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Soft Firm 

Too often, the S.F. law firm of Lieff, Cabraser, Heimann & Bernstein strikes settlements that give the firm millions of dollars in legal fees -- and its class action clients too little

Wednesday, May 29 2002
As manager of a Tehama County home for people with Prader-Willi Syndrome, a gene flaw that renders patients terminally hungry, Caroline Cannon has made a career of attending to the insatiable. Prader-Willi sufferers will do almost anything to get their food fixes. "They're always hungry," notes Cannon. "They're very aggressive at times."

But even though she's spent 15 years counseling people afflicted with this disorder, Cannon hadn't witnessed truly ravenous aggression until she recently came into contact with a San Francisco law firm that seems to have an appetite gone awry. Not long ago, Cannon had a personal crisis that kept her from making ends meet. She closed the gap with credit cards. And the credit card companies began to prey, charging late fees, even when she paid bills on time, tacking sky-high interest onto the fees, and using the resulting debt to slap on more fees. Cannon says her $4,000 bill swiftly became $11,000; her phone rang late into the night with credit-card bill collectors. She appeared to be a victim of consumer fraud.

According to lawsuit complaints, Internet bulletin boards, consumer groups, and newspaper articles, Cannon wasn't alone in having problems with Direct Merchants Credit Card Bank of Minnesota. Direct Merchants appeared to be exhibiting the tendency toward consumer abuse that not long ago earned San Francisco credit card company Providian Financial a large measure of national notoriety.

Enter Lieff, Cabraser, Heimann & Bernstein, L.L.P., a law firm that has repeatedly filed class action lawsuits, and then cut settlement deals that seem to give metaphorical peanuts to victims, but millions of dollars to Lieff, Cabraser attorneys. In the credit card case, if a judge approves a proposed settlement at the end of this month, victims such as Cannon will gain the right to receive a book of discount coupons with a supposed retail value of $19.95, to have $8 donated in their names to Boys and Girls Clubs of America, to apply for a 9.9 percent interest credit card, and to join a promotional travel discount club. They will each also have the potential to get between $10 and $70 in reparations. Direct Merchants Credit Card Bank, meanwhile, agreed to end unethical practices that had been the subject of the initial lawsuit.

Victims will lose the right to sue Direct Merchants for something resembling reasonable damages for the carnage that firm has wreaked.

And the lawyers will get $5.6 million in fees.

Kelly Dermody, Lieff, Cabraser's lead partner on the Direct Merchants case, says her settlement is a good deal for consumers, who would get nothing if the case went to trial and lost. "If you're making a broad statement about class actions, this is the wrong case to do it," Dermody says. "I think this was a great settlement. It provides change to practices; it provides relief to the class up to $70. That's an enormous benefit. We had class members call to say thank you for taking on this big company."

Dermody sent me a copy of a report by a court-appointed mediator, who called the settlement "outstanding" and said it wasn't the result of collusion.

It's entirely possible that Dermody went into negotiations with a weak case, then settled, out of common sense, for coupon packs and other concessions of disputable value.

But legal scholars, other plaintiff attorneys, legislators, and consumer advocates all decry what appears to be a growing body of defendant-friendly, fee-heavy class action settlements. And they mention Lieff, Cabraser as part of a trend in which the interests of the victims in class action cases sometimes appear to be subverted.

Few of the kind of dubious-seeming class action settlement I've been describing catch the public eye; these agreements are usually too complex to make a good, direct, sordid daily newspaper headline. But one such case appeared so egregious it recently made the general news.

Late last year, San Francisco attorney Eugene Crew believed himself in a wonderful position for a plaintiff lawyer to inhabit. He had been named the exclusive settlement representative for California consumers in a lawsuit against Microsoft Corp.; he felt damages in the case could go as high as $8 billion. Crew's suit was a California counterpart to a federal lawsuit alleging that Microsoft had harmed consumers by using its software monopoly to charge high prices, while limiting competition and innovation. Crew's negotiating position was especially favorable because California law is kinder to plaintiffs than federal law regarding this type of complaint.

But then, without Crew realizing it at first, things began to fall apart.

Microsoft's attorney called Crew, asking him to include Lieff, Cabraser in negotiations, Crew was quoted as saying in articles in The American Lawyer and The Recorder, a Bay Area legal newspaper. Lieff, Cabraser proceeded to maneuver to include the California case in a pending case in federal court, and then to negotiate a settlement that Crew saw as Microsoft-friendly. The final "settlement" would have had Microsoft give software to low-income schools as penance for having used its monopoly to rip off consumers.

A judge eventually rejected the settlement, saying the deal might actually have improved Microsoft's market position in the educational software market.

Crew asked Lieff, Cabraser to resign from the plaintiffs' executive committee on the California Microsoft case. He's now seeking a damage award of approximately $6 billion from Microsoft -- but he's doing it sans Lieff, Cabraser.

"We asked them to resign because of their conflict of interest as reported in The American Lawyer article," says Crew. "They acceded to our request."

Lieff, Cabraser partner Robert Lieff wrote a letter to The American Lawyer disputing the gist of the article, writing that "the Microsoft litigation is not an example of 'slippery practices.'" The writer of that article, Susan Beck, subsequently published a similar story in The Recorder, reporting on Crew's claim that Lieff, Cabraser had manipulated legal representation of plaintiffs to Microsoft's advantage.

Just the same, in an interview for this column, Lieff, Cabraser partner Bill Bernstein rejected the notion that his firm's settlement would have shortchanged consumers, or that it was a result of a conflict of interest.

About The Author

Matt Smith


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