Court Has Dubious Record As a Class-Action Leader
August 15, 2002

By Adam Liptak

The courts of Madison County, Ill., are famously hospitable, in a Will Rogers sort of way. They have, their critics say, never met a class-action lawsuit they did not like.

The county, which borders the Mississippi in southwest Illinois, is, according to a study published in the Harvard Journal of Law & Public Policy, the nation's leader in class-action filings on a per capita basis. Susan Koniak, who teaches legal ethics at Boston University, attributed the county's popularity to the local judiciary's propensity to approve settlements that may benefit plaintiffs' lawyers and defendants more than the plaintiffs themselves.

"Madison County judges are infamous for approving anything put before them, however unfair to the class or suggestive of collusion that is," Ms. Koniak said.

For example, a recent settlement here of a class action against the manufacturer of televisions said to have fuzzy pictures provided most claimants with $25 or $50 coupons good toward purchases of products costing more than $100. The lawyers got $22 million. The case is on appeal.

"There is mounting evidence that what happens in these cases is that the class does not get anything," said John H. Beisner, a lawyer at O'Melveny & Myers in Washington who represents corporate defendants in class actions and is an author of the Harvard study, which was commissioned by the Manhattan Institute. "It's a capital transfer from defendants to plaintiffs' lawyers."

The notion that the Madison County Circuit Court does not render scrupulously fair justice offends Nicholas Byron, a judge here. Judge Byron used a hearing on the fairness of a particularly controversial proposed settlement today to defend the court, in sometimes angry terms, against what he called "attacks on the court in Madison County."

"This court will not be affected by any public relations output in this case or any other case," he said. "This court will not be intimidated."

In the case before him, Judge Byron said he was concerned only with providing compensation to the people who were persuaded, through telemarketing and mailings, to enter contests and buy stakes in foreign lotteries by James Blair Down, a Canadian businessman. According to an indictment of Mr. Down in violations of gambling laws, his victims sent him almost $120 million.

In 1998, Mr. Down pleaded guilty to conspiring to mail gambling materials, and he agreed to pay restitution of more than $12 million. He served six months in an Oregon prison. A Canadian judge said he left there a "very wealthy man."

Mr. Down's wealth, his admissions in the criminal case and the large number of people with relatively small claims against him attracted the attention of a leading class-action firm, Ness, Motley, Loadholt, Richardson & Poole. The firm, based in South Carolina, gained fame in asbestos and tobacco litigations.

The class-action suit it filed in Madison County in March 2000 alleged that Mr. Down and his associates had obtained more than $200 million from their customers, "most of whom were elderly or in declining mental or physical health." Court records suggest that at least 400,000 people were victimized.

In August of that year, Judge Byron froze assets of Mr. Down's worth about $50 million.

The next June, the lawyers for the class and Mr. Down announced a proposed settlement. Victims would get up to $5.5 million, assuming they could find canceled checks or credit card receipts to prove their claims. Up to $500,000 more would be devoted to people who could not produce such proof. If there was money left in those two funds, it would revert to Mr. Down. The lawyers would get $2 million.

Under the deal, Mr. Down would be left with a substantial fortune, regardless of how many people eventually filed claims.

"If there were an award for the most abusive class-action settlement of the decade, if not the century, this settlement would be an odds-on favorite to gain the prize," Lester Brickman, a law professor at Cardozo University who is an expert on how lawyers are paid, wrote in a 50-page study of the case.

At today's hearing, H. Blair Hahn, who represents the class, said 450 people had filed claims. The deadline is a few weeks away, and he speculated that the number could double. He did not say how big the average claim was, but most people did not lose large sums.

Assuming 1,000 claims at $50 each, Mr. Down would pay $50,000 to the class. Whether class members submit a claim or not, they will be barred from suing Mr. Down again unless they file papers opting out of the lawsuit. The plaintiffs' lawyers would nonetheless receive 40 times as much in fees.

It is not clear why a court should be considered particularly receptive to class actions. Such cases are seldom tried, so jurors' attitudes ought not count much, though defendants may be more apt to settle if juries have a reputation for big awards.

That does not explain, though, why judges here have developed a reputation for light scrutiny of settlements.

At the hearing today, Judge Byron asked Mr. Down's lawyers if their client was prepared to give up his right to get any leftover money back. They said they did not know.

In an interview, Jody Pope, a New York lawyer who represents three victims of Mr. Down who object to the settlement, said, "I find it difficult to understand how in the face of such a strong case against the defendant and the wealth of data available to locate the victims, these plaintiffs' lawyers have found, what, 850, out of more than 400,000."

Mr. Hahn discounted Mr. Pope's arguments.

"I stand behind the settlement, as it is a fair settlement and in the best interests of the class," he said.

Judge Byron was receptive to the objectors' arguments. He allowed them 45 days to conduct additional factual investigations, and he ordered Mr. Down to appear in St. Louis for a deposition. He scheduled a new hearing for November.

In the course of the two-hour hearing, Judge Byron interrupted the lawyers repeatedly to address what he called attacks on the local courts.

"Let me warn everyone here," he said. "This court is about victims. It is concerned about getting as much money back to the victims as possible."

He added: "We have a bag of something here. What that bag is I don't know. If we end up with a bag of nothing after this is over there will be consequences I am sure some of you will not like."
 

©2002 The New York Times