Appeal Case Puts Class Action Lawsuits Under Microscope

class action under the microscope

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Most American consumers have either received an email or postcard about a class action lawsuit or seen commercials from various legal forms informing the general public about these lawsuits where a collective group sues another entity, with the prominent class action suits being against corporations.

These lawsuits have come under criticism for a variety of reasons. One claim is that abusive, overly-litigious claims do harm to the legal process, especially to legitimate claims as opposed to frivolous lawsuits. While this concern was supposed to be addressed by the Class Action Fairness Act of 2005, another criticism which made legal headlines recently is the tendency of attorneys to charge excessive fees through deals with the defendants which actually end benefiting everyone but the “class” the attorneys are supposed to be representing.

Glucosamine may not Support Cartilage, but the Class Action Supports Attorneys

A recent class action settlement in the United States District Court for the Northern District of Illinois was called into question at the Chicago-based U.S. Seventh Circuit Court of Appeals.

The original class action suit was filed against NBTY, an American manufacturer of vitamins and nutritional supplements, and Rexall Sundown, a unit of NBTY, alleging that they falsely claimed glucosamine could rebuild cartilage and lubricate joints. Six lawsuits were originally filed by separate legal firms when studies surfaced suggesting the supplement wasn’t as effective as proposed. The six suits combined into one. Per 7th Circuit Court of Appeals case Pearson v. NBTY, “it is typical in class action cases of this sort … for the multiple class counsel to negotiate a single nationwide settlement and agree to submit it for approval to just one of the district courts in which the multiple actions had been filed.”

Enter the Northern District of Illinois, Judge James B. Zagel presiding. Zagel found in favor of the plaintiffs, awarding $20.2 million. The catch is that only $865,284 of that went to the class members in the lawsuit.

So where did the rest of that money go? Here is where the Court of Appeals Judge Richard Posner found in favor of the objectors, led by class member Theodore Frank of the Center for Class Action Fairness.

The Breakdown of the Class Action Settlement…and the System

When Judge Zagel made his decision, the $20.2 million settlement broke down as follows. Well, to not get ahead of the issue, here is where the proposed figure came from to begin with. The attorneys for the various firms figured that if all of the plaintiffs who were contacted went through what 7th Circuit Court of Appeals Judge Posner called “needlessly elaborate documentation” for their claims (which would be $3 per bottle for up to four bottles, $5 for up to ten bottles if they had kept their original receipts), the total to NBTY would be $14.2 million. Of the remaining $6 million, $1.5 million would go to the cost of the firms sending notice to the plaintiffs and $4.5 million to the attorneys.

In what Zagel believed to be a reasonable decision, he lowered the $4.5 million to $1.93 million, a paltry $538 per hour for billable time.

So the other $2.57 million would be distributed among the class members, right? Wrong. The extra $2.57 million would go back to NBTY. Herein lies part of what Posner criticized about class action suits, but it wasn’t the first aspect of such suits that he criticized.

The first flaw in this system of figuring a class action settlement deals with including the fees and costs in the settlement at all, something Posner called “costs, not benefits.”

In addition, referring back to the lengthy process to file a claim, Posner stated that it was unreasonable to expect every plaintiff to file a claim. In reality, only 30,245 of the potential 12 million plaintiffs went through the process. This resulted in a total reward for the class members of $865, 284. Posner said this difficult filing process was beneficial to Rexall and the attorneys, “because the fewer the claims, the more money Rexall would be willing to give class counsel to induce settlement.” Posner made several suggestions to remedy this quagmire, including having Rexal simply mail checks to the people who received the class action notification postcards.

When it came to the attorney fees, Zagel claimed the $1.93 million was a reasonable number because it represented an allowable 9.6 percent of the aggregate value of the award. However, that percent was based on the $14.1 million. When compared to the actual award, it represents closer to 69 percent.

Putting that aside, Posner also said the fact that $1.93 million represents approximately $538 per hour seems grossly exaggerated given what he called “routine trial preparation.” By the way, the originally proposed $4.5 million would have been $1254 per hour. And if you’re keeping track of the numbers, the attorneys received more than twice what the class members received.

Perhaps the largest criticism relates to the larger practice of what is known as a reversion or “kicker” clause, wherein the defendants (in this case, NBTY) are remitted any portion of the fee that the judge didn’t authorize (the $2.57 million). Forbes magazine called the practice by class action lawyers “a clever way to keep busybody objectors like Ted Frank … from breaking up their deals,” stating that class members have nothing to gain by challenging the attorney fees since any overage doesn’t benefit them; it just goes back to the defendant.

Posner also made a couple of suggestions to remedy this practice, including a rule that the fee should be judged according to what class members actually received and the fee itself. He stated that adding fees into the equation “gives class counsel an incentive to design the claims process in such a way as will maximize the settle benefits actually received by the class, rather than connive with the defendant.”

