Class actions ending in 'ridiculous results' continue to plague California, critics say

 

SACRAMENTO (Legal Newsline) - Class action lawsuits continue to incite debate in California, especially as they grow in size and scope, and affect more of the state's consumers.

Recent high-profile cases involve Hewlett-Packard and consumers who bought printers and claimed they were misled into misusing ink cartridges; and Apple and consumers who claimed its MacBook power adapters were defective. Another significant class action filed in California pitted Facebook against consumers, who alleged the company misappropriated users' names and likenesses in advertisements.

William Stern, a partner in the San Francisco office of Morrison & Foerster who focuses on the defense of consumer class actions, contends California has always seen a disproportionate share of the nation's class actions. However, he says, their numbers increased in the last five years as more out-of-state lawyers worked with in-state lawyers to bring lawsuits to plaintiff-friendly California.

"People are choosing California as a forum of first choice, or they are partnering and getting admitted here, and bringing suits that, in many ways, have no reason to be here," Stern said. "In other words, even the main plaintiff and company aren't here."

Stern points to a broad interpretation of the California's Unfair Competition Law, or the "Little FTC Act," as the primary reason. In California, he says, plaintiff lawyers find it easier to overcome what in other states would be a problem of "no injury."

In one of his examples, a consumer buys soup, because the packaging describes the contents as "all natural." However, the consumer later discovers the soup contains genetically-modified corn. Because the consumer believes genetically-modified corn isn't natural, she sues the company.

"There is nothing wrong with the product," Stern said. "There is nothing contaminated. It wasn't short-weighted. It wasn't adulterated, toxic or unhealthy. It's just that now you claim what you got isn't what you thought you were getting, and everyone who bought it nationwide over the past four years should get their money back.

"In many states, in many courts, the defendant would say that isn't an injury. It might be a regulatory problem that someone might take offense to, but you haven't been injured in the sense of Article 3."

Stern adds that in most states, these types of class actions don't proceed past the motion to dismiss. However, in California, in both state and federal courts, plaintiffs typically succeed and can move forward with the lawsuit.

"Even if it's a fairly bogus claim, it has value because the next opportunity to get out of the case might be in nine months or a year, and only after you've gone through very burdensome e-discovery that could cost hundreds of thousands or millions of dollars," Stern said. "You may choose instead to take those defense costs and settle."

Kim Stone, the president of the Civil Justice Association of California, agrees that California has experienced a proliferation of class action lawsuits. According to CJAC, more than four class actions are filed each day.

Stone also argues that California maintains laws that are the most favorable to class actions in the country. She adds that her state's class action law differs significantly from federal class action law, particularly with respect to class certification. In California, once a judge certifies a class, the defendant can't appeal the decision until after the trial.

"But nobody goes to trial in class action lawsuits, because they're so big and expensive, so nobody ends up getting to appeal that class certification decision," Stone said.

Stone points out that federal law, as well as many other states' laws, allows the permissive appeal of class certification decisions.

Consumer Attorneys of California President Brian Kabateck represents the other side in the debate, calling the state's class action process fair. He contends that since class certification isn't automatic, many class actions are filed but denied.

Kabateck also sees appellate review of class certification as a vital part of the process for defendants.

"I've had cases where the Court of Appeals agrees to look at the class certification and cases where they don't," Kabateck said. "It isn't an automatic appeal, but it's still a fair alternative to a defendant who believes they have had a bad decision made."

Stone agrees that class actions can serve an important purpose. She explains that in egregious situations, like a company paying its female employees less than its male employees, a class action could be an appropriate remedy. And historically, she says, those such as Brown v. Board of Education secured significant civil rights.

"But over time in California, they've morphed and bastardized consumer class actions," Stone said. "We've had lawsuits in California where they sued Nutella because it wasn't really part of a healthy breakfast, or they sued Netflix because I didn't really get unlimited movies."

Stone adds that many frivolous class actions end with "ridiculous results," where plaintiff lawyers get millions of dollars while class members get a small refund or coupon.

Kabateck offers his own explanation for large attorney fees in class actions. If the class is treated fairly and benefits from the lawsuit, its lawyers deserve payment. He contends that like lawyers who work for corporations, they don't work for free.

"We live in a society where people are compensated for their efforts and their work," he said.

When asked how to solve the problems with class actions, Stone points out that CJAC ran bills in the California legislature to try to improve the law. They all failed in the first committee. Another option, she says, would be a statewide ballot initiative, but it's both difficult and expensive.

In 2004, Stone and Stern helped pass Proposition 64, which limited private lawsuits against a company to those where an individual was actually injured by and suffered a financial loss as a result of unfair, unlawful or fraudulent business practices.

Since then, Stern says, several California Supreme Court decisions have dismantled what voters intended with the initiative.

"Here we are 10 years later, and we're back to where we were before," he said. "Anybody can sue. You barely need a client. All you need to say is you bought it, and if only you would have known 'fill in the blank,' you wouldn't have bought it or you wouldn't have paid as much."