Defending litigation is a core function of The Legal Department, but class action cases are different. The stakes are higher, the risks are greater, and all eyes are on the General Counsel to steer the ship through what can be the highest litigation exposure a company can face. Not to worry, Chris Chorba, an expert class action defense lawyer at Gibson, Dunn & Crutcher, is here to help steady your nerves. Intelligent, creative, and passionate, Chris shares his insights on how to best position your company to defend class action lawsuits and how an arbitration agreement can be your best shakedown repellent. From choosing defense counsel to selecting a claims administrator, Chris shares what you need to know to steady the ship.

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Listen to the podcast here

 

Shake Down Repellent: How To Survive A Class Action Lawsuit Chris Chorba, Co-Chair Class Actions Practice Group, Gibson, Dunn & Crutcher

On this episode of The Legal Department, I’m excited to welcome Chris Chorba, who’s a partner and co-chair of the class action group at Gibson Dunn. Chris and I have known each other for many years, and I’m lucky that you can’t see my googly eyes at him because I have the biggest brain crush on him. We’re going to be talking about class actions. That’s something that can be surprising in the GC office if you’ve not had that experience, and Chris is going to lead us through. Chris, how are you?

Stacey, it’s great to chat with you.

I really appreciate you being here. When I was getting ready to get on this morning, my ten-year-old said, “Who are you talking to today, Mom?” I was trying to describe, “He’s a lawyer at a big firm, and he handles really big cases.” She was like, “That sounds really exciting. Or not, I don’t know.” For our audience, I think it is an exciting topic. Before we jump into too much blocking and tackling, you co-lead the firm’s practice group. How did you get into this work? What has kept you in it and interested for so long?

Our firm has a free market system. When you’re a brand-new lawyer, you come into the firm, and pretty much anybody can call you, or you can call anybody and choose the type of work. I was like a kid in a candy store at Gibson Dunn. I loved litigation. I loved all of our practices. I was very fortunate that Gail Lees, who was really the founder of the class actions practice group, I think nationwide, but also at Gibson Dunn, took me under her wing. I found that I just loved the cases. I loved the clients. I did a lot of consumer work. I learned a lot about products that people know and love and household name brands that everybody knows about. I loved the people. I did also a lot of work with Ted Boutrous. He’s obviously a fabulous lawyer, and I just learned a ton from Gail and Ted. It was interesting because, after only a few years, you become an expert in an area. That was a little unnerving but also a little gratifying, to have an area that, very early in my career, I was able to specialize in and learn a lot about.

I’m happy to hear you even acknowledge that, as you were a junior lawyer, you developed expertise here. I will tell you, in the GC office, and you probably know this from your other clients, I feel like I am jack of all trades, master of none. My head’s on a swivel, there are a million issues. Especially, a lot of folks in-house can come from a transactional background. They may not have a litigation background. Class action feels like a big deal when it lands on your desk and can be overwhelming. It’s something that you need to bring to the highest levels of the company. Just to help us deal with those big feelings and feeling lost, what should somebody do when they first get a class action case?

What Is A Class Action Lawsuit?

We don’t say this to alarm people, but you’re exactly right. I think in-house counsel views it as a DEFCON 1 thermonuclear attack. It’s a very serious threat because, going back to your daughter, what are class actions? Imagine if you were representing everyone in your school. It’s not just one against the company, it could be millions against the company. It’s critically important to have the necessary expertise. I don’t want to say that in my own self-interest, but you’re exactly right. There are very few clients that I know that have in-house specialists on class actions because it’s a very specific type of case.

There are many lawyers I’ve worked with in-house at Apple, Meta, Warner Brothers, and other companies who have extensive experience from private practice and also their work and are as knowledgeable as any outside defense lawyer that I’ve encountered. But I think the first step is these are different. You have to think about them differently. A lot of the ways you maneuver early on in a class action are sometimes the exact opposite of the way you would handle a traditional commercial litigation matter. You have to constantly think about different ways. Not every case is the same. There’s no playbook.

That’s what we’ve found, it’s just really important to communicate that. I have the privilege of representing a lot of companies that have their first class action. I think that’s how you and I got to work together. It was one of the first that the university had had. What I appreciated about working with you and others is you had significant value-add, but you also knew what you didn’t know and relied on our expertise. Then collaboratively, we were able to come up with the best strategy.

Thank you. I will say it does feel like a different kind of litigation. One particular aspect I will note, and I think this is a widely held perception, is that you’re never going to win a class action. The best you can do is suffer through and get a reasonable settlement. I wanted to just ask, you’ve been doing this many years. Do clients, do defendants, ever win? Do people take these all the way?

Yes, you do win, although I think you have to define what victory means. Let me give you a couple of examples. You can win on a motion to dismiss, but at that stage, pre-certification, that’s only against the named plaintiff. Nothing except that ruling is out there to deter plaintiff number two from trying to pick up the baton and run the same race. You can win at class certification, and you can defeat class certification, but the case still goes on. It’s still the named plaintiff.

