But its cousin has. Potential defendants have not had to create phony cases. The "take a dive" plaintiff class has instead been empowered by the attorney who purports to represent the class -- the attorney for the fair and adequate representative according to the rule -- who is prepared, in effect, to take a bribe in which he gets a lot and the members of the class get very little. Such arrangements are also called "sweetheart settlements with defendants, trading a portion of the compensation due victims for a premium on, or merely the certainty of, the fee recovery." D. Rosenberg, Class Actions for Mass Torts, 62 Ind. L.J. 561, 583 (1987).

For want of statistical evidence, one must become anecdotal, and I report from anecdote that this phenomenon exists. As § 30-42 of the Manual for Complex Litigation Second (sometimes called by the judges the Complex Manual for Litigation) recognizes, "counsel for the parties are the main source of information concerning the settlement." Of course the judge should review the settlement and of course there should be opportunity for protest, but with the backlog of thousands of class actions pending, with presumably all of them before very busy judges, and with judges bringing uneven levels of ability to the task -- not all of them are a Judge Pointer or Judge Weinstein or Judge Higginbotham -- settlements can be perfunctorily swept through.

A recent illustration of an extraordinarily meticulous fee study is that of Judge William Browning in a $600 million matter, largely though not entirely affirmed after close thought in Washington Pub. Power v. City of Seattle, 1994 W.L. 90327 at 9 (9th Cir. Mar. 23, 1994). This was a seven-and-a-half-year case. It took a law clerk one year, full time, to analyze the fee claims and the judge over three weeks to utilize the data and reach his result. As is observed in a very substantial Stanford Law Review article, judicial review of the records in a big case "seems a positively breathtaking waste of an article III judge's time," and this review usually results in "a few generalities about the uncertainty of recovery" and a contingency multiplier. J. Alexander, Do the Merits Matter?, 41 Stan. L. Rev. 497, 578-79 (1991). As has been said in a very constructive analysis, "Ultimately, the most persuasive account of why class actions frequently produce unsatisfactory results is the hypothesis that such actions are uniquely vulnerable to collusive settlements that benefit plaintiffs' attorneys rather than their clients." J. Coffee, Plaintiffs' Attorneys in Class Actions, 86 Col. L. Rev. 669, 677 (1986).

This does not, by any means, always happen. A splendid example is of a large securities fraud case pending in the district court in Louisiana. A settlement was negotiated in which the security holders would receive 1.7 cents return on each dollar invested, minus 25 percent for legal fees, essentially a penny on the dollar. The net return to the investors, in short, was slightly over one percent and counsel fees were proposed to be $7 million.

This one was gross enough to raise a howl and a national television program highlighted it. This led to a protest. The judge did take steps to reject the proposal and a later, different and fairer settlement was worked out. But in most settlements, there is no television coverage and the sense of scandal is not large enough, nor the potential awards great enough, to engender an effective protest.

As this thought has been politely put, "Because the economic interests of the attorney and the class may conflict, the attorney may negotiate settlement terms that do not reflect the interests of the absentee class." Note, Abuse in Plaintiff Class Action Settlements, 84 Mich. L. Rev. 308 (1985). Without any venality, but simply as a matter of business judgment, as Judge Friendly has observed, the attorney may have an advantage in taking a smaller settlement bearing a higher ratio to the cost of work than a larger settlement obtained after extensive discovery, trial and appeal. Saylor v. Lindsley, 456 F.2d 896, 900 (2d Cir. 1972).

The hazard of this conduct was greatly increased by the United States Supreme Court decision in the matter of Jeff D. v. Evans, 475 U.S. 717 (1986). It had previously been the rule in some circuits -- the lead case was from the Third Circuit, Pandrini v. National Tea Co. 557 F.2d 1015, 1021 (3d Cir. 1977) -- that the settlement on the merits and the determination of legal fees must be truly separate episodes so that the merits would be determined at one time and the legal fees at another and later time. This reduced the bribery potential. But the Supreme Court in Jeff D. held that both of these matters could come on at once, so that the defendant could settle with the class and settle with the lawyer simultaneously.

I strongly recommend that legislation reverse Jeff D.

This has not improved the returns to the classes. As Professor Kane has observed with respect to settlement proposals which "explicitly provide for large attorney's fees, . . . the court cannot rely on opposing counsel to assure a full adversary presentation of the attorneys' fee application because, having reached a settlement, the class opponents have no interest in how the fee issue is resolved." M.K. Kane, Of Carrots and Sticks, 66 Tex. L. Rev. 385, 398 (1987). Moreover, as the Ninth Circuit has observed, "the relationship between plaintiffs and their attorneys turns adversarial at the fee-setting stage." Washington Pub. Power v. City of Seattle, supra. For another discussion of "the pressures on class lawyers to settle and obtain fees rather than maximize the benefits to the class," see L. Grosberg, Class Actions and Client-Centered Decision Making, 40 Syracuse L. Rev. 709, 776 (1989). Let me be very explicit. Nothing in this aspect of the fee problem makes the defense attorney look any better than the plaintiff's attorney.

