Knowledge makes it easier to get most from class-action lawsuits
They show up without warning in your mailbox, intimidating and drenched in legalese — but piquing your interest with the veiled promise of money.
Notices of class-action lawsuits or settlements are widespread and often confusing. Attorneys file them on behalf of consumers everywhere who were injured or cheated by a manufacturer, employer or securities issuer.
"The problem was you had to know exactly the amount of shares you had for a certain period of time to determine the amount of money you're due," said Zandrea Ambrose, 38, of the North Side.
She got a legal notice a month ago saying a mutual fund hadn't reinvested dividends correctly, cheating investors in the process. Her notice said the lawsuit applied to those who owned shares between 1999 and 2003.
"But I don't have that paperwork anymore," she said. "So it was basically useless."
Ambrose's quandary is common. But here are the rules of thumb, say experts, when you get a notice of a proposed class-action settlement:
• In most cases, you are considered a member of the plaintiff's suit, unless you actively opt out of the lawsuit. But read the notice, as you still might need to submit a proof of claim, such as dated receipts showing you bought a product or trading records showing you purchased securities.
• The reverse is true with a wage and hour class-action lawsuit alleging an employer violated overtime, minimum-wage or employment discrimination laws. If you receive a notice of the proposed settlement, you must actively opt into the lawsuit if you want to reap any of its payout.
"There, if you do nothing, you won't be a participant," said Gary Lynch, a class-action attorney at law firm Carlson Lynch, Sewickley. "If you want to get some money as a result of an outcome, you want to pay attention to the notices and respond."
For example, shareholders of Education Management Corp., Downtown, were notified of the class-action lawsuit Aug. 12 against the operators of post-secondary proprietary schools. The lawsuit, filed Aug. 11 in federal court in Pittsburgh, alleges the corporation "propped up" profits by "fraudulently inducing students to enroll."
"They took all these kids on and allegedly gave them plans to get in government loans, knowing full well that upon graduation (they) didn't stand a chance of repaying their loans," said attorney Neil Rothstein, of counsel to Kahn Swick & Foti, Madisonville, La.
Education Management called the lawsuit "without merit" and said it intends to "vigorously defend itself."
Consumer product makers are a frequent target of class actions. For example, a dozen companies that produced lawn mowers between January 1994 and last April were sued in federal court in Milwaukee.
Perhaps you recently got notice the class action against those manufacturers was settled, entitling consumers to receive "up to $35 for a walk-behind mower and up to $75 for a riding mower." The lawsuit, filed in May 2009, alleges the manufacturers "overstated the horsepower of their lawn mowers," a claim the mower makers deny.
Mower owners who submit their claim forms before the Aug. 31 deadline will split up $37.3 million, said the court. That is the cash award after subtracting $27.7 million in attorneys fees.
Detractors characterize class actions as fishing expeditions into deep pockets by manipulative attorneys. Proponents say such lawsuits are often the people's only means of fighting abuses or recklessness by big corporations.
However perceived, a class-action lawsuit follows a certain process.
• An attorney takes someone's case against an employer, product maker, bank, securities issuer, etc., and suspects many more people were harmed similarly to his or her client.
• That plaintiff's attorney petitions a judge — usually federal but also state — to certify the case as a class action.
• A legal "discovery" process determines the "class," or how many potential plaintiffs there are. It could be based on employee records, product-registration records or other means, including in-your-face television ads.
"Sure, they work. Lawyers are profit-seeking men and women and wouldn't buy commercials on cable TV and gin up websites if the ends didn't justify the means," said Darren McKinney, a spokesman for the American Tort Reform Association.
• Notices are sent to potential plaintiffs.
"In some cases, lawyers for the class will approach the defendant's lawyers and reach a tentative settlement before they've even filed the lawsuit," said Rhonda Wasserman, a law professor at the University of Pittsburgh School of Law.
• The class-action lawsuit proceeds in court or the case gets settled. In more than 90 percent of class-action cases, the plaintiffs and company defendant reaches some kind of settlement, say experts.
• The judge must approve any settlement before money or some other award is paid out to all the plaintiffs in the class — provided they submit claims.
"In most class-action lawsuits, there's a considerable number of people who do not follow up and file a claim. I'd say between 10 percent and 40 percent," said William Caroselli, a class-action attorney at Caroselli Beachler McTiernan & Conboy, Downtown.
"It's especially true in securities cases," said Caroselli. "Most people don't keep records on the period of time they owned a stock."
Jim Delaney, 63, of Squirrel Hill, is an exception. He had held onto years-old records of purchases of shares in an Alger Funds equity mutual fund. Turns out, Fred Alger Management Inc. got sued in a class-action alleging the firm traded securities too heavily and illicitly traded them after hours — claims the firm denies.
In early June, Alger agreed to settle for $4.8 million, and Delaney got his notice.
"I had no clue this was coming," he said. But Delaney read the notice, found his trading records, and mailed in his proof of claim.
Delaney, a retired Mellon banker, doesn't quite know what kind of award to expect. But he notes a similar case involving Xerox shares about two years ago led to an $80 check in the mail.