I’ve had plenty of cases where we’ve defeated class certification, and the plaintiff has pursued individual relief, and you’re still doing all the expensive litigation. You are right in that unless you get a class certified, which everyone wants to avoid, and you either prevail at summary judgment or another dispositive motion, or you take it all the way through trial, which is incredibly risky, and get a final judgment against the class. The other path is settlement. You can’t get global peace. I think defining victory in class action is a little bit different from your traditional lawsuit.

I like the way you’re framing it. Again, that’s one of the reasons I really enjoyed working with you, you’re very strategic at this macro level. Early on, what are the first things that you’re looking at? I feel like a lot of conversations I always have are who’s the plaintiff’s counsel? That seems to be a big factor in the cases, as opposed to a regular individual case where you’re really more focused on the facts, maybe. What are some of the nuances of the first decisions on class cases?

I think you’re exactly right. When a client asks me to submit a proposal for a matter, that’s always on their list, who’s the opposing counsel? What’s your experience? Who’s the judge? What’s your experience? Tell me about similar cases in this industry or similar types of claims and how you handle it. Those are all issues that you examine. I think it’s difficult to just paint with a broad brush and say, this is plaintiff’s lawyer X, and this is how they’re going to do it. A lot of times, they may have different co-counsel, they may have different junior associates who are working up the case. I’d say the same thing about judges. I think judges are probably the most significant factor. They’re human beings. Judges have different perceptions and approaches.

Our federal judges, especially in California, have a lot of experience with class actions. I would almost say they’re on par, if they don’t exceed, a law professor who studies Rule 23 and opines on Rule 23. They deal with this every day. Their dockets are flooded with class actions. That said, while certain judges you know have certain predispositions to arguments, to whether or not to certify a class, that’s why I said earlier, you always want to approach it differently. No judge I’ve ever encountered will prejudge a case, will decide a case before they hear the arguments.

Nothing is more gratifying than having a case before a judge, I’ve had a few of these, fortunately, where a competitor lost the exact same case against the exact same lawyer, and we come in, we present it from a different perspective, and we’re successful. That’s why I said as well, there’s no playbook. It would be foolish to repeat what that defendant did and expect a different result.

I got to say that you’re giving me a little bit of hope, because my bias would be like, this same case was before the same judge, and it was a loser. “Let’s just get out the checkbook” would be my instinct.

There are circumstances, and the cynicism is what probably bothers me the most, and the way companies are portrayed in Hollywood. These are good people. These aren’t faceless, nameless entities. These are organizations run by really good people who care about their job. Again, I’ve had the privilege of representing some of the most incredible companies in the history of the world. I really do mean that. They’re trying to do the right thing.

I’ve had clients who have come to me, Stacey, and said, “Look, we messed up. We need to do right by our customers. How do we do this now that we’ve been sued? Because we want to manage it. We want to get the money to our customers.” I’m sorry to say they don’t want to enrich plaintiff’s counsel, who just got lucky in a case. There are cases like that. There are cases where you look at it, and you investigate it, and you have to steer it toward a resolution.

That’s why it’s important, this is another key point, you have to maintain strong relations with opposing counsel. Very few big cases go to trial these days, even smaller fractions of class actions do. I’ve found you can be very contentious. You can be very at each other in the litigation. You can do that professionally.

 

I’m reminded of a scene in the Mel Gibson movie The Patriot, where the British general is scolding one of his deputies, “We’re going to have to do commerce with these people. Stop being so ruthless in the way that you’re implementing my orders.” It’s not an analogy, but that’s the way I think, and I tell the associates to deal with opposing counsel. At every point in a class action, you sit down and have a settlement conversation. Every single case, even if you win a motion to dismiss, you sometimes negotiate an individual resolution to avoid an appeal because you want to preserve that win. I think that’s critically important because you have to have the ability to pick up the phone and engage the other side.

Let’s talk, though. I appreciate that they’re not all created equal. The plaintiff’s counsel, however, I wonder if there are any similar characteristics or interactions that you’ve had. What I’ve heard from other defense counsel is the class plaintiff’s counsel don’t want to do work. They want to spend as little effort as possible to maximize the return. Is that an accurate perception?

At a broad level, I would say, yes. I’m going to qualify it. That’s just because, like anybody, I think they’re entrepreneurs, they’re business people. We may not like their chosen business profession of oftentimes shaking down our clients. There are a lot that specialize in that. I’ve also worked with a lot of these folks. I will say some, a lot, really, are, again, good people. We just have a different worldview.

However, those incentives, you have to be careful because you can’t call that out directly. A lawyer will get very offended if you say, “You only brought this for fees. Come on, let’s pay you the fees and just go away.” First of all, they can’t do that. That would be a collusive settlement that wouldn’t get approved. They can get in a lot of trouble with the bar, with the court.

However, you need to be mindful of that financial incentive, and there are creative ways that you could, again, get relief to the customers in a settlement and the class members but also compensate opposing counsel, because that is the elephant in the room. That is what drives these cases. Again, I have a lot of friends on the plaintiff’s bar. I’m not trying to antagonize or insult them, but it’s a reality. I think if you ignore that reality, you’re not doing your job.

