citizen as a monolith, but class counsel don't see the world in that way.  A dollar to Public Citizen buys no groceries for class counsel.  It's a fantasy to think otherwise.

Solutions, please.  Your Editor applauds debate about cy pres as a way to redress wrongdoing.  The remedy is explicitly imperfect.  Let's try to make it better, shall we?