Rob Peter to pay Peter’s lawyer

Posted on February 18, 2009
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Class actions are becoming ridiculous. One of the most insane recently concluded in Florida. It originated when the state vehicle and drivers licencing bureau sold access to its list of drivers and car owners. Canadian provinces do that. How else would the War Amps know you are a potential client for key tags and where you are? Apparently it violates a privacy act in the US.

In Florida, four, yes FOUR citizens initiated a class action against the state. The case wended its way through the courts for six years. Finally, there was a settlement for $10.4 million.

The four citizens who launched the action will get $3,000 each. The rest will be distributed to people buying licenses. This year, they will each get a one-dollar credit on their licence purchase. Ya*******hoo!

Five law firms got in on the case. They will share $2.85 million. That is just a titch shy of 27.5% of the loot.

The costs to the state, of course, are considerably higher. In addition to the costs of the settlement, the state must pay its own lawyers and pay for the operation of the court system. There was even a considerable amount of expensive time used up arguing about the fees charged by the law firms. For research staff who cost a total of $30 per hour, the firms were charging $235 per hour to the settlement. Some people thought a $700% markup excessive.

The punch line of course is that the very same people who get the dollar credit are the ones who will pay the settlement and all the costs. The state has no place to get money except from taxpayers.

The net result of the court battle is that the Floridians moved all that money from one of their pockets to another and paid law firms more than a quarter for every dollar moved. Including the state’s costs, it probably comes to about half a buck per buck.

It is as if a lawyer came to you and said “I can get you a deal where you receive $1.00 for every $1.50 you give me.”

Why can’t you and I get millions of people to go for a deal like that? Captain Jack Sparrow would be all atwitter at the idea. He would never need leave shore again.

Now here is the combination punch line.

As a retired geezer with all of my empty bottles converted into mutual funds of one kind or another, I own teensy, tiny bits of dozens, perhaps hundreds of companies every year. So do you, even if your only participation in the market is the money the Canada Pension Plan fund invests all over the world. If you have an RRSP holding mutual funds, you are a player.

Every couple of months, for the past few years, I have received fat packages of papers in the mail from some law firm. They want me to fill out pages of documents to qualify for a share of a settlement they either won or hope to win. I can never tell.

If I prove I owned shares, or a share of a share, for a share of the time the company committed whatever sin it is alleged to have committed, I might receive a share of the settlement. In most cases, the shareholders’ shares might come to a few cents or a few dollars each, like the Florida case.

You and I could spend $50 to get a buck. Occasionally the payback might be enough to make the claim worthwhile but have you ever heard of a mutual fund investor getting a big windfall? I have not. Lottery tickets are probably a better investment of the cash value of your time.

Now, let’s go back again to where the settlements come from. They come from the company. Who owns the company? Well, on some particular day at some time in the past or present, you did and I did. So, if our company pays out a settlement, where will that come from? Why, from the profits our company would have had and might have paid out in dividends or increased share value to you and to me.

It is just another case of the more we win, the more we lose.

This is not to say that companies ought to be able to break the law or cheat shareholders with impunity. Officers, directors and staff ought to be held accountable for their actions. Federal exchange regulators should investigate complaints. Offenders should go to jail when they break the law. They should be fined, suspended, fired, or, banished from their industry or profession when they are negligent.

There is an expression that “He who robs Peter to pay Paul can usually depend upon the support of Paul.”

Peter should not support Peter’s lawyer to rob Peter.



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