You said there’s some things you can do to incentivize that. What are those tactics we might use?

I’m a big fan of early discussions and getting your arms around the facts as early as you can in a case. That’ll help you in several respects. When you’re drafting the motion to dismiss, you’ll be aware of pitfalls or potholes in a case, and you need to know that. Also, I often have a motion to dismiss hearing. I had one a few months ago where Judge Kronstadt asked me, “I know you have to accept the facts as true, but I’m just curious where this case is going.” Fortunately, I’ve represented this company. I knew the facts, and I was able to authoritatively answer his questions with a very high degree of confidence. I caveated it, we’re early in the case. Anyway, all of that investigation, I think I like to pick up the phone and call opposing counsel. I don’t do this in every case. At this stage of my career, I think I have credibility when I pick up the phone.

I heard an old adage when I was very early in my career from a very experienced senior plaintiff’s lawyer who said, “If I’m going to fall off the mountain, I want to fall off at the bottom, not climb all the way to the top and then fall.” It just resonated with me. I’ve sometimes used that when I’ve explained to opposing counsel, “You may get past a motion to dismiss either because of the case or the judge or you’re pleading a fact that’s false. I can’t say it’s insufficient to state a claim, but it is false. Here’s all the reasons why it’s false. We can spend millions of dollars through discovery, through summary judgment. You can get there, or we can do this now.” Sometimes, you back that up with a client declaration, or I’ve even done early depositions or even an interview with my client. You can size them up on a Zoom call, see what you want.

I like that. That feels accessible.

Something like that you would do in the context of an explicitly protected mediation discussion, a privileged settlement discussion. You’ve got to be careful because the plaintiffs are still being educated, and they may size them up and have a totally different view. I have had that happen. It’s a way for you. I think the more open you are with opposing counsel early on, that also builds credibility. Again, you can’t do it in every case, and not every case calls for it, but in the appropriate case, that’s a way to steer them away. I found a lot of plaintiffs’ lawyers have thanked me because, again, at bottom, I think they’re business people. They’re trying to maximize the return on their investment. If you convince them that this isn’t a worthy investment, and despite everything that appears from the face of the pleading, they benefit and they appreciate that. The next time I call them, as long as I don’t do it every time they see my clients, I have some credibility with them.

 

Managing Co-Counsel Dynamics

We’ll get into choosing defense counsel a little bit later. Something you said earlier I wanted to follow up on, which is, you said even if you have experience with a certain plaintiff’s lawyer, the dynamics in the next case may be different. For example, they have different co-counsel. I’ve had that experience where one of many plaintiffs’ firms is involved, and one of them is reasonable. One of them wants to play ball. There appears to be discord among the others. Is there anything, or maybe you can share some of your experience with that and how you can try to influence that?

It’s a real problem. I’ll tell you one of the tools that we’ve used to address that is, my opposing counsel knows this, if I have multiple firms and multiple mouths at the trough early in a case, what I’ll do is I’ll file a Rule 23 motion or request that the court appoint interim class counsel. Most of these cases, the plaintiffs’ lawyers welcome that because you’ve got 6 or 7 firms, let’s say, for a single class action. We can all agree that’s excessive. If it’s a big MDL, different story. We have tools to deal with that. If it’s just one named plaintiff or a lawsuit, you need one firm. There are judges that I’ve appeared before that I just applaud, that will say that early on and deal with it early on.

They can kick out the other six?

What they can do is they can appoint interim class counsel. The rule allows that. I ask the judge to do that. I’ll sometimes get a phone call from people I know on the other side, and I’ll say, “Chris, thank you for doing this because we can’t organize ourselves, and I can’t kick them out. I have no right to kick them out. You’re doing us a favor, and I hope I win. Even if I don’t win, I’d rather know early on.” Judges will do that, Stacey, I’ve never had a judge who has not done that.

That’s amazing. Maybe other people that litigate a lot in this space know that. I don’t know that, so thank you for sharing. It feels like a win-win, actually.

It really is. In particular, I’ve appeared before a lot of judges where this is their first big class action or even MDL. We’ve done it. We’ve said, “Here’s some cases.” Judge Koh had a really good case in the Anthem, it was an Anthem data breach case years and years ago, where she was at the end of the road, and she got the application for fees. She basically said, “You violated all the instructions that I told you. One lawyer per deposition or travel using economy class. If you want to travel first class, that’s on your dime, not on the class’s dime.” I cite that decision. I say, “Let’s deal with this at the front end of the case.” I really wish more lawyers would do this. It’s not a specific tip that I don’t want to share, like a secret sauce. I want all lawyers to do this. When I speak at conferences, I encourage my co-defense counsel to do this because I think it helps. Like you said, it helps everybody. I’ve never had a court that said, “I’m not going to do this. I can’t do this.”

