Monday, January 2, 2012

Los Angeles Times: Small cases in California coutrooms are big business

Small cases are big business in California courtrooms

Lawyers often reap huge rewards in petty class-action suits while their clients net little. Many other states apply stricter judicial standards.

Court
Last month, in a ruling that seemed to draw a line on frivolous actions, the U.S. 9th Circuit Court of Appeals upheld the dismissal of a Los Angeles woman's lawsuit over $10 she spent on Trident White chewing gum that didn't noticeably whiten her teeth. (Photo by Susan Ragan / Associated Press)

January 1, 2012, 6:04 p.m.

Copyright © 2011, Los Angeles Times

Like any concerned mother, Athena Hohenberg wanted to be sure her 4-year-old was getting a good breakfast.

So she served up Nutella, a hazelnut and cocoa spread marketed as part of a balanced breakfast. "Start your day with Nutella spread," urge the TV ads.

But Hohenberg was shocked to learn, she said in a lawsuit filed in February, that the sandwich spread is chock full of fat and sugar — "the next best thing to a candy bar," she alleged.

Nutella manufacturer Ferrero USA Inc. has agreed to settle the suit brought by the San Diego mother on behalf of hundreds of thousands of consumers who may have been similarly deceived, even though the ads specified that fruit, milk and whole wheat bread were also part of that balanced meal. Lawyers declined to disclose details, but similar cases suggest that Ferrero is likely to pay out millions in $5 or $10 sums to Nutella consumers. At least a quarter of the settlement will go to lawyers.

Pro-business factions contend that success in petty false advertising and fraud claims like the Nutella case have made California the go-to place for trial lawyers from all over the country seeking to enrich themselves on frivolous class-action litigation.

The state's tough consumer-protection laws and consumer-friendly courts have created what the American Tort Reform Foundation recently termed a "judicial hellhole" that delays legitimate suits from being heard and chases away jobs and investment.

Lawmakers' efforts to rein in the lawsuits in recent years have been mostly thwarted by legal lobbies, and critics say the problem has intensified as court budgets grow tighter and civil cases get backlogged.

"We all pay" for cases like these "when they take up our judicial resources," said Katherine Pettibone, a lawyer and legislative director for the Civil Justice Assn. of California. "We just cut back $350 million from our state courts. This harms access to justice for everyone. Sometimes you just want to say 'pull your socks up and move on.' "

Consumer attorneys counter that small-stakes class actions can be the average citizen's only defense against abuse by big corporations. And they contend that a recent U.S. Supreme Court ruling pushing disgruntled consumers into arbitration with their alleged deceivers imperils one of Americans' most fundamental rights: a jury trial to air their grievances.

Although Vanderbilt Law School professor and class action expert Brian T. Fitzpatrick conceded that "unmeritorious" lawsuits sometimes succeed because defendants settle to avoid litigation costs, he disputed the idea that they are chiefly motivated by huge contingency fees.

"There is a common perception about class actions that lawyers are the only ones who benefit," Fitzpatrick said, pointing to a recent settlement requiring Bank of America to pay about $15 to customers unfairly charged for overdrafts while lawyers will get at least $100 million. "It looks bad, but the reality is that the main benefit from these small-stakes cases is not to give you your $15 back. The main benefit is deterrence."

Last month, in a ruling that seemed to draw a line on frivolous actions, the U.S. 9th Circuit Court of Appeals upheld the dismissal of a Los Angeles woman's lawsuit over $10 she spent on Trident White chewing gum that didn't noticeably whiten her teeth.

But other claims of deception that could have been avoided with some consumer due diligence — for example, reading the label — have survived court scrutiny, saddling overworked judges with what some legal analysts call fights over peanuts.

In June, a federal judge in Oakland allowed two consolidated class-action lawsuits to go forward against the makers of Breyers and Ben & Jerry's ice creams for claiming their products are "all natural" although they contain synthetic alkalized cocoa powder.

Another Bay Area judge recently certified a class action against Sears, alleging fraud in its advertising of a clothes dryer with an "all stainless steel" drum that contains a small amount of ceramic coating on the edge.

Such a case would undoubtedly be thrown out of court in many other states; in fact, the lead plaintiff in the California suit against Sears earlier had been sent packing by the 7th Circuit appeals court in Illinois, which called the complaint "near-frivolous" and a "confabulation."

A version of consumer lawsuit — those alleging minor violations of the Americans with Disabilities Act's requirements for handicapped access — was the subject of proposed legislation this year aimed at curbing abuse of that law.

The practice of forcing pretrial settlements from small business owners for coat hooks or paper towel dispensers that are a fraction of an inch off the law's exacting standards has become so widespread that it is essentially a cottage industry in California. The bill would have made it easier for courts to stop such "vexatious litigants." But trial lawyers opposed it, and it failed.

Tim Blood, a class-action litigator and board member of Consumer Attorneys of California, argues that Californians benefit from small-scale consumer cases: "These lawsuits are making people at companies rethink their advertising campaigns," he said.

But the ease with which consumers obtain relief here has also spawned what consumer advocates call a worrying trend: Big corporations have taken to divesting themselves of liability by requiring customers to submit complaints to arbitration, a dispute resolution method that tends to favor the companies paying for it. A U.S. Supreme Court ruling in April, AT&T vs. Concepcion, upheld a corporation's right to use such clauses.

"After Concepcion, every cellphone company and every bank and credit card company began rewriting their contracts to require arbitration," said Harvey Rosenfield, founder of nonprofit Consumer Watchdog. He predicts that in time, arbitration clauses will be on labels for everything from cleaning products to milk.

In the Nutella case, Hohenberg's attorney, Ronald A. Marron, declined comment. An attorney for defendant Ferrero, Keith Eggleton, didn't return phone calls.

Shaun Martin, a University of San Diego law professor, has used his California Appellate Report blog to poke fun at resources wasted on meager disputes:

In a case before the California Court of Appeal last year, in which a defendant argued that his fine should be $10 instead of $34, Martin noted that the case required the state-financed services of his lawyer, a deputy attorney general, three appellate justices, court staff and "some trees" to publish the 11-page opinion.

"Twenty-four American dollars at stake," Martin scoffed. "Almost enough to buy Manhattan."

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