Lawyers’ nightmare: When 9th Circuit Chief Judge Kozinski is class objector

November 20, 2013

Alex Kozinski, Chief Judge of the 9th Circuit Court of Appeals is known for (among other things) his intellect, his libertarian leanings and his sharp writing style. I appeared last year on a panel with Kozinski and can attest to his charm and humor. But when Kozinski uses his wit against you, it stings. Just ask lawyers at Capstone Law and Sedgwick, who had the bad luck to negotiate the settlement of a class action in which Kozinski is a class member. That would have been fine if Kozinski were a satisfied client. He’s not, and as you can see from the brief he and his wife, Marcy Tiffany, filed last week in opposition to final approval of the settlement, Kozinski spares neither side.

The case, filed in September 2012, involves claims that Nissan didn’t tell buyers and leasers of its electric car, the LEAF, that the car’s lithium battery would deteriorate if they clocked a lot of miles or regularly charged the battery to its full capacity. In December, class counsel at Capstone and Nissan lawyers at Sedgwick agreed to the terms of a settlement that requires Nissan to repair or replace batteries that cannot hold at least most of their charge. Capstone moved for preliminary approval of the settlement in July. Its valuation expert estimated the warranty relief the class had obtained was worth between $38 million and $200 million.

Capstone touted the quick resolution of the case as a boon to the class, since the new warranty would restore lost battery capacity while LEAF drivers are still driving the cars. Drawn-out litigation, Capstone argued in its motion for $1.9 million in fees, would serve only to delay the objective of making the cars operational, and money damages to former LEAF owners would be eaten up by administrative costs. “Even if plaintiffs were to prevail at trial after years of litigation, it is difficult to see how that would result in relief more comprehensive than that provided by the settlement agreement,” the plaintiffs’ brief said.

Judge Kozinski had no trouble envisioning such an outcome. Who knows what plaintiffs lawyers might have obtained in a settlement, he said, if they’d even bothered to conduct discovery on Nissan’s documents before entering the deal? “That’s right, plaintiffs’ counsel sat down to the negotiating table and cut a deal, without knowing a single thing about what cards their opponents held,” Kozinski said in a Nov. 11 brief. “For all counsel knew – for all they know even today – there are memoranda and reports in Nissan’s internal files disclosing that the LEAF’s Lithium-Ion battery suffers from a variety of defects, and that Nissan nevertheless decided to go to market with it.” Without discovery, the judge argued, there’s no way to judge the merits of the settlement.

After entering the settlement, the judge said, class lawyers paged through some documents supplied by Nissan, but by then their review was tainted by the $1.9 million in fees they’d negotiated with Nissan. “At that point, plaintiffs’ counsel no longer had an incentive to look for evidence establishing liability; their incentive was to get the settlement finalized so they could cash in their bounty,” Kozinski wrote. “Finding a smoking gun was the last thing counsel wanted, as it could call into question their judgment in having settled the case without having conducted discovery.”

And that $38 million valuation of the settlement? Preposterous, according to Kozinski. (He didn’t discuss the $200 million upper-range valuation, aside from opining that plaintiffs’ lawyers “should be ashamed to even mention (it).”) The $38 million valuation was based on unfounded assumptions by the plaintiffs’ expert, Kozinski said, and ignores the value of the warranty already available to LEAF owners. In fact, according to the judge, class members might end up worse off with the settlement than without it, if Nissan were able to use the new class warranty to shirk liability under the existing guarantee.

Kozinski also claimed that Nissan made a promise to LEAF owners outside of the class action to repair or replace under-functioning batteries. The class, according to Kozinski, was being asked to surrender claims in exchange for relief Nissan had already offered.

“The settlement is worthless – or worse,” he wrote in the Nov. 10 brief. Kozinski said that after meeting with Capstone, he and his wife were “willing to believe” that the plaintiffs lawyers were not colluding with Nissan. (In a filing on Nov. 5, they specified that they do not doubt the good faith and ethics of the plaintiffs lawyers.) But the Nov. 10 brief said that Kozinski and Tiffany “are not convinced that plaintiffs’ counsel acted diligently, or in the best interests of the class,” the brief said. “As a result, no one – except Nissan – has any idea whether the settlement is a good deal or a bad deal for the class.”

Kozinski was almost as hard on Nissan as he was on lawyers for the class. By the time the class settlement was announced, he said, Nissan had already heard an earful from LEAF customers about problems with the car’s batteries and had put out various public statements addressing those complaints. According to Kozinski, the company promised in June, before the settlement notice went out, to take care of underperforming batteries. It appeared to Kozinski and his wife that Nissan was quite possibly using the class settlement for its own public relations ends, according to Kozinski. ” We know for a fact that Nissan lies to its customers,” he wrote. “Nissan is, after all, engaging in a huge deception right now by representing to this court that it is implementing the warranty in order to settle its case, while telling its customers that it’s doing so to ‘improve our customers’ satisfaction’…. For all we know – and this is very likely – Nissan was desperate to quell consumer complaints and came up with this bogus warranty on its own, then decided to sell it as some great boon to gullible plaintiffs’ counsel, who snapped it up like a hungry trout.” (I know I’ve quoted Kozinski at length, but he’s too quotable to resist.)