I’ve always felt, and I’ve always told the client, even if we’re in that situation, fast forward three years. If we’re facing an excessive fee application, you never tell a federal judge, “I told you so.” Go back to that and say, “We reserve this objection. We noted this objection.” By the way, in the cases where a judge has appointed 2 or 3, if I notice, I take notes on every call, how many plaintiffs’ lawyers are on, how many defense lawyers are on. If they’re flooding these calls with lawyers who aren’t speaking, who don’t have a role, I send a letter and I say, “The judge ordered you this. You had seven lawyers on this call. You can litigate how you want, but I’m just warning you, when we’re in mediation, and you’re asking for fees, this will be an issue. I’m flagging it for you.

I want to give people a little more insight as to why this might be a helpful thing, because I think if you don’t have a ton of experience and you’re in-house defending this, you can think our job is just to get this resolved. This is just to get us to the settlement table. Internally, we might be able to align on a number or injunctive relief or whatever. There’s chaos on the other side of the table. All that good work and all your motivation and momentum to get it done can fall apart because the other side is a shit show.

That’s exactly right. Let me give you an illustration of why it matters. I’ve had a lot of cases where plaintiffs’ counsel are upside down in a case pretty far into it. For example, let’s say you lose the motion to dismiss or you don’t win it entirely. You’re doing discovery for class certification. There are often cases where plaintiffs’ lawyers realize, “This isn’t what I thought it was.” Even when you have the early discussion, they don’t listen to you. They’re not convinced. They decide to go forward.

I can’t tell you how many cases I’ve had, Stacey, where I’m in mediation, and I ask the mediator to ask what the lodestar is. It’s $5 million. It’s $6 million. This is a case where it will take me, at max, a million dollars, and the client’s exposure is $10 million. I’m using made-up numbers, but I’ve had those exact scenarios.

Can you pause and just tell people what load star is in case they missed that in law school?

Yeah, of course. There are many different ways to recover attorney’s fees in a case, including in a class action. The traditional benchmark is load star, which is your hourly rate for each lawyer times the number of hours each lawyer works. If it’s $1,000, ten hours, that’s $10,000. You just do that for every lawyer in the case, and it adds up. I’m intentionally using $1,000. Years ago, that was considered a holy grail number. No one was ever going to cross that. It’s a ceiling.

I’d love to go back to that time in life.

You’re speaking as an in-house lawyer. In any event, I get the number back in mediation, and it’s $5 million, $6 million, or opposing counsel will just tell me that. I’m very clear, I’m not negotiating fees. There’s a sequence you have to negotiate in class actions. We can talk about that. I want to know because I don’t want to waste your time, and I don’t want to spend $20,000 on a mediation to find out you can’t settle. By the way, there are also a lot of lawyers in that circumstance who will take a big loss. Not every lawyer is willing to do that. Not every lawyer can do that. That’s why it’s important, I think, early on to manage it, to make sure it’s not just open season for billing on the plaintiff’s side.

Assessing Value When Choosing Defense Counsel

Look ahead, because it could derail everything. There are a couple other places I want to go on this piece. Again, I have a huge brain crash on you, just these little hot takes you’re dropping. I’m glad I don’t have a bunch of class action work, but if I did, you’d be my first call. Not everybody has Chris Chorba on their speed dial. If you can, agnostically, not pushing Gibson Dunn, what are factors that in-house counsel should use in evaluating defense counsel for class cases?

Number one, and it by far is value. I’m not saying price intentionally. I’m saying value. What frustrates me when I lose a pitch is they’re obsessed with the hourly rate when we’re willing to do an AFA. I’m pitching against a firm that has ten lawyers that are going to staff it, and I have 3 or 4 because we’ve done it, we know it, and we can do it efficiently. I went to law school, I’m not great at math, but I can do that math. Their rate had better be a quarter of what ours would be for it to be economic. Value means more than just what the bottom-line price is. You’re buying a refrigerator, you’re buying a car, you want it to last, you want it to be reliable, you don’t want it to break down right outside of the warranty period, and you have to replace it.

I think value is the most critical factor. That doesn’t mean hire us or hire Gibson Dunn. That means look at it, because there are certainly cases where clients call me, and I say, this is not economic for us. It used to be, when I started, something in the tens of millions was automatic. I look at it, and I have that conversation. It might be a case that, although this individual one is low dollar, it has precedential impact across the business or portfolio, or it’s something that reputationally warrants expensive counsel. There are many cases where I’ve received a call from an in-house lawyer. I’ve said, “I’m going to study this. My initial instinct is no, but I will find someone for you.” I’m not just going to say no. To me, that builds really strong relationships if you have that credibility because a lot of these clients, they don’t know what they don’t know. They don’t know in this circumstance they don’t need a high-priced law firm.

Credibility builds strong relationships because a lot of these clients don't know what they don't know, and they don't know in this circumstance that they don't need a high price offer. Share on X

Value, but how would we assess their competency? Because you might have a client that’s just a legacy client, and they just hire you over and over and over again. You don’t necessarily have a way to validate how good the work is, how strategic they are, etc. Anytime you and I talk, and again, I’m not trying to flatter you too much, but I learn something every time in those conversations. I just wonder what questions should we be asking?

