Bailout

Can legal due process move online?

By Felix Salmon

Sam Glover has a great pair of blog entries up about due process in class-action lawsuits.

At Caveat Emptor, he talks about the sordid tale of Philip Stern and Robert Arleo, two lawyers who brought a class-action suit against a sleazy debt collection agency. With over 1 million consumers potentially affected and statutory damages of as much as $1,000 per case, total damages could easily have exceeded $1 billion. But Stern and Arleo weren’t interested in maximizing damages. Instead, they got the suit classified as an ?opt-out class,? meaning that consumers were automatically included in the class unless they knew about it and chose to opt out. Then they put an ad in USA Today to find class members, and settled the suit for $20,000?plus fees of $84,250 for themselves.

This is a great example of a couple of lawyers essentially selling impunity in return for a nice little payday for themselves. Of course, the company wouldn’t have impunity if the class members opted out?but the class members never got that opportunity, as Glover explains in his second blog entry, at Lawyerist.

For one thing, the crime here was that the debt collectors called people without identifying themselves, which makes it pretty much impossible for people to know whether they’re members of the class at all.

And then, more broadly, there’s the fact that an ad in USA Today is not going to reach the people it’s meant to reach:

Because only a tiny fraction of the American public actually subscribe to newspapers, notice by publication is virtually guaranteed to be ineffective. It is also insufficient due process.

Let?s take USA Today as an example, since it has either the widest or second-widest circulation in the United States, and is the publication of choice for national class actions. According to Wikipedia, USA Today has a circulation of 1.8 million. According to census.gov, there are about 293 million households in the U.S. That means just .6% of American households subscribe to USA Today. Although, let?s be honest, as anyone who travels knows, a huge chunk of USA Today?s circulation is empty hotel rooms. And we can be pretty sure that, of those who do subscribe to USA Today or read it in their hotel rooms, most do not read the legal notices.

In other words, there is a better than 99% chance that service by publication in USA Today will be ineffective.

These numbers aren’t exactly right?Glover is confusing households with population, and doesn’t multiply USA Today’s circulation by the number of readers per copy?but the broad thrust of his argument is surely true. And he’s also right that if you’re trying to target a particular class of people, then often the internet is a great way of doing that:

Due process requires?at a minimum?meaningful notice before depriving someone of their property. Property includes the right to bring a legal claim, and so includes opt-out class actions…

On the publication theme, perhaps notice should follow the former readers of newspapers to blogs and websites. Advertisers have, and a legal notice is basically a form of advertisement. For example, service by publication using a one-month banner ad on any of the Top 100 blogs would probably reach a wider audience than USA Today. But that ignores the advantage of advertising on the internet: specific targeting.

Advertisers can reach just about everyone on the internet based on what they are interested in. People tend to complain about their problems and look for solutions to their problems online, on blogs, Facebook, Twitter, and many other websites. Well-optimized ad buys targeted to keywords related to the class action claims could reach a huge chunk of a class. And website analytics could quickly assess the effectiveness of the notice.

Courts have been slow to embrace the power of the internet, but it makes sense to me that they should get serious about due process and should no longer accept ads in USA Today when there are obviously better alternatives online.

Full post as published by Macroprudential on November 19, 2010 (boomark / email).