Unused and Probably Unusable

Since it's relevant, here's an even older link, familiar to class action lawyers in the Third Circuit but maybe not to everyone else: the Third Circuit Task Force on the Selection of Class Counsel (PDF) issued its report a few years back, but almost as interesting is what the Task Force weighed.

See the Witness Statements and other Q&A (warning: many interesting links herein). Judge Arlin Adams' (link goes to Oral History interview) lengthy comments are particularly intriguing, but there were some very heavy hitters in that crowd.

The danger is really a conflict of interest: if a law firm has an incentive to settle more cheaply, because they won't get paid unless they do, their interests really diverge from that of the class, which "wants" the best possible recovery. It's a conflict of interest, even if the firm won't be paid at all unless the class recovers _something_, because once the firm makes back its sunk costs it has far less interest in the incremental dollars.

Worse, if a small and highly skilled firm does the necessary spadework to determine that a particular case has sufficient merits and sufficient damages to make it cost-effective to file a class action, and a much larger or richer (but much less specialized or capable) firm follows on in 24 hours, they can "outbid" the highly skilled small firm, stealing the prize and wasting the investment of time and money spent investigation and evaluating the claim. See, for example, some of those witness statements, above.

Such free-riding threatens the incentive of these specialized firms to investigate and file those class actions.

Not all class actions depend on headline-reading; some involve careful analysis and interpretation of public but opaque information, coupled with the excellent reputation for work in that area which will draw potential plaintiffs with relevant information to seek out the firm. Derivative shareholder suits for a drop in stock price immediately following the indictment of the CEO for false statements are one of the "race to the courthouse" types of class actions. Inevitably there will be multiple filings, so long as it is not prohibitively expensive to file. But not every case is that kind.

Howard Bashman's insightful December, 2001 summary of the Task Force Report is available here.