Here’s a tip. I can’t remember the last pitch that I did where a client asked for references. If I were in their shoes, and I were hiring, let’s say I was considering Gibson Dunn and our peers for a new matter, I had not worked with those firms before, I would want to talk to people in my position. I go to Yelp all the time when I’m hiring a painter or a plumber, and I’m ruthless. I sort by ratings. If you don’t have a lot of ratings and they’re very high ratings, I’m not going to even talk to you. That doesn’t happen. I don’t understand it. I’ll give you references. I know there might be some cynicism that you’re only going to give people who are going to say good things, but in-house to in-house, I think you can ask questions. “Here’s our case, and would you hire Gibson Dunn for this or not? Why not?” My clients are going to be candid about it. “They’re not cheap, but here’s the value proposition.” That’s a way, if you’re not familiar, I think, to get it.

Ask for references when hiring defense counsel. Talk to other in-house lawyers who have worked with them before. Share on X

A lot of the questions I get in pitches, it’s “Do you know this judge? Do you know this opposing counsel?” We’re always able to say that with our network. Even if it’s not me specifically, I could find someone. The older I get, the more I’m able to answer it, but there are still cases in other districts and the like, and they basically ask you to work up your case strategy. I think those are really bad questions. First of all, they take a lot of time. There’s this dynamic where they’re asking for free work. I always hate when I get hired, and a client sends me what another firm wrote. I don’t like that.

That’s helpful.

It just feels a little uncomfortable, more than a little uncomfortable for me in those circumstances. To me, those aren’t the right questions to be asking. Of course, you want that experience, but you could be missing out on a lawyer who will work better with your company, who will be able to not just apply the same playbook they applied to the last case, which is what those questions are really asking for. As I said earlier, that’s not the way to approach any class action. I think pitches, they just ask the wrong questions, and you’re right. You can’t just assess value at the early stage, but I think you can ask better questions to help you assess.

Again, the Yelp analogy I think is apt. I look at it, and they were late for the first meeting, but it didn’t matter. It’s because they’re so busy, and you just look at things a bit differently, which may appear critical, but you have a contextualized review. I just think we could do more of that, or in-house counsel could do more of that.

I appreciate that feedback. I’ll just tell you that a couple of my other in-house guests have specifically advocated for ask to see the secret sauce before you buy. I appreciate that that may be irritating. I want to shift a little bit because I feel like many companies have arbitration provisions, either in their terms of use or in their employment agreements with employees. When we talked in prep, you were helpful in, again, dropping some knowledge about, we got to be really careful with our arbitration clauses. We can’t just set it and forget it. Can you share a little bit about what we need to look at for our arbitration provisions?

Absolutely. That’s just such a fluid area, and there’s constantly new decisions, and it’s largely uncharted waters. If you look at the advent of the modern class action in the mid-sixties and where we are today, class litigation has evolved a lot. Arbitration clauses, it’s really just a creature of the last decade and a half.

The thing that frustrates me most about arbitration clauses, there are a few things. Number one, you have to review that if not quarterly, at least annually, because the law changes dramatically, and the plaintiff’s lawyers are adapting. You may have something in 2017 that worked really well, but the law has evolved so much since then. The plaintiff’s lawyers are using that against you. There are certain providers, there are certain provisions where arbitration filing fees have been weaponized, and you have what are called mass arbitrations.

Review your arbitration clauses regularly. The law in this area is constantly evolving, and what worked a few years ago may not work today. Share on X

A plaintiff’s lawyer will actually go out and recruit 10,000 to 30,000 people. By the way, you can’t logistically do diligence on 30,000 people in a short period of time, and what they do is they’ll just set up a Google doc or a link, or they’ll go on Facebook and they’ll recruit, “Have you been impacted by this particular company?” It’s a solicitation, and then they get personal information. There’s no contact with that person. There’s no interview of that person. There’s no written request, explain to me why and then vetting of that. What they’ll do is they’ll file, and then 30,000 of those claimants times with AAA, it’s something like $4,000 filing fee and arbitration appointment fee and the arbitrator initial compensation. That’s a massive deposit, and it’s due right away.

Do the plaintiffs don’t have to pay that? I have to pay it?

No. It’s in the consumer arbitration rules. There are certain fees that they have to pay, but they’re extremely limited, and they can be waived in many circumstances. I’m going to scare you even more. I hate to say this. California passed a law a few years ago, because what defendants were doing is they weren’t paying them, and they were objecting. Some of them were moving them to court because it’s obviously a misuse of what’s intended when you talk about individual arbitration, and there’s no vetting. Imagine being in arbitration and you never met this person. You never dealt with this person. You would raise that right away and say, “I’m not paying.”

“I don’t know you.”

What’s worse is California said if you don’t pay that fee within a very short period of time, your arbitration clause in the state is invalidated, and plaintiffs can sue in court. It’s not just invalidated for that group. It’s invalidated for the company. This is another new phenomenon in the last few years.

Let me ask this question then. If arbitration provisions are fraught, meaning, you could get pummeled with these exorbitant fees, which is going to bring you to your companies pretty early in the matter, or it’s going to be invalidated anyway, is there value in having an arbitration provision?

