Judge, Reform-Minded Lawyer Crush Latest Class Action Excesses

When a federal judge slaps class-action lawyers for trying to hit the jackpot at the expense of victims, we can stand back in awe because it happens so infrequently.

The recent rebuke of several class action lawyers by a federal judge who is ruling on a lawsuit they filed against insurance provider Anthem in a high-profile data breach case should be making headlines across the country. Consumers need to know about this case and the proposed legal settlement because it reveals how they can be victimized twice when their sensitive financial information is stolen.

In 2015, Anthem discovered that criminal hackers had broken into its computer system containing the personal information of 78.8 million people. The fear in situations like this is always that the criminals will use the information to commit identity theft, so Anthem agreed to provide free credit monitoring to all of the people whose information was compromised.

In the wake of the breach, the insurance commissioners of seven states undertook an investigation to determine who committed the attack and if Anthem’s security systems prior to the attack were appropriate. Last year, the investigators issued a report saying that they likely knew the identity of the hacker and that they had “a medium degree of confidence that the attacker was acting on behalf of a foreign government.”

Importantly, the investigators also determined that Anthem had “taken reasonable measures prior to the data breach to protect its data” and that “Anthem’s improvements to its cybersecurity protocols and planned improvements were reasonable.”

Despite this, Anthem became the target of a massive class action lawsuit which, of course, was filed shortly after the data breach. Why should the American legal system wait for the facts of an investigation to be completed before allowing a potentially lucrative class action lawsuit to be filed, right? Unfortunately, that’s how it works.

And that’s just the problem. These huge class action lawsuits are often extremely lucrative, but not for those who you would think should reap the benefits. Often, consumers aren’t the ones who see the majority of the cash payments from these lawsuits. Many times, the lawyers are the ones who really hit the jackpot.

In the Anthem case, the four law firms who took the lead in the litigation and eventually reached a settlement with the company after two years were only able to secure credit monitoring services for most class members. The company did not admit any wrongdoing while agreeing to the settlement.

Yet, as class action lawyers often do in these cases in an effort to inflate their own pay day, they claimed their actions would benefit far more people than actually turned out to be the case. If every consumer the lawyers purported to represent signed up for the free credit monitoring services, this in-kind benefit would have been worth up to $500 million. However, just 1.86 percent of the class members signed up, for a total benefit of about $51 million out of the $115 million settlement. The rest of the money would go for attorneys’ fees and costs.

That’s right, when you add up all the legal fees and costs, the lawyers would come out of the settlement with more money than the class members they represented. The payout to all the lawyers involved would be about $63 million.

As outrageous as that is, these types of ridiculous settlements often get approved by the court. That’s starting to change, though.

Thankfully, in recent years, common sense has started to creep back into the resolution of these massive class action lawsuits because of the efforts of reform-minded attorneys like Ted Frank and tough judges like Lucy Koh.

Frank is an attorney at the Competitive Enterprise Institute who, as The Wall Street Journal said in a recent editorial, helped blow the lid off this scam. He did this by doing what he has become well-known for in the legal world since creating the Center for Class Action Fairness several years ago. He derails ridiculous legal settlements that usually fly under the radar of the media long after the initial sensationalistic reporting on the story has passed.

Frank filed an objection to the settlement in federal court and found that the judge in the case appears to be as fed up with these kinds of scams as he is.

Judge Lucy Koh of the federal district court in California chastised the attorneys for their bill request and has taken the rare action of appointing a special master to review the lawyers’ billing saying, “It does bother me that 55 percent would go to attorney fees and administrative costs and only 45 percent goes to class members.”

As CEI has pointed out, temporary staff attorneys provided “low-level legal work like document review and are typically billed at cost — perhaps $50/hour — to paying clients. Yet parties submitted millions of dollars’ worth of billing for contract attorneys at hundreds of dollars an hour.” Judge Koh admonished the lawyers saying, “I would never have appointed you…had I known you were going to pile on 53 law firms on this case.”

U.S. consumers will benefit at least two ways from the actions of Ted Frank and Judge Koh.

If they were part of the Anthem class action, they will know that their own lawyers won’t be allowed to rip them off by getting ridiculous fees. And, even if they weren’t part of the lawsuit, they will know that fewer class action settlement scams like this are being rubber-stamped today. That’s not only good for consumers, it’s good for job providers who have been targeted in these lawsuits for years.