Lawyers as lawmakers, privilege, and agency

SSRN Electronic Journal

Unlike ordinary litigation where courts rarely interfere with litigants' contractual relations with their lawyers or intervene in settlement decisions, in class actions courts are required to do both. We focus on one explanation for the court's presumed inability to secure just and fair treatment for class members, namely, the court's inferior information vis-a-vis the class attorney concerning the case's merit or probability of success. Using a mechanism design approach, we identify the maximum expected payoff that a class may obtain when the court cannot observe the case's merit. We demonstrate that when the court can observe the lawyer's effort (the number of hours she spent on the case), the optimal payoff can be realized using the lodestar method-a contingent hourly fee arrangement that is currently practiced in many class actions. When the court cannot observe the lawyer's effort, it can still guarantee the same (optimal) expected payment to the cla...

The restriction of the groups of claimants represented in three recent shareholder class actions — to those aggrieved shareholders who were also the clients of the law firm acting for the class representatives — and the judicial termination of these class proceedings as long as this restriction continued to be employed, both highlight the existence of a number of fundamental problems with the class action regimes that currently operate in the Federal Court of Australia and in the Supreme Court of Victoria. This article provides a critical analysis of this controversial phenomenon.

Columbia Law Review, 1986

Because this Article examines the plaintiff's attorney as an independent monitoring force, a brief review of the development of private enforcement is in order. The term "private attorney general" was coined byJudgeJerome Frank to refer to one who brought an action to "vindicate the public interest." Associated Indus., Inc. v. Ickes, 134 F.2d 694, 704, 705 (2d Cir.), vacated as moot, 320 U.S. 707 (1943). The professional plaintiff's attorney, however, appeared at least several decades earlier. The plaintiff's attorney was probably first able to function as a "bounty-hunter"-that is, as a profit-motivated entrepreneur who is relatively unconstrained by the interests of any specific client-in the context of derivative litigation. For a colorful account of Clarence Venner, the pioneer of the "strike suit" in the first decade of this century, seeJ. Livingston, The American Stockholder 55 (1958) (describing Venner as "a legal Robin Hood," but also noting that this "policeman.. . would sell his nightstick-at a price"). For a representative case, see Venner v. Great N. Ry., 209 U.S. 24 (1908). By the 1930s, the expression "strike suit" was already understood to mean a derivative action whose nuisance value gave it a settlement value independent of its merits. See Note, Extortionate Corporate Litigation: The Strike Suit, 34 Colum. L. Rev. 1308 (1934). The debate over the utility of derivative litigation continues today and shows no signs of abating. See American Law Institute, Principles of Corporate Governance: Analysis and Recommendations 3-14 (Discussion Draft No. 1 1985). The primary locus of "entrepreneurial" private enforcement, however, has shifted away from derivative litigation. During the 1950s and 1960s, skilled plaintiff's attorneys, such as Harold Kohn and David Berger, perfected the antitrust class action. See Bruck, Harold Kohn Against the World, Am. Law., Jan. 1982, at 28. Once again, critics were quick to describe this development as leading to "legalized blackmail." See Handler, The Shift from Substantive to Procedural Innovations in Antitrust Suits-The Twenty-Third Annual Antitrust Review, 71 Colum. L. Rev. 1, 9 (1971). During the 1970s, the recognition of implied causes of action, particularly under Rule lOb-5, resulted in a sudden increase in securities class actions. For a review of the state-of-the-art in this field, see Berton, Auditors' Nemesis: Class-Action Lawyer Beats the CPA Firms 669 COLUMBIA LAW REVIEW the private attorney general a reality in American law today, however, are not substantive but procedural-namely, those rules that establish the fee arrangements under which these plaintiff's attorneys are compensated. 2 Inevitably, these rules create an incentive structure that either encourages or chills private enforcement of law. Over the last decade, as criticism of private enforcement has mounted 3 and the caseload pressure on the federal judiciary has inten-At Their Own Game, Wall St. J., Dec. 4, 1985, at 1, col. I (describing Melvyn Weiss, probably the most successful plaintiff's attorney in the securities class action field). Most recently, there has been a similar explosion of activity in the "mass tort" field, particularly in toxic products class actions that raise complex issues of causation and scientific proof. Considerable publicity has attended litigation concerning Agent Orange, the Dalkon Shield, asbestos, Bendectin, Rely tampons, and, most recently, the Bhopal, India tragedy. For profiles of the "new breed" of plaintiff's attorneys who litigate these actions, see Wagner, The New Elite Plaintiffs' Bar, A.B.AJ., Feb. 1, 1986, at 44. A key characteristic of these attorneys appears to be their ability to make substantial cash investments in an action. For example, in the Agent Orange case, five plaintiff's attorneys each contributed a minimum of $250,000 to a common expense fund, and the plaintiff's management committee spent almost $2,000,000 in expenses over a ninemonth period in preparation for trial. Id. Investments and expenditures at such a level suggest the utility of an economic analysis. 2. Four such legal rules are critical to our current system of private enforcement and are largely unique to the American legal system. First and oldest is the "American rule," under which each side bears its own legal expenses. See Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240 (1975). Economic analysis suggests that the effect of this rule is to increase the incentive to bring an action that has a relatively low prospect of success at trial.

Choice Reviews Online, 2001

The mission of the RAND Institute for Civil Justice is to improve private and public decisionmaking on civil legal issues by supplying policymakers and the public with the results of objective, empirically based, analytic research. The ICJ facilitates change in the civil justice system by analyzing trends and outcomes, identifying and evaluating policy options, and bringing together representatives of different interests to debate alternative solutions to policy problems. The Institute builds on a long tradition of RAND research characterized by an interdisciplinary, empirical approach to public policy issues and rigorous standards of quality, objectivity, and independence. ICJ research is supported by pooled grants from corporations, trade and professional associations, and individuals; by government grants and contracts; and by private foundations. The Institute disseminates its work widely to the legal, business, and research communities, and to the general public. In accordance with RAND policy, all Institute research products are subject to peer review before publication. ICJ publications do not necessarily reflect the opinions or policies of the research sponsors or of the ICJ Board of Overseers.

European Journal of Law and Economics, 2011

This article analyzes class actions as a technology that groups may use in their rent-seeking activity, in addition to other rent-seeking methods such as legislative investment within the political market, when they seek to achieve favorable decisions from decision-makers-courts and legislators. It claims that groups may make their choice between various rent-seeking technologies according to their sensitivity to the problem of free riding. Therefore, it analyzes the effect of the legal instruments that facilitate class action lawsuits and collective litigation in most countries upon the rent-seeking strategies of groups, as compared to rentseeking through legislation.