Shakedown Repellent: Proactive Steps To Deter Frivolous Lawsuits

Absolutely. The good news in this discussion is that there are ways to craft a valid, enforceable, individual arbitration clause, but you need to make sure it’s up to date, and you also need to make sure it doesn’t do certain things. I see a lot of clauses that are modeled after the Concepcion clause. Again, there are companies where it makes sense for them to do that. It makes sense for them to have these provisions, but not every company is the same.

They have provisions that, for example, “If you go to arbitration and you prevail, we’ll pay you two times our last settlement offer, or we will pay you your attorney’s fees.” They were designed to get these individual arbitration clauses upheld under the Federal Arbitration Act and get the California law that invalidated them reversed by the Supreme Court. That’s what happened in the AT&T v. Concepcion case. That was a long time ago.

What happens is that attracts claimants. They see that and they think, “This is a no-brainer. I’m going to make them pay the fee. They’re going to settle with me because I’m going to say your fees are $12 million. Pay me $10 million. I’ve just saved you a significant amount because if you don’t pay me and you don’t pay the AAA, you’re going to get your clause invalidated.”

Anyway, that’s why I think there are ways to deal with this, but it’s a very specialized area, and it’s a very evolving area. There are cases every day that one side or the other is saying, “This is the end of the world.” You also can’t be too reactive. I tell my clients, “That’s a district court decision, or that’s one circuit. Don’t throw the baby out with the bathwater.” Again, if you look at it quarterly, if you look at it annually, there are trends with providers.

I just made a big star in my notes next to that. I think that was really important feedback, Chris.

Can I say something else about arbitration?

Yeah.

What bothers me the most is there’s this perception amongst the courts and, I’d say, the general public that this is bad, that companies are basically using it to evade liability. That is a very commonly held belief on the plaintiff’s bar and with, unfortunately, too many judges. I tell plaintiff’s counsel quite candidly, arbitration isn’t designed to kick your clients out of a dispute resolution process. It’s designed to kick you out because you’re the problem. You’re the fundamental impediment to resolving these cases. How many times do you hear people complain? I signed up for this class action and all I got was a coupon six years later.

 

Most of the time.

I have clients who have informal dispute resolution processes, who have arbitrations. If it was done the way it’s intended, which is one-on-one, when you have a legitimate problem, you get justice, if you’re entitled to justice, a lot quicker than you do in a court proceeding, and certainly in a class action.

A lot to cover there. When we talked before, and you said, you used this term earlier in the conversation, I want to bring it back. Is there anything we can do that would be shakedown repellent in class action?

Shakedown repellent is critical, and there’s a lot of things that you can do. It’s not always an arbitration clause, but I think, in this environment, that’s one of the strongest things, a really good arbitration clause that an opposing counsel is going to review and see state-of-the-art provisions that make it not worth their investment. They’re going to go elsewhere. To me, that’s the best thing. Again, these folks are professionals. On the other side, they are business people. If they look at a company and think, “We’re going to have to do this,” not all the time. I’m dealing with several where it’s just totally non-economic and they’re being stubborn, very stubborn, and to their own detriment. I can’t stop that, but what I like to do is as much as I can to discourage some of those.

Some of it, too, is it doesn’t necessarily have to be arbitration. It could be small claims court. It could be some other provision. There’s the whole industry where I represent a lot of clients that don’t have a contractual relationship, consumer products and the like. There’s a lot of things that you can do there. Prophylactic, proactive attempts to look at certain marketing statements. We get so many cases where someone is suing because there’s some aggressive labeling statement, and we get into the case and we talk to the business people, and it either goes one of two ways. This is critical. “It drives sales.” That’s why we have it. I’ll say to the client, “That’s exactly what plaintiffs’ lawyers are going to say. We’re going to lose this case.” Others, there’s so many of them, Stacey, and they look, and there’s no business justification. In fact, they can’t even source.

Why is there?

Why did we put this? I’m like, take it off. I love the clients that call me the next time. “We’re redesigning our label. Can you just take a look at this and put your plaintiff’s lawyer’s hat on? What would you attack? What would you challenge?” I think companies need to do that a lot more. Use us for the counseling, like a labor and employment lawyer. You counsel with them many times more often than you hire them to defend a lawsuit. We can offer that assistance in the consumer space, I think.

That’s helpful. I want to shift a little, more blocking and tackling, because this is something that I learned on one of the matters we worked together on, which is the settlement administrator in a class case. You described it as the most important decision you’ll make. I think for those of us who don’t do it day to day, it’s like, “It’s just a company. They’re going to handle the notices. They’re going to administer the payments. I don’t need to worry about that.” Tell us why it’s the most important decision.

It’s the most important decision because if they’re not good at what they do, they could really screw up the settlement for you. A bad situation can become even worse. You don’t want to be in a situation where you’re doing a class settlement. There are just a lot of players in this space. There are a lot of players that aren’t established, and Stacey, it really goes back to what we’re discussing with outside counsel. You may look at it from a pure bottom line, “This one is half the price.” They’re half the price because they’ve never done it. They’re trying to achieve market share. It’s a very bad decision.