B. Fees.

We have no clear-cut analysis of the extent to which Rule 23 deserves the title occasionally given to it in casual talk among lawyers as the Lawyers Relief Act. The disproportion of the returns to members of the class and the returns to the lawyers who represent them is often grotesque. In many cases, the individual members of the class are entitled to receive at most a dollar or two, while the attorney who secured this benefaction for them can retire on his share of this victory. This Relief Act aspect of course cuts in both directions because the defense bar must also be paid a sizeable sum for its efforts to keep the recovery down. As is developed elsewhere, "the paramount motivation for such litigation [is] counsel's desire to generate substantial fees." Note, Attorneys' Fees in Class Action Shareholder Derivative Suits, 9 Del. J. Corp. L. 671 (1984), citing Zeffiro v. First Pennsylvania Bank, 581 F. Supp. 811, 813 (E.D. Pa. 1983).

The result by the 1980s and the present time, by way of historical development, has been oft times to create a giant churn. The plaintiffs' lawyers are busy, the defendants' lawyers are busy, the courts are busy, and the cream that should rise to the top from all of this churning is frequently only a drop or two for those whom Rule 23 was designed to benefit. For a strenuous attack on counsel fees, see J. Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L. Rev. 497 (1991), giving one illustration of a thousand dollar an hour fee. The article also illustrates the use of special masters as judges try to take control of the detailed analysis of some of these claims.

The common argument in favor of allowing class actions to proceed with pittance returns to the beneficiaries is that this serves as a social regulatory mechanism and helps to avoid future abuses of the general public. Collateral to this is the argument that at least some of these cases are brought by organizations generally well regarded for good works in behalf of consumers or other beneficiaries and that the fees helped to sustain such organizations. However, there has never been a meditated analysis as to whether this form of social regulation for consumers or the environment is better handled by government agencies or by the courts, nor whether the burden on the court system over-balances the value of this indirect form of social legislation and administration.

A different solution to the minuscule recovery and the large fee is the concept of "fluid recovery." The development of this device, largely in the past fifteen years, is set out in J. Solovy and others, Class Action Controversies at 140-42 (1994). For example, when members of the class would get only two dollars a piece, the only winners are likely to be the attorney and, oddly enough, the defendant because nobody applies for these small amounts and the defendant gets to keep the money. Under the developing notion of fluid recovery, there are other forms of charge without any effort to get anything to the individual plaintiffs. Illustrations are price rollbacks, coupons, and other devices; for discussion, see G. Hillebrand and D. Torrence, Claims Procedure in Large Consumer Class Actions, 28 Santa Clara L. Rev. 747 (1988).

I attach as Exhibit B a summary of what appear to be abuses, as well as a couple of recent stories from The National Law Journal and The Wall Street Journal involving the problem of token for the class member and great wealth for the representative.

C. The Class Representation.

1. Who is the representative?

The rule assumed that there would be an honest to God plaintiff or plaintiffs as true representatives of the class. That has become a fiction; the class representative "has been reduced to a little more than an admission ticket to the courthouse and one anecdotal example of the class claim. Class counsel does all major planning and makes the critical litigation decisions." J. Burns, Decorative Figureheads: Eliminating Class Representatives in Class Actions, 42 Hastings L.J. 165, 166 (1990).

The only close analysis in the literature strongly suggesting that no plaintiff is representing the class is the Alexander study in the Stanford Law Review, supra, analyzing nine settlements in securities cases. The stakes in those cases range from $19 million to $95 million. The percentage settlement in seven of those cases range from 20 percent of the stake to 27 percent and four of them are within a two-point spread. The merits of those claims had nothing whatsoever to do with the settlements; the merits could not be so interchangeable. These are cases in which officers and directors are named as defendants and strongly suggest that settlements are made with corporations to get the insiders off the hook.

2. The race for the gold.

The most visibly distasteful aspect of class actions is the race by attorneys to grab the first class claims and thus get to be lead counsel or at least on the steering committee. The ashes from the great fire will not be cold and the corpses barely at the mortuary before someone will have filed a class action; having found one person, dazed but alive, or one widow, the attorney quickly files the action. There is no actual representation of a class at all.

From there on out, the case is churned to warrant more fees. There are cases where the defendant would settle immediately, but is not given the chance.

The development described here is anecdotal and not statistical, but the anecdotes come on high authority. To write this paragraph I have consulted four past presidents of the American Trial Lawyers Association, the number one group of plaintiffs' lawyers. They are unanimous that this practice exists and that it is disgusting; they refer to these speed artists as "The Parachutists." This historical development, they believe, brings shame to the Bar and particularly to their great division of it.

IV. ILLUSTRATION OF CLAIMED SUCCESSES.

Very responsible groups do not share my views on (b)(F). One of those groups is the Alliance for Justice, of which I am a director and for which I have enormous respect. I, therefore, insert here as a balance to my own views - though I am not myself persuaded - the views of the Alliance for Justice on this point, Exhibit C.

