Tuesday, May 17, 2011

Glasser v. Volkswagen of America (9th Cir. - May 17, 2011)

It's undeniable that complex issues of constitutional law are sometimes difficult to understand.  Lawyers are generally able to read statutes and rules to figure out basic procedural stuff.  Or read the Rutter Group.  By contrast, figuring out what "due process" or Article III means requires a lot more than just looking at the words.  Which, quite frankly, don't even help much.  And sure, we all took constitutional law in law school, and vaguely recall various things therefrom.  But that doesn't typically get one very far.

Which is a problem.  Because not understanding this stuff can mean you've pled yourself right out of court.

Take this case, for example.  There's a class action against VW alleging that VW failed to disclose how hard it would be for buyers to get replacement smart keys for the vehicle and didn't provide that technology to locksmiths, which jacked up the price for losing the keys to your VW astronomically.  But it turned out that VW hadn't, in fact, done that, and the parties enter into a proposed settlement agreement that basically says so, and that resolves the dispute with token relief to the class (as is typical in these kind of cases).

The class action lawyers then move for attorney's fees.  Unlike most of these cases, because the claims were so weak, the defendants haven't agreed to pay 'em, and the settlement agreement reserves defendant's right to oppose the fee request.  Several class members oppose the settlement, including several who say that it's absurd that the plaintiff's lawyer should get fees for a case and settlement like this one.  It's just another example, he argues, of a lawyer filing a frivolous lawsuit and striking a deal with the other side that provides the class nothing just so the lawyer can obtain some fees.

But the district court awards class counsel almost half a million in fees.  The objector appeals.

That's typically no problem.  Objectors are allowed to appeal.  Moreover, he's got a nonfrivolous claim on the merits.

But that's when Article III rears its ugly head.  (Sorry for calling parts of you "ugly," Article III.  You know I love you.)

Article III requires that a party suffer injury before s/he's allowed in federal court; moreover, injury resulting from the other side's conduct.  Normally, in the class objection context, this is no problem.  For example, if it's a common fund class action, and the attorney takes an allegedly oversized piece of your pie in fees, you've been "injured," hence Article III standing.  Or -- in a situation very close to what allegedly happens here -- when the attorney sells out the class by entering into a terrible settlement that provides the class nothing but gets him fees, you're injured (and have Article III standing) because you were harmed by the crappy settlement "your" lawyer obtained.  Thus satisfying Article III.

The objector may (or may not) have known all this when he and his lawyer objected.  But what they apparently didn't know -- but that the Ninth Circuit tells them (in a holding that I haven't seen before, but that makes sense) -- is that this principle doesn't apply when the objector claims, as he did here, that the class lawsuit by the lawyer was meritless in the first place, and was filed just to generate fees.

You just pled yourself out of Article III.  Because if the lawsuit was meritless, you didn't lose anything by its crappy settlement.  You were entitled to nothing, and you got nothing.  End of story.

The lesson being that it makes sense to pay attention in Constitutional Law rather than surf the internet during class.  Or, for those of us a bit older (and for whom that ship long ago sailed -- without the internet, no less), to have someone inside or outside the firm who's pretty well read give you a "head's up" for complex issues that might derail your objectives.  The objector here could have easily gone forward by the simple expedient of saying that while the merits of the class action were not the greatest he'd ever read, they weren't completely meritless.  I'm sure he would have said that had he knew about the Article III problem.  But he didn't.  So he loses.

It's a tough field.

P.S. - There's a more subtle constitutional question generated by the holding that relates to whether the Ninth Circuit's rule would mean that there's no Article III standing if the opposing party could prove (rather than simply rely on the objector's admission) that the lawsuit was meritless, since that would also establish no Article III injury, and if that principle was accepted, it'd have a novel (and fairly radical) impact on class action practice.  But I'll leave the scholarly details aside for now.  Today's just a lesson that it pays to know smart people, because sometimes they can get you out of jams.