 

About ten years ago, it was customary. The plaintiffs’ lawyers would just do this, and I’d have almost no role. The more and more I’d been frustrated with administrators, and it’s ended up costing my client more because they’re hiring us to police them and do work at our rates instead of the administrator’s rates. It just becomes a, you know what. That’s why I think it’s critically important. The other reason is fraud is on the rise. It is a significant problem in class actions. Anyone who’s rolling their eyes, you should thank your lucky stars, because it just means you haven’t encountered it yet.

The Rising Problem Of Fraud In Class Action Settlements

Tell us about the fraud. We talked about that before. I was surprised by this.

Fraud is on the rise. Fraud has always been there. You’ve always had people who have tried to game the system and get a settlement payment when they’re not entitled to it. A very loose claim form that doesn’t require proof of purchase, just an attestation. Those are one-offs. Those would sometimes play. Those were often detected, even click farms and IP address masking and all these tools of, I’d say, experienced hackers. We were able to catch those.

It’s become significantly more sophisticated. It’s become where they’re able to strategically, at the same moment, create an email address on Gmail, mask their IP address, submit a claim, then wait fifteen minutes, do the exact same process. The next time they wait five minutes, then the next time they wait 60 minutes, and extrapolate that over millions of claims. It’s very hard to prove. The good news is there are administrators out there, and there are third parties like Claimscore that come in and augment a settlement administrator that are able to detect these. It’s not something you’re going to catch unless you’re using a good administrator.

I don’t want to get too deep onto settlement structures, but why is fraud a problem?

You can have hybrids, but generally, there are two types of class settlements. You have what’s called a claims made. It’s theoretically uncapped, and a defendant just pays however many legitimate claims are made, and then the fees are often keyed off of how many claims are made.

Why would I do that type of a structure? Because that feels unlimited.

You do that type of structure because you know how many products you sold. You have a very good fraud detection effort, and the parties are just too far apart when they’re negotiating the second type, which is a common fund. A common fund means $10 million, all settlement administration expenses, all attorneys’ fees and expenses, and all valid claims are paid out of that. Let me talk about why fraud impacts each of those. With the claims made, it’s very much in my interest because every claim I’m paying is money out of my client’s pocket. There’s a built-in incentive for me to monitor that. I don’t think that goes away with a common fund.

Some people would look at that cynically and say, “You’re only paying $10 million. What do you care?” Who are the victims in that circumstance? The victims are the class members, and who’s looking out for them? For example, if you have a $10 payment, but there’s ten times as many claims, you’re getting $1, and that $1 is a $9 deduction at the expense, not of a legitimate person, it’s of a fraudster. I think this is a huge problem. It’s probably the most significant problem I’ve faced in my career. The bigger issue is a lot of people are just rolling their eyes.

This is shrugging their shoulders and saying, “Can’t do anything.” If we were hiring a settlement administrator, and maybe we just make sure that our defense counsel knows, but what questions would we want the settlement administrator to be able to answer regarding fraud?

I’d ask a couple of specific questions, what is the largest delta between your anticipated claims when you were pitching and what the actual claims ended up being? What’s the most significant instance you’ve had of fraud, and what did you do about it? Who do you use? What is your system that’s used to detect fraud? Is it real time? Do you wait until the end? Those are the types of questions that, to me, would answer, and there are more. What has this company experienced in the last two years with this new and significant problem?

Again, you or the defense counsel, that should be something we talk about.

It should be very front and center. Again, I think you can separate the lawyers, the judges, and the administrators who know about this and have experienced it very recently. By the way, the mediators, too, are on top of this. They’re probably the most knowledgeable of all of us, I got to say, because they do this every day. I’ve had mediators, we used Diane Welsh in a case, and she was just fantastic. She got it immediately. It was the first one I’d really experienced. It was the first one she experienced. I’ve since mediated with her, and I’ve talked to people who have mediated with her. I’m calling her out because she’s just so on top of it. I think all mediators are, but she did it early, before anyone else.

This is a real problem, and you need to be able to identify it. And you know the people who’ve done it and haven’t. And Stacey, this is new. I go to a lot of defense conferences, top lawyers across the country. I was at one just a month ago, and there were, most of the people in that room had not experienced this. Fortunately, they were self-aware enough to say, “This is a problem. I need to be on alert for it.”

They experienced it and they didn’t know.

Exactly. That scares me even more because, as I said, in the common fund, and let me illustrate another scary aspect of this, federal judges want the highest possible claims rate. I’m skeptical of that because I think a lot of people shrug their shoulders when they see a class settlement. They don’t think, either they think the defendant was right. I get a lot of letters from people, “Why are you settling this? It’s a bogus claim,” or they just can’t be bothered for $10 to submit this claim form and then wait a year to get the money.

Judges want to drive up the claims rate. That’s in tension with this fraud because you don’t want to encourage the parties so much to drive up that claims rate that they start to worry about, “If we cut fraud, the claims rate goes from,” and this has happened to me, “10% down to 1%.” 1% to 2% is a very customary claims rate in a consumer class action. That’s not because there’s anything wrong with it. It’s a lot of times you don’t know your customer, so I can’t marry them up with one another, or there’s just disinterest because there’s a lot of cynicism about class actions. I think the coupons and the fees have really made the general public cynical of these.

