In the first year of Donald Trump’s administration, the president faced a barrage of legal challenges from left-leaning states on everything from immigration to the environment. For the most part, New Jersey — run by a Republican governor and vocal Trump ally — sat on the sidelines. But Gov. Phil Murphy came to office pledging to take on Trump, and he found his attack dog in Gurbir Grewal, a 44-year-old former state and federal prosecutor born to Indian immigrant parents in northern New Jersey.
Gov. Phil Murphy has issued an executive order creating a new Jobs and Economic Opportunity Council tasked with providing the Governor actionable advice on how to improve the state’s economy and create more jobs. We are encouraging the Council to include legal reform in its recommendations since our state’s current legal climate is hindering economic growth.
Balancing the state budget and funding all the programs the state thinks are important is not an easy task. Revenue growth is steady, but slow, and we are already one of the highest taxed states in the nation, so there is little room to maneuver. To attract business investment and spur economic growth, the government must look at innovative policies that improve the economy without depleting needed revenue. One often-overlooked tool in the economic development toolbox is legal reform. Improving our state’s legal climate could improve our economy as well.
A predictable legal system that discourages lawsuit abuse gives businesses the ability to more accurately predict and budget for legal risk, which in turn allows them to free up capital for business expansion, innovation, and job creation.
According to the U.S. government’s Small Business Administration, “The impact of litigation on businesses goes well beyond the purely financial impact of legal fees and damages. Most small business owners are invested personally in their businesses; litigation causes not just financial loss, but also substantial emotional hardship, and often changes the tone of the business.”
Our poor legal climate is also stifling innovation. When they fear lawsuits, entrepreneurs, inventors, and investors are overly cautious about launching new ventures and bringing innovative products to market. One need only watch the hit television show Shark Tank for a short time before seeing the “sharks” pass on an otherwise exciting product or idea because the legal risk is too great.
There is a wide-spread, bi-partisan recognition that it’s time to make some changes that will rev up New Jersey’s economic engine, and foster a “stronger and fairer” economy. Some thoughtful tweaks to our legal system could improve our state’s legal reputation, and stimulate economic growth without raising taxes or increasing spending.
In her Inquirer article on the Consumer Fraud Act-based Super Bowl ticket lawsuit, author Jan Hefler optimistically asserts, “A ruling in the fan’s favor could also lead to lower ticket prices the next time the Super Bowl is held at MetLife Stadium in East Rutherford, N.J.” That the court recently ruled in the fan’s favor is true. Whether it will lead to lower ticket prices in the future is a more complicated question.
The plaintiff is arguing that the NFL’s failure to make Super Bowl tickets more widely available to the general public has the effect of artificially inflating ticket prices on the secondary market. The Third Circuit concluded that the plaintiff’s economic theory was sufficiently plausible to allow case to go ahead: that withholding tickets resulted in those tickets being redirected to third-party brokers, who were able to charge higher prices on resale than if the secondary market were supplied by more individual sellers.
Whatever the economic merits of plaintiff’s theory, selling high-demand tickets directly to fans and avoiding scalpers and bots has also been something of a technical challenge. As NFL points out, “many more people desire to attend the Super Bowl each year than can be seated at Super Bowl host stadiums,” and that excess demand for limited-supply events creates a significant incentive for scalpers to find ways to dominate the primary market.
Event hosts and performers have begun experimenting with innovative techniques like Verified Fan sales – using algorithms to identify potential purchasers less likely to re-sell their tickets – with some success. Bruce Springsteen, for example, used the Verified Fan distribution model for his recent Broadway run. But the legislature’s decision to micromanage the mechanisms by which tickets are sold now risks blocking such innovations.
It is not clear that the Verified Fan model would comply with the CFA’s ticket sales provision, and its adoption may very well be subject to future litigation, with the risk of CFA mandatory treble damages. The micromanagement of business practices, combined with the risk of massive financial penalties, discourages innovation and limits options that could benefit consumers and businesses alike.
It is time to make some thoughtful changes to our state’s consumer protection laws. There is an imbalance between protecting consumers and encouraging innovation, and all of us are suffering as a result.
Do you remember what you had for lunch yesterday? How about 2 weeks ago? How about 10 years ago? Even if you do remember, do you think you could come up with evidence – like witnesses or receipts – to back up your story, or do we just have to take your word for it? Continue reading →
This January, Democrat Phil Murphy will be sworn in as the 56th New Jersey Governor, and the State Legislature will convene its 218th session, with many new faces under the State House dome. Although the people in power are changing, our mission remains the same. We are committed to improving New Jersey’s civil justice system to ensure that all parties are treated fairly. The desire for a fair and efficient legal system crosses party lines and unites otherwise divided factions. Continue reading →
New Jersey is an outlier. Though nearly 40 states and the federal court system have adopted similar rules governing the admissibility of expert evidence, New Jersey has stuck with an older rule. Continue reading →
DeNittis Osefchen Prince P.C. of Evesham was expected to share in a $520,000 payment by the restaurant chain, a sum intended to settle a class-action lawsuit over the actual length of Subway’s six- and 12-inch sandwiches.
