Thursday, January 15, 2004

Study Disputes View of Costly Surge in Class-Action Suits:
"A new study has concluded that both the average price of settling class-action lawsuits and the average fee paid to lawyers who bring them have held steady for a decade, even though companies have said the suits are driving up the cost of doing business, hurting the economy and lining lawyers' pockets."

The issue is a fiercely divisive one that has fueled a heated debate over whether to place limits on class-action lawsuits. Legislation to curb class actions is a priority of President Bush and many Republicans in Congress.

The two law school professors who conducted the study, which was not financed by corporations or by trial lawyers, expressed surprise themselves over the results. "We started out writing an article about fees," said Theodore Eisenberg, a law professor at Cornell and one author of the study, "but the shocking thing was that recoveries weren't up."

Senator Orrin G. Hatch, a Utah Republican and the chief sponsor of a bill that died in October in the Senate, has attacked the current system of class-action litigation as "jackpot justice, with attorneys collecting the windfall." Thomas J. Donohue, president and chief executive of the United States Chamber of Commerce, has complained that "companies spend millions of dollars each year to defend against class-action lawsuits - money that should be used to expand, develop new products and create jobs."

But the new study undermines some of those criticisms. It covers the biggest sample to date of class-action cases, ranging from civil rights violations to securities fraud. Its results, published in a new law publication, the Journal of Empirical Legal Studies, and already circulating, will certainly be used by lawyers trying to head off such legislation.

"This empirical study comes out and says the system is working correctly," said David S. Casey Jr., president of the Association of Trial Lawyers of America, who was in Washington last week meeting with officials planning the body's legislative strategy for 2004. "I'm glad there are empirical studies being done," Mr. Casey said. "The whole effort by what I call the tort reform industry is based on myth and fabrication."…

Reliable data on the total number of class-action lawsuits filed or settled in a given year do not exist. Such data could bolster corporate defendants' arguments that even if the size of settlements is not increasing, the number of cases is rising. The number of suits filed in federal court has risen steadily, roughly doubling from 1997 to 2002, according to the Administrative Office of United States Courts. But state courts probably oversee the most class-action suits, and they produce the least data, said Nicholas M. Pace, a researcher at the Rand Institute for Civil Justice, which studies legal issues for the RAND Corporation.

"People will continue to research this thing for years - and fight about it," Mr. Pace said.

In their article, Mr. Eisenberg and his co-author, Geoffrey P. Miller, a New York University law professor, write that if the effects of inflation are taken into account, then from 1993 through 2002, "contrary to popular belief, we find no robust evidence that either recoveries for plaintiffs or fees for their attorneys as a percentage of the class recovery increased."

According to the study, the average settlement over the 10-year period was $100 million in inflation-adjusted 2002 dollars. It rose as high as $274 million in 2000 - a result of four settlements that year for more than $1 billion each - and fell as low as $25 million in 1996. "The mean client recovery has not noticeably increased over the last decade," the professors wrote.

The study also found that "neither the mean nor the median level of fee awards has increased over time." The average fee rose as high as $31 million in 2000, but exceeded $10 million in only two other years. The professors also report that as one might expect, the larger a settlement, the smaller the percentage allocated to legal fees. For the largest 10 percent of settlements, which averaged $929 million, lawyers received an average of 12 percent. For the smallest 10 percent, which averaged $800,000, lawyers received nearly 30 percent. Fees were higher in cases that were more risky and were higher in federal court cases than in state courts.

"No real-dollar increase in the level of fee awards in major cases over the course of a decade is not the sort of fact we are accustomed to hearing," the professors wrote in the report.

http://www.nytimes.com/2004/01/14/business/14law.html?pagewanted=all&position=

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