Class actions: the “reverse auction”

Something about class actions that gives pause to even their most enthusiastic cheerleaders is the frequency with which they end in “reverse auctions”. “In big cases, defendants facing multiple suits can pit plaintiff firms against each other in hopes of getting the cheapest — and most comprehensive — settlement.”

Ethical gray areas in class action law have allowed reverse auctions to become a trend, said Joseph McMonigle, an ethics expert and partner at Long & Levit in San Francisco.

He said that competing filings can allow defendants to pick the plaintiff with the weakest case. With weaker opposition, he said, defense lawyers have more leverage to reach a cheap settlement.

There is the danger that a lawyer in that position might be tempted to cut a worse deal for his clients just to make sure he gets paid. Since there are few clear rules on the duty a plaintiff lawyer has to a prospective class that hasn’t been certified, there’s some ethical wiggle room. “It certainly isn’t something that makes the legal profession shine,” McMonigle said.

(Justin Scheck, “Reverse Auctions Lack Class”, The Recorder, Jul. 20).

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