But a federal appeals court in Chicago has rejected the deal, saying it would have enriched attorneys while doing nothing for most Subway customers.
In a sometimes-sharply worded decision, the three-judge panel described the settlement as “no better than a racket.”
The Race to the Courthouse
The suit filed by the attorneys at DeNittis Osefchen Prince, was the first of eight similar lawsuits that were filed after a photo showing a sandwich measuring only 11 inches went viral. All the suits were eventually consolidated as multi-district litigation in the Eastern District of Wisconsin.
Plaintiff counsel soon realized their claim for damages had no merit since Subway’s bread dough is apportioned by weight, and standardized fillings means no consumer was deprived of any food. So, they shifted from a claim for damages to a claim for injunctive relief, and Subway agreed to a settlement, promising to implement the same quality control measures that were already in place, and to pay class counsel $520,000.
Frank appealed, and a Seventh Circuit panel rejected the settlement unanimously. Judge Sykes wrote the decision and condemned the settlement in scathing terms. Citing precedent from a previous Ted Frank objection, she wrote that “no class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand.”
This is Happening Too Often
The race to be first to the courthouse to file even meritless lawsuits exists because there is no penalty for being incorrect – the Subway suit demonstrates that even when that claim turns out to be meritless, the attorneys will still walk away with good chunk of money, absent an objection.
The attorneys in the footlong case plainly believe they did nothing wrong. In the Courier-Post article, attorney Stephen DeNittis disputes claims that the settlement was “a windfall for the attorneys at the expense of the class” He said, “Such was clearly not the case. There were 10 law firms involved in the 3 1/2-year-long action who devoted well over 2,000 hours in time in litigating the matter.”
Unfortunately for them, work put into a worthless project doesn’t turn a sow’s ear into a silk purse.
A Bright Line Rule
The New Jersey Civil Justice Institute supports Frank’s effort to create a bright line rule that will discourage class action abuse and inspire courts to toss sham settlements. Businesses should only be forced to pay out when they have done something wrong, not be punished for having deep pockets.
A new survey from the U.S. Chamber Institute for Legal Reform ranks New Jersey’s legal climate as one of the worst in the nation. 41st in fact. This is a drop of three spots since this survey was last conducted, and it is the lowest our state has ever ranked since the Chamber started doing this survey in 2002.
Our downward trend is troubling because 85% of the executives and attorneys surveyed report that a state’s litigation environment is likely to impact important business decisions at their companies, such as where to locate or to do business.
Troubling but not surprising.
The low opinion business leaders have about New Jersey’s legal climate is disappointing, but not particularly surprising. Since this survey was last conducted, our state courts have issued several opinions on arbitration and the admissibility of expert testimony that are out of the mainstream.
Our lowest ranking is on proportional discovery. The New Jersey Supreme Court’s Civil Practice Committee mentioned in its 2016 report that it was taking up this issue. The committee’s next report is scheduled to be released in spring 2018.
What can be done?
Speak up. The New Jersey Civil Justice Institute’s amicus program is an effective way to communicate with the court. We are always looking for cases we think will have a broad impact on the legal community, and we encourage litigants to let us know about any cases and issues of interest.
Participate in judicial rulemaking. Engaging the court in a dialogue outside of the courtroom is also important. The New Jersey Supreme Court has several committees it relies on for advice about court rules and polices. Serving on these committees, providing information to committee members, and commenting on committee reports is critical. NJCJI regularly gets involved with the rule-making process, and we encourage all of our members to do so as well.
It’s an election year. Last year we saw judicial appointments become a significant issue in the presidential election. Well, this year is an election year in New Jersey. When you meet candidates for governor, assembly, and the state senate, tell them we have the 41st worst legal climate in America and ask them to do something about it. Quality judicial appointments and good legal policy could dramatically improve our state’s reputation.
Legislature can lend a hand. The legislature could play a role in improving our state’s legal climate by passing one or all of the following budget-neutral, bi-partisan bills.
Passing this legislation would send a signal that our state’s legal climate is a priority for policy makers.
A silver lining?
If there is any good news in the survey, it is that opinions about state courts are rising overall. When this survey was first conducted back in 2002, the overall average score out of 100 for all courts was 52.7. Today, the overall average score is 67.5. This is a tremendous improvement, and evidence that critically examining our courts and insisting on improvements gets results.
There is no reason why New Jersey’s court system should hesitate take a hard look in the mirror and see where there are areas to improve.
Ted Frank, the founder and director of the Competitive Enterprise Institute’s Center for Class Action Fairness, has won several landmark appeals and tens of millions of dollars for consumers and other plaintiffs through his class action work. Adam Liptak of The New York Times calls Frank “the leading critic of abusive class action settlements” and the American Lawyer Litigation Daily referred to him as “the indefatigable scourge of underwhelming class action settlements.” Frank joined NJCJI to discuss the Subway “Footlong” settlement, explaining why class action settlements are so prone to abuse, and why consumers are better off when class action abuse is curbed.
