BUSINESSWEEK ONLINE : JANUARY 29, 2001 ISSUE
COVER STORY On the Prowl for Victims Toothbrushes seem like innocent little things: Inexpensive and simple to use, they make life a lot more pleasant for everybody. But in 1999, a pair of attorneys filed a national class action against Procter & Gamble, Colgate-Palmolive, and five other manufacturers, arguing that toothbrushes are actually dangerous. When used improperly, the lawyers said, they can lead to discomfort, receding gums, and sensitive teeth--conditions that could, in extreme cases, cost a few thousand dollars to repair. Sounds sort of ridiculous. But the companies faced enormous exposure--millions of Americans use toothbrushes every day. If the plaintiffs' attorneys had been able to convince a jury that they were right, the defendants could have been hit with a judgment of $1 billion or more. ''You get one crazy judge, and you can lose a case like this,'' says James E. Farrell Jr., vice-president and assistant general counsel at Colgate-Palmolive Co. As it turned out, Illinois state court judge James F. Henry jettisoned the case last July. But corporate lawyers argue that the toothbrush suit points to a much bigger problem: the proliferation of a new breed of dubious class actions. Based on highly speculative legal theories, they seek to fix social problems that nobody is complaining about, avenge trivial misdeeds, and compensate consumers for injuries they didn't even know they'd suffered. In 1998, for example, class-action lawyers brought a fraud suit against sporting goods manufacturer Acushnet Co. for changing the terms of a free promotion. The complaint? Instead of giving consumers free golf gloves, as promised, the company substituted a package of golf balls. MISSING INCHES. These suits, in the minds of most legal experts, are truly the bottom of the barrel: They serve no valuable social purpose, add nothing to the nation's regulatory machinery, and are frequently mocked even by fellow plaintiffs' attorneys. That doesn't make them unprofitable, though. The golf litigators, unlike the toothbrush attorneys, hit pay dirt. Acushnet denied liability but handed them more than $100,000 in legal fees. The ''victims'' of the company's misconduct, meanwhile, received three more new balls. And that's not such an unusual story. No matter how minor the injury, class-action attorneys generally manage to find ways to get paid. In 1997, for example, plaintiffs' attorneys sued Apple Computer, Compaq Computer, Gateway, Toshiba, and 29 other computer makers for exaggerating the size of their monitor screens. Because part of the glass monitors was covered by plastic, the companies allegedly overstated the viewing area by about an inch. Result: Consumers got $13 certificates for new computers, while the lawyers took home a $6.1 million settlement. The companies issued a brief statement denying wrongdoing but said that they wanted to avoid the risk of a trial. How is it possible to profit from such flimsy lawsuits? Because of the power of the class action--a legal procedure that allows plaintiffs' attorneys to represent tens of thousands of individuals at once. With numbers that large, corporate defendants face the prospect of multibillion-dollar verdicts. Thus, many companies will surrender the moment a judge officially ''certifies'' a class action--even if they think they have only a minuscule chance of losing. ''Traditional economic risk analysis says that if you have a 10% chance of losing a billion dollars, then the case has a settlement value of $100 million,'' says Donald J. Lough, an in-house litigator specializing in class actions at Ford Motor Co. To be sure, not all class actions are so easy to criticize. There are plenty that do exactly what class actions are designed to do: efficiently offer relief to a large group of people who have suffered real injuries. Even opponents of the plaintiffs' bar admit that some class actions are justifiable and speak favorably of cases such as the race-discrimination suits against Texaco and Denny's and the antitrust claims against Hoffmann-LaRoche, Rhone-Polenc, and other vitamin manufacturers. (The companies denied liability in these cases.) LOOKING FOR TROUBLE? But most general counsel swear that the number of frivolous class actions is increasing. Because there is no central data bank that tracks the fate of individual cases, that's a hard proposition to confirm. Nevertheless, there's evidence that the overall number of class actions is on the rise. In a 1999 survey of 32 of the 100 largest companies of the country conducted by the conservative Federalist Society, in-house lawyers reported the number of class actions filed against them in federal courts increased 340% from 1988 to 1998. Based on interviews with plaintiffs' lawyers and in-house counsel, the Rand Institute for Civil Justice last year also concluded that the number of class actions is rising, though it said the phenomenon couldn't be quantified. What frustrates corporate lawyers the most is that some plaintiffs' lawyers have managed to turn the legal system upside down. Rather than waiting for clients to call, they come up with ideas for lawsuits and hunt down clients. These aggressive attorneys treat class actions as investment ventures rather than vehicles for helping consumers, argues Lewis H. Goldfarb, vice-president and associate general counsel at DaimlerChrysler. ''The plaintiffs' lawyers are capitalists,'' says Goldfarb. ''For many of them, it's just a business.'' One way that lawyers find ''victims'' to serve as lead plaintiffs is by offering a bounty, which can sometimes be as high as $20,000. They also recruit friends and relatives of their firms' employees. The Internet, with its many corporate protest sites, has become a rich hunting ground for potential plaintiffs. If none of these techniques yields a case, class-action litigators cast a wider net. One strategy is to send out a mass mailing to ''clients'' that the lawyers have represented in prior cases--potentially tens of thousands of people--asking them about the products they own. Miami tort attorney D. Michael Campbell sent out a questionnaire inquiring what cars people drove, who issued their health insurance, whether they drove all-terrain vehicles, and who their telephone company was. ''We are investigating filing class-action suits in various locations concerning certain defective products,'' said the letter, which Campbell says was mailed out about five years ago. ''You may be eligible to become a class representative [and] will be eligible for a special fee.'' Campbell says he was ''just keeping clients informed'' and performing a valuable service by alerting them to their rights. Maybe so. But generally, the big-money winners in class-action litigation aren't the victims--they're the lawyers. By Mike France in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Litigation Machine COVER IMAGE: The Litigation Machine TABLE: The Paint-by-Numbers Lawsuit TABLE: Tort Lawyers' Secret Weapon On the Prowl for Victims INTERACT E-Mail to Business Week Online

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