Lawyers who follow the Fifth Circuit will read the title of this post and think plaintiffs lost again. Why? Partly because that court deserves its rep for pro-defense outcomes, esp. in smiting class actions. But also partly due to Blawgletter's use of "stock drop", a phrase that (to some) screams "stick up".
Yet some of you hardy souls will pause. "Give them a chance", you will say. "They don't always empathize with policies that favor false negatives." The little guy sometimes has his day, you insist.
But then you will read the quote that follows, and your crest — alas — will fall:
“[C]lass certification creates insurmountable pressure on defendants to settle, whereas individual trials would not.” [Castano v. Am. Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996)] (citation omitted). “The risk of facing an all-or-nothing verdict presents too high a risk, even when the probability of an adverse judgment is low.” Id. (citation omitted). This risk is particularly high in securities-fraud class actions, in which the current “class based compensatory damages regime in theory imposes remedies that are so catastrophically large that defendants are unwilling to go to trial even if they believe the chance of being found liable is small.” Janet Cooper Alexander, Rethinking Damages in Securities Class Actions, 48 STAN. L. REV. 1487, 1511 (1996). Some have observed that seeking class certification to force favorable settlements does not benefit small investors but instead resembles a shake-down or "judicial blackmail."
Fener v. Belo Corp., No. 08-10576, slip op. at 5 (5th Cir. Aug. 12, 2009) (footnotes omitted).
Don't get us wrong. We think the court reached the right outcome: the plaintiff side didn't show it could prove that false statements caused the price of Belo stock to inflate and then, when the truth outed, take a plunge, leaving people who bought high with losses.
But what purpose, pray, does the court serve by saying that class treatment "creates insurmountable pressure" to settle (it doesn't) and that seeking it "resembles a shake-down or 'judicial blackmail'" (which we suppose every try at winning damages resembles)?
Let us leave that to one side. What evidence does the court offer? Quotes from a 1996 case that denied class-wide handling of claims against tobacco companies and from a 1996 law review article on damages?
No. Not just that. The court also cited, in footnotes, two 1991 articles — another law review piece by the very same professor and a The Wall Street Journal op-ed, which the author styled "The Class-Action Shakedown Racket". Quod erat demonstrandum?
Seriously, folks, judges ought not go around repeating stuff just because it sounds good to them or fits their world view. We dare to suppose that no member of the Fener panel ever handled a class case as a lawyer through certification — and we repeat the ever. And can say for sure none did so since 1991, when the newest judge left private (maritime) practice. So how can they write for the ages that defendants can't surmount settlement pressure, that certifying a class amounts to a crime?