Earlier this year, Google settled a lawsuit alleging that the company violated users’ constitutional rights by tracking and storing their location data without their consent.

Under the settlement, Google paid $62 million.

Who got the money?

According to Theodore Frank of the Hamilton Lincoln Law Project, the class action attorneys got $19 million and the class got zero.

The rest was directed to a variety of nonprofits, including $7 million to the ACLU, $6 million to the Rose Foundation and remaining millions to the alma maters of the lawyers.

Frank has been challenging that kind of class action abuse for more than fifteen years now.

What was the result of that challenge?

“The district court overruled my clients’ objections and approved the settlement and $19 million fee request,” Frank told Corporate Crime Reporter in an interview last month. “We have appealed that decision to the Ninth Circuit and will file opening briefs in September.“

What are some egregious examples of class action abuse?

“The underlying issue is the principal agent problem between lawyers and their clients in the class action space,” Frank said. “The lawyers are simultaneously negotiating the parameters of the class action settlement, but they are also seeking to maximize their own recovery as attorneys. And you have a defendant who just wants to get out of this as cheaply as possible. The natural way to do things is to maximize what the lawyers get and to minimize what the defendant pays and to freeze out the class members.”

“But because due process and the federal rules require judicial approval of a class action settlement, you can’t just have the corporate defendant cut a check to the lawyers to get rid of the class action. You have to structure the class action settlement to create an illusion of relief. That can be through a variety of mechanisms.” 

“The biggest problem is that the illusion of relief makes it seem like consumers are getting something when in fact they are not getting anything and the lawyers are capturing the lion’s share or even all of the litigation settlement value.”

Let’s say you are on 60 Minutes and you want to make the point to millions of viewers about the nature of the abuse you litigate against. What cases do you raise?

“We won a case in the Ninth Circuit where the lawyers structured a settlement over the labeling of Wesson Oil. Under the settlement, the lawyers would get $7 million and about $1 million would be paid to class members. They justified this because the defendant ConAgra agreed that they wouldn’t use certain labeling on Wesson Oil in the future. They got an expert witness to say that the injunction was worth $20 million.”

“The funny thing about this was that ConAgra had already sold Wesson to another conglomerate and did not have any control over the labeling, so the injunction was worthless.”

How did the company misrepresent the product?

“I think the complaint was they said it was all natural, but there was GMO corn involved.”

How was the million dollars delivered to Wesson Oil consumers?

“They structured a claims process that made it difficult for class members to make claims and only $1 million in claims were made. This is a very common issue in these kinds of cases. You have a settlement. And the defendant says – we could be on the hook for tens of millions of dollars. But they understand with actuarial precision how much they are going to be on the hook for. You give direct notice to consumers, that increases the claims rate. You advertise on the internet, that lowers the claims rate.” 

“How hard is it to make the claim? Do you have to mail it in? Can you do it online? Do you have to show receipts? All sorts of things you can do to dial up or dial down the amount of money actually being distributed to consumers.” 

“When I say actuarial precision – this isn’t an exaggeration. There are companies out there who sell settlement insurance. They are run by experienced lawyers and actuaries who can take a look at a settlement structure and tell the defendant – we think you are going to be on the hook for x. We will sell you insurance for y. If the amount goes over x, we will pay the difference. The fact that they can do that profitably and have people buy the insurance shows that they know what a claims process will go for. Even if the company knows that the total claims will be $1 million, they will tell the court – we have made $50 million available.” 

“We have a case now before the Second Circuit over Cottonelle wet wipes that were supposed to be toilet soluble but weren’t. That was a consumer class action. Kimberly Clark agreed to make $20 million available. But they had a claims process that ensured that class members would get less than $1 million.”

Tell us about the Google location history case from earlier this year. That was a case where people turned off their location history. People thought it was turned off, but then Google collected the data anyway.

Those awards are made under something known as the cy pres doctrine.

“Cy pres is a doctrine originally from trust law,” Frank said. “I create a non-profit to abolish slavery. Slavery is abolished, but my non-profit has all of these millions of dollars left over. What do we do with it?”

“Cy pres comes from the French doctrine meaning as near as possible. You can petition a court to restructure the trust so that instead of paying for the abolition of slavery, you will instead pay for the education of former slaves. The March of Dimes is another classic example of that. They were established to abolish polio. March of Dimes restructures itself to fight birth defects.” 

“You have this cy pres doctrine in trust law. Someone writes a law review article and says – hey, instead of giving money to class members, wouldn’t it be nice if instead you gave the money to nonprofits using the cy pres doctrine? Lawyers started doing that because a defendant that might not want to give money back to consumers and suffer the reputational harm from that might agree to sweep everything under the rug with a donation to a nonprofit that they like.”

“Microsoft had to settle an antitrust case by agreeing to give Windows computers and software to school districts. Otherwise, those districts might have been buying Apple products. So Microsoft was doing it for selfish reasons. But it created the illusion of relief.” 

“Facebook had a settlement where they agreed to create a fund that would give money to nonprofits working for computer privacy. But Facebook would control the nonprofits.” 

“Google frequently has cy pres settlements where the money goes to organizations that otherwise lobby for them in the copyright space and otherwise support Google.”

That’s the abuse of cy pres. Are you opposed to cy pres in principle?