Posner also proposed a rule where judges would appoint an independent auditor to evaluate billing rates.

For class members everywhere, hopefully Posner’s decision and recommendations will have an impact of the future of legitimate class action lawsuits.

Kansas, U.S. Sixth Circuit Delay Same-Sex Marriage Progress

Sixth Circuit delays same-sex marriage progress

Photo: Jeff Belmonte/Wikimedia Commons

A little over a month ago, in a move that seemed to be opening the floodgates for legal same-sex marriages nationwide, the United States Supreme Court declined to hear an appeal from the State of Utah and four other states regarding their bans on same-sex marriage after those bans were ruled unconstitutional by the U.S. Court of Appeals for the Tenth Circuit. The Supreme Court declined without comment, but it was generally understood that they declined to hear the case because at that time, there was consensus among the federal appeals circuits.

However, a recent ruling by the U.S. Court of Appeals for the Sixth Circuit to uphold bans in four states and an application to the Supreme Court from the State of Kansas to delay the issuance of licenses for same-sex marriage may just force the Supreme Court’s hand to finally weigh in on the issue. While many members of the LGBT community celebrated the rulings against bans on same-sex marriages, many are also in agreement with the opposition that the only way to truly settle this issue is for the nation’s highest court to address it.

Same-sex Marriage in Utah

While the ABA Journal is calling the Kansas case “one of the fastest same-sex marriage cases to develop,” here in Utah, it has been a 10 year battle. In 2004, voters in Utah approved Amendment 3 to the Utah State Constitution. This amendment defined marriage and its subsequent benefits as strictly between a man and a woman. The constitutionality of Amendment 3 was challenged based on the Equal Protection Clause of the 14th Amendment of the U.S. Constitution, and ultimately on Dec. 20, 2013, U.S. Fifth District Judge Robert Shelby ruled Amendment 3 unconstitutional.

During a 17-day period between Shelby’s ruling and the State of Utah issuing an appeal to the Denver-based 10th Circuit Court of Appeals resulting in a stay, approximately 1,300 same-sex marriage licenses were issued. In June 2014, in a three-judge panel review, the Court of Appeals upheld Shelby’s ruling.

The State took their appeal to the U.S. Supreme on two issues: whether states should have the ultimate right to make decisions regarding issues of marriage, and if an actual right existed in the U.S. Constitution protecting same-sex marriage.

The Supreme Court’s refusal to hear the case upheld the 10th Circuit Court of Appeals decision that Amendment 3 was unconstitutional.

How Kansas Believes They are an Exception

Kansas also falls into the 10th Circuit, which means the same ruling would apply to them. Federal courts in Kansas are bound by the ruling. After a federal judge in Kansas struck down the state’s ban on same-sex marriage, state officials cancelled their plans to hold a hearing regarding marriage licensing and instead put a temporary hold on all marriage licenses via the Kansas Supreme Court while they could call for new briefs on the issue.

The Kansas federal judge’s striking down of the ban on same-sex marriage was supposed to go into effect on Tuesday, Nov. 11, but on Monday, the state filed an application with the U.S. Supreme Court for a delay in same-sex marriages. Kansas stated they are different than the other cases which the Supreme Court refused to hear because they believe the move by the federal judge interfered with the state supreme court’s review of the matter which was already underway.

The application was filed with Supreme Court Justice Sonia Sotomayor, who also handles emergency legal matters for the 10th Circuit, and on Monday, Sotomayor granted the request to delay issuing same-sex marriage licenses while the state appealed to the 10th Circuit.

How the 6th Circuit Decision Delays Same-Sex Marriage Progress/h3>

When submitting their application to Sotomayor, the state of Kansas relied heavily on the decision on Nov. 6, 2014 by the U.S. Circuit Court of Appeals for the Sixth Circuit to uphold the ban on same-sex marriage in four states: Kentucky, Michigan, Ohio, and Tennessee.

Previous to this decision, the cause of same-sex marriage was moving forward without many hitches. In the past month, the freedom to marry was awarded to same-sex couples in 16 different states. The decision by the Supreme Court to refuse to hear the appeal case paved the way for same-sex marriage in the 10th and 4th Circuits. On October 7, one day after the Supreme Court decision, the 9th Circuit affirmed the freedom to marry via cases from Idaho and Nevada, setting the stage for same-sex marriage in that district as well. Previous to the 6th Circuit ruling, only 15 states remained that didn’t have the freedom to marry for same-sex couples.

According to the Kansas application, with the 6th Circuit ruling, there is now “irreconcilable conflict” among the appeals courts, so “the final resolution of these important constitutional questions by [the U.S. Supreme Court] will certainly be required.”