There's a lot of cynicism about class actions. Share on X

For sure. No question.

There’s that tension because I’ve had federal judges who’ve said, “This claims rate is abysmal. Your Honor, it’s abysmal only because we were plagued by fraud.” Again, if we allowed that fraud, we’re taking good money away from either a company that shouldn’t pay it or, most significantly, the class members who are having their claims reduced in a common fund settlement.

Affirmative Recovery: War Stories

I do some pro bono work, as you know, and I was helping a client on a settlement, and I was struck. I was not testing for fraud, obviously, but just in the lack of customer service with the settlement administrator. I’m working with an indigent, elderly person, and they don’t have technology. To get contact there was really hard. If you really do care about the claimants, then making sure they have good customer service is something I would check on. I want to, in the few minutes we have left, you also scared me when we talked and prepped about how the attorneys general have got interested in, I’ll call it, affirmative recovery work and using coattailing on class actions in that space. Can you make us stay up unable to sleep at night with some war stories here?

Yeah. You’re having me go through the parade of horrible. An attorney general, and in California, you can even have a local district attorney or city attorney, are authorized under the Consumer Protection Act law statutes to bring a lawsuit in the name of the consumers of that state. Every state has it, and every state is virtually unlimited. There are two big distinctions between those types of claims and what you’d have in a private civil class action. First, they don’t have to establish class certification. This major inflection point of all the lawsuits we’ve been talking about up until this point isn’t there for us to have an opportunity to win the case, narrow the case, or get rid of the case. Second, they are, in most states, including California, only the attorney general, in his or her official capacity, is authorized to seek civil penalties.

The loaf of bread that was mislabeled as fresh, and it was baked a month ago, so the claim is it’s not fresh. Cost $5, $2, whatever it is, seeks $25,000, a thousand dollars for every loaf of bread. Those are annihilating to any company when you put civil penalties on top of it. Those are very serious. They always joke that every attorney general is an aspiring governor. That’s what he stands for. You have the political angle of it, too. All of that said, I found that a lot of attorneys general, you can have that early conversation with them if they’re just wrong.

They’re politicians. You have to be careful. Sometimes having the lawsuit out there is politically beneficial to them. They don’t want to settle early, and they don’t want to settle cheaply. They get in trouble if they settle cheaply. They get a lot of blowback, and they’re worse off than they’d be if they didn’t file anything. I find when you can engage with them early and engage very proactively, you’re often able to manage those expectations. If you’re right, and if the claim is illegitimate or not valid, persuade them that they should devote their resources somewhere else.

Hopefully I won’t have that circumstance across my desk anytime, but if I do, I know who to call. Chris, thanks so much for being here. I close out with the same lighter question, and I know you’re struggling with this. I’m happy to have stumped you on something. What is your pump-up song?

I don’t really do this. I’m not like, what was it, that Office where Dwight Schrute’s pumping himself up before they go in for a sales pitch. I guess keeping the legal theme, and this will probably shock you. Most people are shocked when they see my playlist. It’s probably Perry Mason by Ozzy Osbourne. That’s a really good pump-up song, so I’ll pick that.

On brand. Chris Chorba, thanks for being in the legal department. Appreciate it.

Thank you, Stacey. This was very fun.

Chris Chorba, Baseball Stats.

My name is Chris Chorba. I’m a partner in the law firm of Gibson, Dunn & Crutcher. A fun fact about me is I took Arabic in college and learned how to speak it, but I’ve never used it in my professional career.

 

About Chris Chorba

Chris Chorba is co-chair of the firm’s Class Actions Practice Group. He specializes in defending class actions and complex litigation. He has substantial experience across a broad range of complex commercial matters at the trial and appellate level in California and throughout the country, and in multi-district litigation (MDLs).

His litigation and counseling experience includes work for companies in every industry—including automotive, beauty / cosmetic, consumer products, education, entertainment, financial services, food and beverage, health care, insurance, life sciences, retail, social media, sports and gaming, technology, telecommunications, and utility / energy.

Chris has been recognized in Chambers USA: America’s Leading Lawyers for Business and in The Best Lawyers in America for Commercial Litigation. Benchmark Litigation has recognized Chris as a “Litigation Star,” and Law360 also named Chris a “Class Action MVP,” which profiles attorneys who have “distinguished themselves from their peers by securing hard-earned successes in high-stakes litigation, complex global matters and record-breaking deals.” The National Law Journal also recognized him as a “Trailblazer” for his work defending consumer class actions, and Lawdragon recognized him as one of “500 Leading Litigators in America” and the “500 Leading Global Litigators.”

After graduating cum laude from the Georgetown University School of Foreign Service, Chris received his J.D. from the University of Virginia School of Law, where he served on the Editorial Board of the Virginia Law Review. He is admitted to practice before all state and federal courts in California, the Ninth Circuit Court of Appeals, and the Supreme Court of the United States.