The-Ave.US

A federal judge made headlines last week by rejecting a $324.5 million settlement negotiated by attorneys for tech giants Apple, Google, Intel, and Adobe, and 64,000 present and former employees who claimed they were underpaid by the firms as a result of a labor-market-rigging conspiracy.  Lucasfilm, Pixar, and Intuit settled similar claims against them last year.

The judge cited “strong evidence” the firms secretly agreed not to hire each other’s employees, which enabled the companies to pay workers less by rigging the competitive market for their labor.  The settlement covers a 5-year period (2005-2009).

The employees sued for $3 billion.  Under the deal their lawyers agreed to, payments to the employees would average about $4,000 — roughly $800 per year or $67 per month — while their lawyers would collect $82 million in fees.

Settlements aren’t binding on courts or judges.  A judge has authority to reject the parties’ agreement, and the judge did so in this case, because she thought the settlement was too small.  Unspoken but implicit in this ruling is that the employees’ attorneys did not fulfill their duty of representation to their clients, but instead sold their clients claims cheaply to assure themselves of a lucrative fee.

There are several points to make here.

First, class-action lawsuits are a profitable business for well-heeled law firms with resources to handle big cases.  Obviously this sort of thing is out of reach for most lawyers, and only a handful of firms and lawyers benefit from the big fees generated by mass claims involving thousands of victims.  From these lawyers’ perspective, it doesn’t matter whether the plaintiff class consists of wronged shareholders, injured consumers, or employees cheated out of wages; their only concern is whether there’s a deep-pocketed defendant to go after.   The quality of these cases varies; some are only worth a nuisance settlement, while others involve huge injuries (e.g., the asbestos and tobacco cases, and dangerous drug and defective auto cases).

Second, it’s common for class members to get laughably small individual settlements.  For example, a typical shareholder suit settlement might pay $25 to someone who lost $10,000 on a stock.  I tear up class action notices, because it’s not worth the trouble of filling out and mailing the forms.

Third — and here’s the rub — what a claim is “worth” is a judgment call, and it’s very hard for the average person to second-guess lawyers’ decision to settle for a given amount.  The lawyers will cite “litigation risks,” additional delay in getting compensation to victims, tand so on.  There’s also the intrinsic squishiness of trying to calculate what an injury is “worth” and what the injured party “ought” to get.

Fourth, and this should be apparent by now, there’s an inherent conflict of interest between the lawyers and the class members they represent.  The lawyers’ self-interest is to assure themselves of a fee with minimum risk, expense, and delay.  Although the lawyers get more when the clients get more, their interests really aren’t aligned very much, because the lawyer is really oriented toward the quick and sure payday at the expense of what their clients might have gotten from a prolonged fight.  The legal system’s answer to this is giving the judge authority to reject the settlement and require the parties to renegotiate it or go to trial.  It may be imperfect, but it’s a safeguard of sorts, provided by the legal system to justice-seekers who need protection from their own lawyers.

I can’t offer suggestions for improvements.  It’s the best system that very smart people who devoted much thought to the problem could come up with.  Class action lawsuits arguably have a deterrent effect on corporate misbehavior (this is debatable considering how much corporate misbehavior there is), even though they usually are of little actual benefit to anyone but lawyers.

In the Silicon Valley case, the plaintiffs demanded $3 billion, nearly $47,000 per employee.  That’s probably a better approximation of what the employers’ illegal collusion cost them than $4,000.  It can’t be said that settling for 10% of what the companies took from their employees is justice, nor will such a settlement have any deterrent value.  Allowing a thief to keep 90% of the loot encourages more theft.

The system itself is largely to blame for such outcomes, but our focus in this article is on how lawyers representing class members exacerbate the system’s shortcomings by putting their own interests above their clients interests.  You could argue that without the class action system, these and other victims would have no recourse at all, and that’s probably true.  The only real protection the victims have is a vigilant judge.  That’s better than nothing, but leaves something to be desired, and often leaves victims frustrated with our legal system, which after all is supposed to embody the ideal of “justice for all.”

I say “supposed to” because justice is not, in fact, the primary goal of America’s legal system.  Most people fail to understand the legal system exists to resolve disputes so people can move on and the world can go about its business.  Justice is secondary.  It’s not a mirage; it does mean something, or the judge in the Silicon Valley case wouldn’t have intervened, but even her thinking is weighted toward getting this dispute resolved.

There will never be perfect justice as long as negotiation and settlement is part of the legal process, because there’s no reason for a defendant to negotiate unless the claimant is willing to give up part of his/her claim in return for a certain and more expeditious resolution.  Even if juries decided every case, perfect justice would remain elusive, because juries are imperfect.  The question for our contemplation is how much imperfection we should be willing to accept in an inherently imperfect world.