Recent Developments

Class Action Watch Winter 2002

January 1, 2002

  • On October 12, 2001, U.S. District Judge Orinda D. Evans refused to extend class-action status to a race discrimination lawsuit filed against Georgia Power Company, and its parent, Southern Company. The lawsuit, filed in July 2000 by seven present and former workers, alleges the Atlanta companies "engaged in a pattern and practice" of racial discrimination against African-American employees.

    In her ruling, Judge Evans stated she was "unconvinced" that class-action certification was warranted, noting that the employees "must show not merely that they individually were subjected to discriminatory treatment", but that "[t]hey must show that racial discrimination was the standard operating procedure, the regular rather than the unusual practice." The ruling, a major victory for Georgia Power, does not alter the individual claims of the seven plaintiff employees.

    The most sensational allegation was that Georgia Power tolerated racially hostile workplace conditions, including the display of 13 hangman's nooses at company facilities - an allegation highlighted by high-profile attorney Johnnie Cochran, Jr., a member of the plaintiffs' legal team, at a press conference last April. Judge Evans noted it did appear that "knotted rope was present which resembled a noose" and the nooses likely offended some employees who "attributed racial significance" to them. However, she concluded it was "impossible to say whether any of the nooses where made or displayed out of a desire to offend or intimidate African-American employees." Judge Evans' ruling leaves open the possibility that present and former employees will file individual claims against the company.

  • From Stroock & Stroock & Lavan: The California Court of Appeal recently decided Thayer v. Wells Fargo Bank, N.A., 2001 Cal. App. LEXIS 775 (Oct. 2, 2001), concluding that, under appropriate circumstances, a court awarding attorneys' fees using a "lodestar" method may apply a negative multiplier to reduce the fee award. While not unprecedented, the use of a negative multiplier is nevertheless uncommon; accordingly, the decision may prove useful to defendants arguing for a reduction in fee awards, particularly in cases where a substantial amount of work is duplicated among multiple plaintiffs' attorneys, where the defendant makes a strategic decision to settle early or where the defendant has remedied the allegedly wrongful conduct and plaintiffs' counsel have nonetheless continued with litigation. In Thayer, five separate class actions were filed by nine different law firms against Wells Fargo Bank, N.A. ("Wells Fargo") after Wells Fargo notified approximately 164,000 customers that, as of their next statement, their "free" checking accounts would be subject to regular monthly service and maintenance fees. With minor differences, all five actions sought relief under the Consumers Legal Remedies Act, California Civil Code Section 1750, et seq., and California's Unfair Competition Law, California Business and Professions Code Section 17200, et seq. Concurrent with its first answer, Wells Fargo informed plaintiffs and their counsel that it had changed its position on the monthly fee issue. Six days later, counsel in one of the class actions proposed terms for the settlement of all five cases and, four days after that, Wells Fargo mailed a letter to the 164,000 affected customers reinstating their fee waivers for life. Subsequently, the parties reached an agreement in principle as to settlement, and, shortly afterward, plaintiffs' counsel notified the court that the only remaining question was that of attorneys' fees.

    Wells Fargo did not dispute plaintiffs' right to attorneys' fees; however, protracted settlement negotiations and motion practice, including with respect to coordination of the actions, delayed execution of the settlement by nearly a year. The trial court ultimately awarded attorneys' fees among the nine participating plaintiffs' firms approximating $1.1 million, using a "lodestar" based on attorney time records and billing rates and a multiplier of two, which the court applied to the first and third "periods" of the litigation. After filing an appeal, Wells Fargo entered into settlement agreements regarding eight of the nine attorneys' fees awards. Both Wells Fargo and the sole holdout, represented by attorney Sherman Kassof ("Kassof"), appealed the amount of the remaining award.

    On appeal, Wells Fargo did not challenge the lodestar arrived at by the trial court, but claimed that the amount of time spent on the case by Kassof was unreasonable and that the trial court should have used a negative multiplier. The Court of Appeal agreed. In a harshly critical examination of the course of the litigation, the court determined that duplication of effort was the "hallmark" of the proceeding--observing, for example, that plaintiffs' attorneys spent approximately 20% of their total billed time communicating among themselves, more than twice the time spent communicating with the defendant or court. As to Kassof himself, the court observed that, while plaintiffs in the other cases were "invariably" represented by a single attorney at hearings and status conferences and had effectively designated informal liaison counsel, Kassof and his co-counsel appeared personally on virtually every occasion even though they did little more than concur with the attorneys who made the bulk of the presentations.

    Holding that there was no "reasonable basis" for the trial court's award to Kassof, the court concluded that application of a negative multiplier reducing Kassof's basic lodestar award was warranted. Although the Court of Appeal declined to set the amount of the award itself or give any specific direction to the trial court, the court noted that it was foreclosing the option of denying Kassof any award only because Wells Fargo had not previously made such an argument. As for Kassof's cross-appeal, which the Court opined would qualify for a "chutzpah award" in the Federal Circuit, the Court held that courts awarding fees using a lodestar method where the class recovery could be monetized were authorized to use a positive multiplier based on the amount of the award where appropriate, but were not required to do so.