Although prompted by a photo posted on Facebook by a teenager in Australia, the Subway sandwich litigation began when the first purposed class action was filed in New Jersey. Similar claims were filed in several other jurisdictions, and all suits were eventually consolidated as mutli-district litigation in the Eastern District of Wisconsin.
Plaintiff counsel soon realized their claim for damages had no merit. Bread dough is apportioned by weight, and standardized fillings means no consumer was deprived of any food. So, they shifted from a claim for damages to a claim for injunctive relief, and Subway agreed to a settlement, promising to implement the same quality control measures that were already in place, and to pay class counsel $520,000.
Ted Frank objected to the settlement, arguing that the class had received nothing and their attorneys were the only beneficiaries of the deal. The district judge nevertheless approved settlement.
The case represented a sort of perfect storm for Frank. The case had already garnered significant press coverage and been widely ridiculed as an example of frivolous litigation. And an appeal would be heard in the Seventh Circuit, where his previous objections have contributed to a significant body of case law on class action settlements.
The Seventh Circuit panel hearing Frank’s appeal rejected the settlement unanimously. Judge Sykes wrote the decision and condemned the settlement in scathing terms. Citing precedent from a previous Ted Frank objection, she wrote that “no class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand.”
Although the underlying claim in the case lacked merit, Subway was behaving like many corporate defendants – they wanted to minimize their risk, and faced entrepreneurial attorneys seeking to extort a settlement with the threat of litigation and public relations expenses.
Frank concedes that short-term incentives favor illusory injunctions that pay off attorneys, but argues that calculus must be about more than just the ex post decision to settle. Corporate defendants must also consider the ex ante decision by lawyers to bring lawsuits in first place.
The race to be first to the courthouse exists because there is no penalty for being incorrect – the Subway suit demonstrates that even when that claim turns out to be meritless, the attorneys will still walk away with good chunk of money, absent an objection. Frank argues that the solution to that incentive problem lies in a clear standard that bars certification of zero-value settlements.
If courts will not approve settlements that give nothing to the class, and instead require attorneys to share their extortionate settlements with class members, Frank says, there would no longer be a viable business model for frivolous class actions. Although some defense lawyers argue that they need the ability to settle meritless claims on the cheap, Frank notes that every time he has been involved in having a meritless lawsuit thrown out, plaintiff attorneys do in fact slink away, rather than redo the settlement so that the class shares in the money.
To extent there is any data on that, Frank points to the category of merger strike suits, following In re Walgreen Co. Stockholder Litig., which was the result of his challenge to a Walgreens settlement. In 2015, 97% of merger acquisitions requiring shareholder approval faced lawsuits – not because boards of directors were breaching their fiduciary duty, but because it was a good opportunity for extortionate lawsuits. Such litigation has since declined by 30% since the Walgreens decision came down, and Frank argues that the only reason we aren’t seeing even fewer suits is because plaintiffs are seeking out jurisdictions that don’t follow the precedent.
Frank says that there are two competing models for class actions: they can be understood as a substantive device for attorneys to function as private attorneys general, or as a procedural joinder device for aggregating individual claims for greater efficiency. The Supreme Court has been largely unanimous that it is a procedural device. Frank agrees, but contends that even if you believe more in the deterrence model of class actions, approving settlements of frivolous claims undermines the deterrent effect, because it punishes corporations for being deep pockets rather than for doing something wrong. If we really care about deterrence, we should want to get rid of the bad settlements.
The New Jersey Civil Justice Institute supports Frank’s effort to create a bright line rule that will discourage class action abuse. We appreciate his willingness to speak to our members about this issue.
Do you remember what you had for lunch yesterday? How about 2 weeks ago? How about 10 years ago? Even if you do remember, do you think you could come up with evidence – like witnesses or receipts – to back up your story, or do we just have to take your word for it?
The task of proving or defending any type of claim becomes more difficult as time passes. Witnesses become difficult to locate or pass away, records are lost or discarded, and memories fade. The ordinary “he-said-she-said” of litigation can turn into a one-sided allegation by a plaintiff that an event happened because the person says it happened, while the defendant lacks the ability to appear or muster facts that might disprove the allegation.
This is why reasonable statutes of limitations are important, and why we have joinedthe New Jersey State Bar Association and a broad coalition of other licensed professionals in support of A1982. The bill, which was introduced by Assembly Speaker Vincent Prieto, would establish a uniform, two-year statute of limitations for licensed professionals.
Right now, there is no standard statute of limitations for claims against professionals. This causes confusion for both plaintiffs and defendants. Some plaintiffs have even missed their opportunity to file a malpractice suit because there was confusion over the applicable statute of limitations.
A1982 will promote justice, discourage unnecessary delay, and preclude the prosecution of stale or fraudulent claims.