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December 04, 2015

Legalese Column: Don’t Be in Class Action Lawyers' Crosshairs

This article originally ran in the November 2016 issue of AVN magazine. Click here to see the digital edition. As noted in last month's column, the Telephone Consumer Protection Act of 1991 (TCPA), which allows suits for annoyances such as unsolicited junk faxes and text messages, is great fodder for class actions. In view of the fact that not everyone knows too much about class actions, perhaps it is a good idea for this column to examine them, at least superficially. What is a class action? Here’s the idea: Suppose that some person’s bank illegally charges her maybe three bucks a month in violation of some statute or regulation. She discovers that the bank has been doing this for years, but the statute of limitations on such a claim in her state is three years. So, three years times 12 months times three bucks is a whopping 108 bucks. Is this poor gal going to pay the filing fee in small claims court; take a few days off work; spend untold time figuring out why she is right and the bank is wrong; fight the bank’s attorneys; and suffer aggravation to collect little over one Franklin? Unlikely! However, there might well be thousands of customers who have been victimized by the same banking miscue. That is where class actions figure into the picture. Long ago, courts and their rule-writers figured out that there should be a procedural solution for such situations. The most simple is joinder. For example, suppose you and your friend, out for a Sunday drive, suddenly are rear-ended by a truck at a stop sign and are injured as a result. Fundamentally, you and your friend would each sue the driver of the truck and the company owning the truck. However, it makes more sense to allow the two of you to each be a plaintiff in the same action. It promotes judicial economy and reduces the cost of litigation for the parties, as well as avoiding inconsistent results. Keying off that concept, courts began being faced with cases where there were dozens, scores, hundreds, thousands or even millions of similarly situated plaintiffs. To use the joinder rules in such a situation obviously wouldn’t work too well. The trial would need to be in the Rose Bowl. From that, the class action was born. Where too many people to fit into a courtroom all had materially identical claims, the class action rules allow one or a handful of representatives to bring the action on behalf of the multitude of claimants with the same problem. How it works is that a handful of representative plaintiffs file an action against the target, eventually seeking class status. The original plaintiff(s), without the class, scuffle with the defendant. If the defendant can’t get the case thrown out at that level, then the plaintiff(s) can seek class certification. Class certification is a tall order. The court must approve an array of things, including whether the plaintiff(s) and the attorney(s) can adequately represent the class; whether the class is big enough to justify a class action (although 20 has been approved as plenty) and whether the members of the proposed class have sufficiently common claims. You may have been a member of a class-action class. Like most cases, most class actions are settled. However, unlike most cases, settlements in class actions must be approved by the judge. As a member of the class, you receive a postcard, explaining how to collect your $5 on your $100 loss. So, you get 5 cents on the dollar. So what, take what you can get. But guess who gets top dollar: the lawyers! The author of this column has heard more than one judge acknowledge that class actions are all about the plaintiffs’ lawyers. The attorneys fatten their bank accounts; the victims get little. Having said all of that, class actions have their benefits. For example, if a bank swindles its millions of customers for 27¢ each or is contemplating doing so, class actions, or the threat of them as the case may be, are a powerful weapon. Another very frequent source of class actions—which hits a little closer to home—is employment law violations. For example, the federal Fair Labor Standards Act and the regulations promulgated thereunder require payment of minimum wage, as well as premium wages for overtime. Suppose a company has a policy that every Friday each hourly employee stay for an extra half hour for the purpose of cleaning up their work stations, but decides that the employees should not be paid for that time—the theory being that the employees created the messes, so they should be required to clean them up. Parenthetically, if you are an employer and it is not obvious to you that this is a totally bone-head policy, tomorrow morning retain an attorney experienced in employment law—and hope that you don’t get sued for anything you have been doing. In this example, the FLSA requires that the employees be paid for this time—a half hour for each impacted employee per week. If there are only ten impacted employees, a lawsuit is worthwhile without benefit of a class action, especially since employees who successfully sue employers almost always can recover attorney’s fees. However, if there are 1,000 employees, a class action is worthy of consideration. Cramming 1,000 plaintiffs into a courtroom is an absurd notion. The issue of whether there are too many people for regular joinder is called that of “numerosity.” Next is the question of whether the claims of the class members have enough in common. Here, they probably do. Each claim is a half-hour of the employee’s hourly salary times how many free half-hours the employee worked. That is easily established by business records. And the basis for each claim is identical. Finally, there is the question of adequacy of representation, to which there are two prongs. Prong One is whether the representative plaintiffs adequately represent the class. For example, if there is only one plaintiff who seeks to be the class representative, and that plaintiff has some unique circumstance—maybe has terminal cancer or was convicted of forging time cards—the representation may be inadequate. Prong Two is whether the lawyers can adequately represent the class. If the attorney who seeks to be appointed class representative passed the bar exam six months before filing the suit, it is doubtful as to whether the court would find that attorney to be an adequate representative of the class. Now, if there is a problem with Prong One and/or Prong Two, the judge has the power to correct that. Another class member or three can be identified for potential class representation. And one or more additional or substitute class attorneys can be designated. One final item: Class-action law comes in two flavors, California and everywhere else, especially when it comes to employment law. Not only does California have plaintiff-friendly class action rules, it has the most absurd and dizzying thicket of employment law regulations that you can imagine. One issue is that California keeps fighting with the Federal Arbitration Act, which fight will be the topic of next month’s column. Take away: As this column has tried to pound into readers heads for years, if you have employees, it is crucial to have an employee manual—especially in California. Clyde DeWitt is a Las Vegas and Los Angeles attorney, whose practice has been focused on adult entertainment since 1980. He can be reached at ClydeDeWitt@earthlink.net. More information can be found at ClydeDeWitt.com. This column is not a substitute for personal legal advice. Rather, it is to alert readers to legal issues warranting advice from your personal attorney.

 
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