“I’m opposed to it in principle because lawyers are supposed to be working on behalf of their clients. And their clients are the class members. Even though it would be nice to have a cy pres settlement where I give a big check to Harvard Law School and I might attend a big ceremony where I hand over an oversized check, I should in fact be giving the money to the millions of class members who might not even send me a Christmas card.”

Are you opposed to class actions in principle?

“No. I’ve been a class action representative. Class actions are a useful procedural device to aggregate legitimate claims.” 

But you are opposed to cy pres in principle. In many of these class action cases, only pennies are returned to consumers, maybe sometimes a few dollars per consumer. It seems like a good idea to instead of giving pennies or a few dollars to each consumer, give the lump sum millions of dollars to a nonprofit that would seek to bring justice to those consumers on a policy level.

“And that’s certainly the counter argument,” Frank says. “But on the other hand the whole point of a class action is to attack the salami slicing schemes that would otherwise make it uneconomical for a consumer to sue. All class actions are settled for pennies or dollars per class member. There are very few that are settled for hundreds of dollars per class member.” 

“You could hypothetically change the rules so that you don’t have to give the money to consumers, you just give the money to some nonprofit or to the U.S. government or to a legal aid society. But we don’t have that rule.”

“Right now, the attorneys owe a fiduciary duty to their clients.”

“I don’t get to decide that my client is spending money on whatever the pursuits are and his money could be better used elsewhere. If the lawyers want to give consumers an option – they can say – check this box and instead of giving you the $7.76, we’ll give it to the charity of your choice. That’s fine. Then they are doing what their client wants. But what’s happening here is the lawyers are deciding – my client shouldn’t decide. I know how to spend the money better than they do.”

How many class action lawsuits are filed every year in the federal courts?

“It’s definitely hundreds.” 

How many end in settlements?

“If they don’t get dismissed, or if the court refuses to certify a class, then once it gets past those stages, and often even before, the natural inclination is to settle the case. Both sides have an incentive not to want an all or nothing result of a trial.”

These cases generally do not go to trial.

“Yes. You have maybe one or two or three class action trials a year.” 

Of the ballpark of class action cases, how many get dismissed and how many end up in settlements?

“How do you count? We had a case involving Bank of America about overdraft fees. The argument was that these fees are usurious. They act as high interest on the loans to cover the overdraft. The first eight of those got thrown out of court. And on the ninth one, the judge denies the motion to dismiss and Bank of America settles.”

“Is that eight dismissals and one settlement?”

Of the settlements, what proportion would you say are abusive class action settlements?

“There are grades of abuse. There are abuses that are relatively de minimis in terms of the way the notice goes out or the lawyers are extracting an extra half million in fees more than what they normally get.”

“Then you have big abuses like the Google location history case.” 

How many challenges do you file a year?

“Maybe a dozen a year. We see many more abuse cases than that. But we only have a few attorneys. And we also have the constraint where we can’t just show up. We need a class member who wants to complain about it.” 

How often are you that class member?

“A reasonable percentage of the time. It’s just logistically easier because often the parties persuade the court to create all sorts of difficult hoops for a class member to go through before they can object. If I’m the class member, then it’s just logistically easier.” 

“Second, a class member will have five or ten dollars at stake. The attorneys will have millions and millions of dollars at stake. So on more than one occasion, the attorneys have tried to buy off my client and say – we will give your client a big giant check to drop your objection.”

Have you ever accepted that kind of a check?

“We have never accepted that. But if our client says they want to accept that, we don’t have a choice. That has happened.”

When you say buy off, how much money are we talking about?

“Five to six digits.”

Who are the major class action law firms you are up against?

“We have seen Lieff Cabraser a lot. There are a variety of securities law firms. We run up against them in attorney fee challenges. In securities cases, they will submit a fee request that is based on the concept that they have hired dozens of attorneys that they will bill to the class at $500 an hour. But in fact, the underlying attorneys are not doing actual attorney work. They have passed the bar, but they are working for a temp agency and they are reviewing documents for $20 or $30 an hour. It’s work that can be done by a college graduate. But they call it attorney work and bill them out at $500 an hour.”

How high do the legal fees go?

“We took a case to the Supreme Court where the attorneys were asking for several thousand dollars an hour. They can go pretty high. I think there is another case in the federal circuit where the underlying attorney fee request was effectively for hundreds of thousands of dollars an hour.”

Hundreds of thousands of dollars an hour?

“Well, they asked for a percentage of a very large settlement where the case was resolved by a Supreme Court case brought by somebody else. The government agreed to settle and they asked for a fairly large percentage of it.”

Did they get it?

“They got it in the district court. The federal circuit reversed and I’m not sure what’s happening on remand.”

How many of your challenges are successful?

“The majority, eventually, if you include what we win on appeal.”

You say you bring about twelve a year. You’ve been doing it since 2008. So that’s about 180 cases?

“More than 100 and less than 200. We win a case and then they bring a second settlement. Is that one or two objections?”

The case is going to end up in a settlement one way or another. So with your challenges, you are limiting the abuse?

“Right. It’s been over a couple of hundred million dollars more recovered for consumers and shareholders because of the objections we bring.”

When you challenge these settlements, you are challenging not just the class action attorneys but the defense lawyers also, right?

“Absolutely. We sometimes get more aggression from the defense side than from the plaintiffs’ side. You can tell when that happens that the defense thinks they have a big settlement. And they are worried that what we do will blow it up.”

[For the complete q/a format Interview with Ted Frank, see 38 Corporate Crime Reporter 31(12), July 29, 2024, print edition only. ]