The Anthem Class-Action Con
Plaintiff attorneys aren’t easily shamed, but they should be after a rebuke by a federal judge in California for trying to con class-action victims.
Four law firms last year negotiated a $115 million settlement with insurer Anthem to cover a 2015 data breach that compromised 79 million birth dates, Social Security numbers, addresses and income data. Yet a mere $51.4 million would go to victims—$0.65 on average per member, including the cost of free-credit monitoring. Attorneys demanded $63.6 million because of what they called their “exceptional results” and the “extremely risky nature” of the case.
Class actions involving data hacks are difficult to win since the victims may not suffer immediate, concrete injuries. It’s also hard to link cause and effect. If you shop at Targetand belong to Anthem—both companies that have experienced data breaches—how do you know which is to blame for a phony account opened in your name? This is why plaintiff attorneys typically move to settle cases, which is often less expensive for defendants than arbitrating individual claims. Avoiding trials also allows them to make a quick buck.
In addition to demanding a large contingency fee, attorneys managed to produce some astonishing billable hours. The four lead firms—Altshuler Berzon (San Francisco), Lieff Cabraser Heimann & Bernstein (San Francisco), Girard Gibbs (San Francisco), Cohen Milstein Sellers & Toll (Washington, D.C.)—farmed out work to 49 other firms including some that federal Judge Lucy Koh, an Obama appointee, excluded from the case. This resulted in duplicative work and increased the fee by $13.6 million.
“I never would have approved 53 law firms in my case. If I thought eight was too many, what made you think I wanted 53 firms churning on this case?” Judge Koh scolded the attorneys recently. This profit-sharing agreement may be an antitrust violation if they colluded to carve up other cases or raise their rates.
The judge also asked why 100 of the 329 attorneys who performed routine tasks like document review were partners at their firms and a couple dozen were contract attorneys charging $300-$400 an hour. The prevailing wage for contract attorneys is $25 to $50 per hour. “I would like you to find a single paying client that would have approved these type of markups in a contract attorney,” she told the attorneys. “I’m entitled to know how much profit you think you’re entitled to with regard to every one of these people.”
The judge intends to direct a special master to investigate the billing records. Credit to Ted Frank of the Competitive Enterprise Institute for objecting to the settlement and blowing the lid off the scam. Plaintiff attorneys are this brazen because their chicanery rarely draws judicial scrutiny, particularly in the Ninth Circuit Court of Appeals where judges generally rule in their favor. The U.S. could use more Ted Franks and Lucy Kohs.