V. AMCHEM.

Judge Edward Becker of the Third Circuit Court of Appeals, whose opinion is largely affirmed in the important opinion by Justice Ginsburg in Amchem at the last session of the Supreme Court, has put a needed a major rein on the abuses of settlement classes. The Ginsburg opinion reminds us that Rule 23 sets its own limitations and is to be followed; she puts a sharp check on the endless expansion of the rule by judicial application. She also lays down important restrictions on classes generally and on settlement classes in particular.

VI. RECOMMENDATIONS.

The Congress must decide to what extent it wishes to reconstruct Rule 23 by legislation and to what extent it wishes to leave this to the Rules Committee structure. I personally believe that the rule has become so abusive that running reform on double track is a good idea, and some portions of what is necessary would in any case require congressional action. Specifically:

A. The Approach.

I approach this topic from the liberal standpoint, and have no reluctance about social engineering through law. But the rules structure was not created to make the rules committee into social engineers. If social changes are desired, the Congress and the Executive department through its agencies should take the responsibility of policy and enforcement. I am wholly persuaded of the view expressed by Judge Paul Niemeyer, the present Chairman of the Civil Rules Committee of the Judicial Conference in his response to the parallel Senate committee on this subject. He was asked whether he thought it desirable for Rule 23 to be used as a social tool to enforce laws through attorneys essentially acting as private attorneys generally:

I believe that Rule 23 was never intended to be a tool to enhance enforcement of substantive claims. Rather, I believe, it was designed as a procedural device to facilitate the aggregation of claims for judicial efficiency. Others, however, believe that while judicial efficiency may have been the original intent of Rule 23, the rule has transformed by use into a mechanism to enhance substantive enforcement with the result that it actually supplements or even displaces government regulation. While there is plenty of evidence to support this observation, if it were to be legitimized as a purpose for Rule 23, such legitimization should, in my judgment, be effected by Congress, and Congress might well conclude that it is too anarchial to authorize private attorneys to self-appoint themselves as enforcers of laws without adequate accountability to the lawmakers or to the public.

Response to Senator Grassley, December 16, 1997, Question No. 2.

B. Removal.

The Judicial Code should be amended to permit removal of class actions from state courts whenever an industry involved in interstate commerce is involved. Since John Marshall's time, it has been the interpretation of the diversity statute that there must be total diversity in order for a case not involving a federal question to be in the federal courts. In the famous case of Strawbridge v. Curtis, the Chief Justice made clear that this was a matter of statutory interpretation and not constitutional necessity. While most courts can handle class actions perfectly well, we cannot blink the fact that there have been some gross abuses where an obscure state court gives res judicata effect to a settlement which binds the entire United States.

C. Codify Amchem.

In my view, settlement classes should be abolished; but if we are to have them, then they should, as the Supreme Court has made very, very clear, be held to the same standards as would be a full-scale adversary class action proceeding. I would codify the Amchem case to provide that in considering a proposed settlement class, § 23(b)(3)(D) is inapplicable; heightened scrutiny is required as to 23(a)(4) and the other provisions of Rule 23 apply equally to settlement class actions, as well as to all other class actions. The elimination of (3)(D) means that the court will not need to consider "the difficulties likely to be encountered in the management of a class action" because, as Justice Ginsburg sensibly said, if the matter is going to be settled, there isn't going to be any management anyway.

The provision for heightened scrutiny of the (a)(4) element is the insistence that the court look with great care at whether "the representative parties will fairly and adequately protect the interests of the class." Amchem makes this of special importance because, to put it bluntly, it is in the settlements that the lawyer may sell out the class for the sake of his pocketbook. In all other respects, the settlement class should have to meet the requirements of all other classes.

D. The Opt-Out.

In matters in which it appears that the recovery of individual members of the class, as distinguished from their counsel, is likely to be small, the proceedings should go forward as a class only if the proposed members affirmatively, after notice, express a desire to be included in the action. "Opt-in" should be substituted for "opt-out." The object is to take the romance out of class actions in which putative class members have no wish to be involved. It will take the burden off the court by determining this matter early instead of after extended procedures.

E. Settlement and Fees.

The earlier Third Circuit rule should be made national if there is to be settlement; the fees should be independently considered.

F. "Fluid Recovery."

"Fluid recovery" (that is nothing to the class and some general bonanza to some public interest) should never be allowed. I refer to such devices as an order which gives nothing to the class but which provides that the defendant dairies should lower the price of milk by two cents a quart for a given period of time. Nothing in the Constitution, the Code, or the rules makes the courts proxies for the appropriation committees of Congress or makes them specialized tax collectors for public purposes.

VII. CONCLUSION.

I conclude by attaching as Exhibit D a letter received by me from Justice Hugo L. Black of the United States Supreme Court in 1969. Rule 23(b)(3) was a mistake from the beginning and I take some comfort from the fact that so distinguished a person was of the same point of view.

John P. Frank

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1. ⁰Lewis and Roca LLP, 40 North Central Avenue, Phoenix, Arizona 85004-4429, 602/262-5354. He has received no federal grant, subcontract, or contract from any federal source within the past two years.

2. ⁰ In this section, I am reporting on the commercial and tort cases, not the "good cause" cases, such as the environmental actions.