FTCs Thomas B. Leary Addresses Class Action Litigation Summit

In an address to the Class Action Litigation Summit in Washington, DC today, Commissioner Thomas B. Leary pledged that the Federal Trade Commission would continue to keep a watchful eye on class-action settlements to ensure that the interests of consumers are adequately represented. Commissioner Leary cautioned that the combination of “opt out” classes and generous standards for certification of immense classes means that class action settlements have an important public dimension.

“The Federal Trade Commission is a relatively small agency with broad competition and consumer protection responsibilities,” he said. “We depend on private litigation to supplement our efforts, and, therefore, we have a direct interest in the way that class actions are administered.”

Leary traced the evolution of the class action mechanism, since the 1966 amendments to Rule 23 of the Federal Rules of Civil Procedure. These amendments authorized “opt out” classes, through which all injured consumers, except those that affirmatively “opt out,” become a member of the class. There were valid reasons for the change, but one unintended consequence was to make class action lawyers themselves, rather than their nominal clients, the real parties in interest, Leary said. This potential conflict-of-interest, which is more or less pronounced in different cases, can compromise the class action mechanism’s ability to achieve its two principal goals of compensating consumers and deterring similar conduct in the future.

Leary also addressed the issue of class certification and expressed concern that some courts are granting certification with increasing ease. He noted that class certification has dramatic consequences in today’s massive, multi-state class actions, because certification of a class almost always puts a case on a settlement track, regardless of the merits of the underlying claims. In too many cases, the resulting bargain represents the interests of the settling defendants and the class action lawyers rather than the interests of the class members, he said.

Leary concluded his remarks by describing the FTC’s recent efforts to combat these tendencies in the class action area. To date, these efforts have included speeches, consumer education, and – most important – a series of amicus briefs opposing particularly objectionable class-action settlements. The Commission has used these briefs – for example, in In re First Databank and Carter v. IRC Services – to object to excessive attorney fees, which divert needed compensation from injured consumers. The Commission also has used such briefs – for example, in Erikson v. Ameritech and Haese v. H&R Block – to object to the use of low-value, or no-value, “coupon” compensation, he said. Finally, the Commission filed a letter with the Federal Judicial Conference making a number of recommendations regarding proposed amendments to Rule 23.

Copies of the Commissioner’s remarks will be available soon from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.