A terrific article re: "Class Action" lawsuits...
It was sponsored by the Cato Institute, and goes into much detail regarding what a complete farce these types of lawsuits generally are for the shareholders of a company. Sadly, they appear to often be just legal scams perpetuated by the lawyers...and for the lawyers...and nothing more.
cato.org
The Class Action Con Game
by Lawrence W. Schonbrun
Lawrence W. Schonbrun is a nationally recognized authority on the issue of attorney's fees in class actions. He has appeared on 60 Minutes, 20/20, and recently testified before the U.S. Congress on the issue of attorney contingency fees. His work has been chronicled in The Wall Street Journal, Barron's, and the Washington Post.
(just one excerpt from the very long article, regarding only "shareholder derivative lawsuits")
COMPANIES, SUE THYSELVES
Shareholder derivative lawsuits are an unusual type of case in that a company seems to be suing itself. Lawyers in the name of the corporate entity sue the directors and/or officers of the corporation on behalf of shareholders, claiming that those executives have wronged the company.
In a classic example of the purposelessness of such cases, lawyers in 1993 settled a derivative suit brought in the name of Oracle Systems Corporation shareholders for no monetary payments. But they sought $750,000 in attorneys' fees from the corporation in whose behalf they sued. When the court asked why the corporation received no money as part of the settlement, the lawyers explained that because of an indemnity agreement between the corporation and its directors, any recovery against the directors would actually be paid by the corporation. That, they argued, made further litigation a hopeless drain on corporate assets. In awarding attorneys' fees, Judge Vaughn Walker wryly noted:
"If derivative plaintiffs' counsel actually believed this argument, then they should never have brought this lawsuit in the first place." Derivative plaintiffs knew of Oracle's indemnification policy when they filed their lawsuit and were equally capable of conducting their cost benefit analysis at that time.
Of course, in such cases, stockholders suffer since payments come out of the corporate treasury. Even when corporations have insurance to cover such settlements, it inevitably means higher insurance premiums, paid by the corporation.
Settlements that shift the costs of litigation from culpable officers to the corporation itself not only rob the law of its deterrent impact, but paradoxically force shareholders -- the intended beneficiaries of these laws -- to bear the costs of the actions. |
