Josh, I have put my comments and questions throughout. I think there are two possible ways of going forward. 1. You write some responses to my comments and I do a rewrite based on that. 2. You do revise after reading my comments and I rewrite from there. I will say as a preliminary matter that my knowledge of both product liability class actions and micro-economics is rudimentary at best, so a number of my comments are going to reflect an ignorance of the inner workings of the subject matter. If your essay is meant to be geared at a more sophisticated audience then some of the comments can probably be ignored on those grounds. If it was meant to be geared at someone of a less sophisticated level, you may take them as the questions that a layman might have when faced with your essay and address appropriately.

Products Liability Class Actions – Placing the Power in the Wrong Hands

-- By JoshLerner - 17 Apr 2010

Each class action is its own natural monopoly. The class action plaintiffs firms have banded together to create an additional barrier to entry in the larger market, which leads to harmful results for consumers. The current system has judicial regulation, which has proven largely ineffective and like other natural monopolies it would be better suited to legislative regulation or complete government control.

Not sure this is what a natural monopoly is. In order for it to reach monopoly status it requires a specific intervention of the government i.e. binding unwitting plantiffs to the outcome barring an opt out. Absent govt intervention a monopoly would not exist, so it is not a natural monopoly. I might be wrong, but to me it seems more like an artificial monopoly, like a patent. If that is the case, there may need to be some discussion as to whether the current system of class certification is really the problem in need of reform.

There already is judicial regulation as you have noted and note in more detail below. So what additional regulation would you like to see? What should the legislature do?

What would "complete government control" look like? Is there anything comparable to it in existence today?

Product Liability Class Actions are Natural Monopolies

Product liability class actions each operate as a natural monopoly. Instead of individuals each filing their own lawsuit they join together and reduce the average cost of litigation. There is a high initial cost to litigating a products liability claim, but virtually no cost in adding in additional parties, making one large suit the efficient outcome.

It seems to me the primary reason there is almost no cost to adding more plaintiffs is because the court mandates participation not because, as generally in a natural monopoly, there are very high initial fixed costs and very low marginal costs. If the laywer had to actually market the service there quite possibly would be high marginal costs for each plaintiff (commercials, paperwork, investigation of individual claims).

We should turn the litigation process over to government regulation like we do with many natural monopolies. The water, electric and subway systems have all been subject to strict legislative regulation, negotiation or being run by the government. The products liability class action market should similarly be regulated or taken complete control over. If we allow natural monopolies to run unregulated they can charge excessive prices and prove sub-standard services, which is what many products liability class action firms do.

Again, I am not sure what types of regulation you have in mind or what a government take over would mean.

Two Barriers to Entry

The first barrier is to a specific litigation. Once a case is filed and class counsel appointed by the judge that counsel then has control of the litigation. They are given a monopoly over that specific litigation (like being given a contract to supply water to a city).

A slight exception to note is that there may be multiple cases with the same claims in different courts (generally different state courts since federal claims can be transferred and consolidated). In these instances there is no competition for the approval of consumers, but rather a perverse incentive to participate in reverse auctions with product manufacturers and settle for cheap.

I am not really clear on what the purpose of this paragraph is. Admittedly everything I know about reverse auctions is from this website. If it is just to note that there could be simultaneous state court claims for the same defect I think it could be removed and the space better used to explicate your first prong since you currently only spend two sentences on that.

The second barrier is to entering the larger market of firms supplying products liability lawyer services. In large products liability cases many individual actions will be transferred and consolidated into one district as a Multi-district Litigation (MDL). Once consolidated, the firms each file lead counsel papers. The judge will then select a leadership structure.

Firms negotiate among themselves to decide who will be lead counsel or on an executive committee. Often times these negotiations even incorporate other pending cases (“I’ll support you for lead counsel in X if you support me for lead counsel in Y”). The products liability plaintiff’s bar is a group all too familiar with one another.

If a new firm should try to enter they will generally be excluded by the other members unless they participate in the group’s pricing scheme and play by the group’s rules. When a judge is faced with 10 experienced law firms working together and one independent, inexperienced firm trying to become lead counsel on their own, the choice for the judge is easy. Through this procedure the plaintiff’s products liability bar has been able to create a cohesive group that by themselves handle virtually all of the large products liability cases in the United States. (a cite might be valuable here as in a few other places where there are fact based claims central to a given point)

If firms play by these rules can they then join and get cases? Or is it really irrellevant and it is just an old boys club?