Speculation puts this action by the Supreme Court as early as before the end of their term in June 2015, however, it is also likely that it will be pushed to the beginning of their next term in October. Regardless, both sides of the issue believe they have a right to be heard. For supporters of same-sex marriage, they believe their freedom to marry should still be protected by the 14th Amendment. Meanwhile, opponents maintain their argument that ultimately this is a state’s rights issue and that the Supreme Court should step out of the way.

Postal Service Mail Surveillance Raises Legal Concerns

Mail Surveillance raises legal concerns

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In 2013, when former CIA systems administrator Edward Snowden leaked information to the public regarding the National Security Agency and other agencies’ usage of global surveillance programs, including the tracking of email and phone records, many were stunned. However, previous to an audit conducted by the Office of Inspector General and obtained under the Freedom of Information Act (FOIA), a mail surveillance program that has been going on for over a century known as “mail covers” has been slipping quietly under the radar. Results of the audit—including the fact that almost 50,000 requests were made last year to secretly monitor the mail of American citizens—are raising many concerns regarding efficiency and abuses of Constitutional rights.

Not the Only Mail Surveillance Program

Mail covers is a program where postal workers will record information from the exterior of letters and parcels at the request of a state or federal law enforcement agency or the U.S. Postal Service’s (USPS) own investigative branch, the Postal Inspection Service. According to a report by the New York Times, law enforcement claims this method of surveillance is still “a powerful investigative tool,” providing information to the agencies about an investigation target’s businesses, associates, bank records, and even accomplices.

While mail covers is the one of the older mail surveillance programs utilized by law enforcement agencies, it is not the only one. Mail imaging—a process where computers take photographs of the exterior of all pieces of U.S. mail—has been used for several years as a central component of mail processing. According to the USPS, these images are only stored for anywhere from a week to 30 days. However, law enforcement agencies are able to request stored images of mail sent by investigation targets.

Another mail surveillance program came into effect in 2001 but wasn’t made public until 2013 when reports revealed that ricin-laced letters were mailed to President Obama and former NYC Mayor Michael R. Bloomberg. The Mail Isolation Control and Tracking Program was created after the 2001 anthrax scare that killed five people. It allows for the tracking or investigation of mail suspected of containing biohazards such as ricin or anthrax.

Mail Surveillance Inefficiencies and Abuses

According to the New York Times, the requests for mail surveillance come from all levels of government, from global intelligence investigations to state criminal inquiries. While Paul J. Krenn, a spokesman for the Postal Inspection Service, stated that “there has to be a legitimate law enforcement reason” for mail surveillance, according to former FBI agent, James J. Wedick, the program can easily be abused because it doesn’t require a judge’s order or warrant. According to the Inspector General’s audit of the mail cover system, approximately 20 percent of orders for mail surveillance from law enforcement outside of the Postal Inspection Service were not properly approved.

In addition to the apparent ease of instigating mail surveillance, there have also been problems with maintenance of records. The audit revealed that even after orders for surveillance had expired, postal workers were still recording and sending data to the law enforcement agencies who requested them. Of the mail covers audited, 928 of them were still considered “active” even though the order had expired.

Another concern regarding mail covers is the abuse of the system. Typically, the Postal Service is only supposed to grant “mail covers” in regards to law enforcement agencies or issues of national security. However, the audit revealed that13 percent of orders were either unjustified or not correctly documented, and several incidents have come to light proving that regulation of this form of mail surveillance is a serious concern.

In 2011, a county supervisor in Arizona, Mary Rose Wilcox, discovered that the sheriff and county attorney had been using mail surveillance on her. Wilcox believed this was a result of her vocal criticisms of the sheriff’s alleged practice of targeting Hispanics in the area. The sheriff and county attorney used the surveillance information to get a warrant for banking and other information about two restaurants owned by Wilcox and her husband. A subsequent raid of one of the Wilcox restaurants at the local airport resulted in the loss of the contract as well as causing a drop in business at their other establishment. Wilcox sued the county and won in a ruling upheld by the Ninth Circuit Court of Appeals.

Another case involved a San Antonio defense attorney who discovered that the federal prosecuting team was using mail covers to track communication between the defendant and the defense team. While this would seem to be a violation of Sixth Amendment of the U.S. Constitution protecting the assistance of legal counsel (to include private communications between client and attorney), since they aren’t actually reading the mail, mail covers in this situation are not being considered a violation as of yet.

A Commitment to Address Concerns

Other claims of violations of the First Amendment protecting free speech and the Fourth Amendment protecting against unreasonable search and seizure are running into the same hurtles as those claiming Sixth Amendment violations. While reading the actual contents of the mail requires a warrant, simply examining the outside of the packaging doesn’t constitute a violation of a Constitutional right.

Even though this is the case, the audit by the Inspector General brought these issues to light, and as a result, senior Postal Service officials have publicly stated that procedures are being tightened.

“Performance measures and weekly reporting have been put in place to record receipt of outside agency criminal mail cover requests and to ensure timely processing.”