Kozinski and his wife, who were among 13 objectors to the LEAF settlement, asked U.S. District Judge Beverly O’Connell of Los Angeles to reject the settlement and order expedited discovery and a trial. At least, they said, she should force Nissan officials to state under oath whether the class action prompted the company to offer a new warranty on the LEAF batteries and to promise not to withdraw warranty coverage for opt-outs. According to a minute order in the docket, Kozinski even appeared Monday before Judge O’Connell to make his argument in person. He was the only objector to argue at Monday’s fairness hearing.

Nissan’s response to Kozinski’s objection devotes many pages to defense of the LEAF, its battery and Nissan’s commitment to customer service. Nissan also disputed Kozinski’s argument that it promised to restore battery capacity outside of the class action settlement. It had already reached a preliminary deal to settle the class action when it determined to offer the new warranty to LEAF drivers, the company argued. “That kind of proactive behavior is consistent with public policy and should be applauded, not criticized,” the company said.

Nissan also argued that Kozinski’s insistence on deep pre-settlement investigation runs counter to the deference our system is supposed to give to private parties entering an arm’s-length deal. “In essence, objectors advocate a per se rule forbidding class settlements before expensive document and deposition discovery has occurred,” Nissan lawyers at Sedgwick wrote. “This position, however, is plainly out of line with the judicial system’s deeply rooted public policy in favor of settlement.” Nissan threw back at Kozinski decisions in which his court, the 9th Circuit, has OK’d class action settlements reached without much pre-deal discovery, including the Facebook case recently addressed by Chief Justice John Roberts of the U.S. Supreme Court.

Public interest lawyer Paul Bland of Public Justice picked up on the same point as Nissan about Kozinski’s insistence on pre-settlement discovery, although he – unlike Nissan – applauded Kozinski for understanding the value of investigating corporate defendants. Bland said he wished Kozinski’s fellow conservatives felt the same way. “Judge Kozinski’s statement that lawyers have to dig through the concealment to get to the truth is completely inconsistent with the campaign to make it harder for plaintiffs to take discovery,” he wrote. “The obvious corollary of the judge’s comment is that proposals to limit discovery conflict with the campaign to choke off a good deal of the discovery available to individuals. In the judge’s own words, if plaintiffs’ lawyers can’t find out ‘everything the corporation knows and hopes to conceal,’ then they can’t do their job.”

By email, Judge Kozinski said he can’t comment on the argument he made Monday, though he passed along his filing of supplemental authorities, which suggests that oral argument Monday focused on the legal question of whether Nissan’s warranty offer outside of the class settlement is binding on the car maker. Nissan counsel Paul Cauley of Sedgwick declined to comment.

Class counsel Jordan Lurie sent an email statement: “We have the utmost respect for Ms Tiffany and Judge Kozinski, but their objection is without merit, and based on several misunderstandings,” it said. “The settlement creates a new and unprecedented warranty against excessive battery capacity loss for all 2011-2012 Nissan LEAFs nationwide, which is an outstanding result. Final approval will ensure that the new warranty, negotiated by class counsel, cannot be terminated, withdrawn, modified or rescinded by Nissan.”

(A previous version of the story erroneously said there were 134 objectors. There were 13.)

(Reporting by Alison Frankel)

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As someone who was very concerned about the quality of this settlement; had opted out; and had contacted counsel about a new suit where my concerns would be more adequately addressed, I am very glad to have Judge Kozinski on my side. This settlement should not be allowed. It benefits Nissan, the named plaintiffs, and the named plaintiffs’ counsel, and does precious little for the class beyond those named.

So far as Nissan’s threat to withdraw warranty protections for those who opted out – their notification for the warranty makes NO reference of it being the result of a class action settlement. I’d be willing to sue them again just based on that (and will, if necessary!)

Posted by mwalsh5757 | Report as abusive

I’ve read the complaint and the Judge Kozinski’s objection. The supposed class settlement is a sham, and lines the pockets of Capstone Law and sells out the class for future remedy. Their legal work, besides being generally sloppy on several administrative points, breached the fiduciary duty they owed the class. The judge argues for sanctions and notification to the bar, and he’s right. It’s not a matter of “misunderstanding”; it’s worse than bad lawyering, as it’s a rather willful exhibit misrepresentation and self-dealing by Lurie et al at Capstone.

Posted by TRedden | Report as abusive