    While it is difficult to predict the impact that Thayer will have on courts in California, at least two results appear likely. First, despite its unique facts, by expressly endorsing negative multipliers, Thayer likely will serve as a counterweight to existing California case law, where use of a positive multiplier often is taken for granted. Thus, defendants may argue to limit the size of any multiplier used, particularly in non-common-fund cases, even if the use of a negative multiplier is inappropriate. Second, by focusing on the duplication of effort inherent in multiple class action cases, and by castigating the trial court for failing to take a more active role, Thayer may make trial courts more cognizant of the (at least perceived) benefits of active management of class actions and counsel by the courts.

    District Court Judge Kathleen O'Malley preliminarily approved a novel settlement agreement in the Sulzer Medica products liability case. Sulzer produced defective hip replacement implants, requiring up to 4,000 people to undergo additional surgery; claims against the company threatened to put it into bankruptcy. Under the terms of the settlement, injured patients are beneficiaries of a trust guaranteed by a lien on all of the company's assets, and half of the company's annual profits go towards paying them and their expenses. People who opt-out of the settlement and sue on their own wouldn't be able to collect any money for at least seven years, until the lien is dissolved. The architect of this deal to preserve Sulzer is plaintiffs lawyer Richard Scruggs.

  • On August 24, 2001, the Eighth Circuit affirmed the district court's injunction staying proceedings in a parallel state court securities class action. In a two-to-one decision, the Court determined that the injunction did not violate the Anti-Injunction Act, because the Private Securities Litigation Reform Act of 1995 (PSLRA) falls within the "expressly authorized" exception. The Court found it "plain that the lead-plaintiff provisions of the PSLRA create significant federal rights that previously did not exist." It also noted the district court's findings that the state court action was "'nothing more than a thinly-veiled attempt to circumvent federal law'" and "an end run around the PSLRA." In re BankAmerica Secs. Litig., No. 00-2255 (8th Cir. Aug. 24, 2001).

  • Explicit Lyrics on Rap CD Mislabeled as "Clean"
    A single mother is suing Atlantic Records under Maryland's unfair and deceptive acts statute (Md. Code Ann., Com. Law II § 13-101 et seq.) for labeling popular rap artist Trick Daddy's "Thugs Are Us" album as "clean," even though the album allegedly contained explicit lyrics. When purchasing and screening music for her 11 year- old son's graduation party, the plaintiff claims that she looked for and found the "clean" label on the CD, which is an industry indicator that certain harsh lyrics have been dubbed over. The plaintiff's attorney, Jon D. Pels, is seeking to certify the case as a class action. . He explained that "[i]f they [Atlantic Recrds] are going to endorse it [the "Thugs Are Us" album] as non-explicit, we're going to expect it to be non-explicit." Atlantic Records contends that suits like this will discourage artists from participating in the voluntary labeling program.

  • Sony's Phony Ghost Reviewer Praises Sony Movies
    The law firm of Blumenthal & Markham, located in Lajolla, California, has filed a class action lawsuit against Sony Pictures for unfair and deceptive business practices in violation of California Business & Professions Code § 17200 et seq. The complaint, filed in Los Angeles Superior Court, alleges Sony Pictures promoted its films by citing a non-existent movie reviewer. The alleged injuries are that movie-goers have been defrauded and that Sony has gained an unfair advantage over other, lawful movie promotions. The complaint's purpose, contends [first name?] Blumenthal, is not simply to compensate plaintiffs who relied on the fake movie reviews, but to deter Sony from doing this in the future. Characterizations of Hollow Man as "Stupendous" and Sony star Heath Ledger as "this year's hottest new star" were attributed to a reviewer named David Manning, who allegedly writes for the Ridgefield Press, a real Connecticut newspaper. In actuality, there is no movie critic named David Manning at that newspaper (or any other newspaper or magazine?). When informed of this fact, the Connecticut state attorney general said he would consider filing a similar suit.

  • Angelos Files Class Action Against Baltimore Cell Phone Companies
    Baltimore lawyer Peter Angelos filed suit in Maryland, Pennsylvania, New Jersey, and New York, seeking class certification in a suit against cellular phone manufacturers. Claiming no injury in fact, court documents contend that Ericsson, Sprint PCS, Nextel, AT&T, and Verizon promote the use of hand held cellular phones, instead of encouraging use of allegedly safer headsets. Angelos alleges that plaintiff cellular phone providers know that the use of hand held cellular phones increases the risk of brain cancer. Mobile phone companies contend that there is no scientific evidence that hand held cellular phone usage causes cancer. The complaint prays for relief in the form of an industry provision of headsets throughout the state of Maryland, free of charge to all cellular phone owners.