Harmful Results

The results of the current system are that class action law firms take advantage of their monopoly power and gouge the clients they are supposed to represent. Lawyers bill up to $1,000/hour and their fees are usually a portion of the settlement even if that number is many multiples of their lodestar. They frequently negotiate settlements that do little for their clients, but benefit the firms. (a cite might be good here too)

Going to trial is often against the interests of the class action firms who will spend thousands if not millions of dollars litigating. (I would think settling is in everyone's interests, clients included, assuming the settlement is good.) They are often eager to settle as early as possible and will take settlements not in the best interest of their clients. This is supplying sub-standard services, like a water company providing dirty water because you have no alternative to turn to for your water supply once they have been selected as the city’s supplier. (Aren't judges already empowered to evaluate when this is happening?) Of course there are firms that conduct themselves with altruistic goals and many non-profits organizations have taken up suits, but these remain the exception rather than the trend.

(Note: opt-outs and objections of course exist, but imperfect information and lack of individual incentive lead to them rarely being used)

Judicial Regulation

The only check on the current system is that judge’s must approve class counsel and must approve all class settlements. The judicial branch is not appropriate for performing the regulation of a natural monopoly because it has conflicts of interest and it does not have sufficient power to appropriately regulate or assume control of the market.

What power are they missing. You have identified three major problems so far: Counsel accepting inadequate settlements, counsel over billing, and the selection of counsel favors established firms. It seems that judges are empowered to act on all of these issues with broad discretion. If that is the case then judicial power is not insufficiently strong, just insufficiently exercised.

Judges are faced with the difficult task of both ruling on the appropriateness of settlements and making decisions that affect the value of the settlement. Imagine a judge throwing out a settlement as unfair to a class of consumers and the following week granting summary judgment in favor of the defendant product manufacturer. These decisions should be made independently by separate actors. Judges are also often too anxious to get large cumbersome MDLs off of their dockets and a settlement presents a great opportunity to do that. The conflicts created make judicial regulation inappropriate.

I am not sure judges being lazy (i.e. wanting to clear their dockets of complicated cases) is a true conflict of interest like owning stock in a company is a COI, its just judges being lazy. I don't know how giving it over to a different impartial abitrator would resolve this COI.

As to the point about separating judging the settlement and summary judgement motions: couldn't it just as easily be said that a single judge have a better perspective to recognize the ridiculousness of such a result? You could very well be correct that it would be better to separate these roles, but the reasoning for that does not come through here. I see either alternative being just as plausible.

The judiciary also lacks the power to negotiate settlements on behalf of consumers or to litigate on their behalf. They can only approve or disapprove. While judges do have expansive authority in setting legal fees, they can’t take over control of litigation, seek out outside counsel or do anything substantive on the consumer’s behalf. The judiciary must be neutral in the litigation process and a pro-consumer bias is required for someone to appropriately represent their interests.

This paragraph does establish that judges are not a good choice as plaintiff's council, but it doesn't indicate who would be other than the current plaintiff's bar who do have a pro-consumer bias and incentive to get bigger judgements for plaintiffs to a certain extent. This paragraph is pointing in the direction of a government run plaintiff's bar, but falls short of calling for that so it is hard to judge the reform being called for.

Conclusion

Products liability class actions require government regulation or ownership in order to prevent plaintiff’s class action law firms from taking advantage of their market powers to take advantage of consumers.

This essay identifies that there is a serious problem with the way product liability class actions are handled in this country. However, it seems that in 1000 words it is very difficult to both establish what the major failings are and propose substantive solutions. I think it would be improved if there was more discussion of what actual reforms are necessary. Something as large scale as government ownership of products liability class action can't just be hinted at as a solution without any substantive discussion because it raises many, many more questions than it answers (even setting aside the political impossibility of such a proposal). My suggestions are:

1. Take another look at natural monopolies. I very easily could be wrong saying this is an artificial monopoly, but I think it is at least worth a look because it is certainly not a "traditional" natural monopoly.

2. If it is a natural monopoly think more about what the importance of that is and how much time you need to spend explaining it or how useful it is to detailing the problems and solutions.

3. Spend more time on the proposed solutions. I don't think I could clearly explain what types of legislative regulations you have in mind right now.

4. Consider whether or not you want to include government take over at all. It is interesting to discuss when coupled with the natural monopoly analogy, but given all the questions it raises and its political improbability, it may be better left out. But at the very least it too needs more explanation.

5. Cite more. I felt at time that there were claims that are very likely supported somewhere, but I was forced to take them at face value.