Horror Story, Not How-To Manual

This past May, I got a letter from brokerage firm TD Waterhouse informing me that I was entitled to a credit worth $29 against future commissions.  Apparently, I was part of a class action lawsuit filed by three other TD Waterhouse clients.  I had never heard of the case, didn’t feel that the company had ever wronged me, and didn’t want any ill-gotten freebies, so I threw the letter away. 

A few weeks later, a second letter arrived, giving me yet another opportunity to claim my settlement.  This time, I was in the middle of reading The Rule of Lawyers:  How the New Litigation Elite Threatens America’s Rule of Law.  This recent book by Manhattan Institute senior fellow Walter K. Olson had me hopping mad about the scandalous wealth redistributions that U.S. class action suits have been generating, so I decided to look into “my” TD Waterhouse claim. 

It seems I was one of about 170,000 customers who traded securities involving a foreign exchange transaction between May, 1994 and November, 2001.  TD Waterhouse never informed me or my fellow plaintiffs that it would be earning a profit over and above the usual trading commission when it converted our Canadian dollars into foreign currency.

I confess, I don’t recall thinking much about this issue.  I kept both a Canadian and a U.S. account, specifically to avoid repeated currency exchanges.  However, if I had thought about it, I would probably have guessed that TD Waterhouse was charging a spread on currency conversions.  After all, they’re a bank subsidiary, not a charity.  Banks charge a spread when they sell foreign cash, traveller’s cheques or money orders, so why not on other foreign currency transactions?

Anyhow, the settlement requires that TD Waterhouse compensate clients by credits against future commissions ranging from my dinky $29 to an only slightly less dinky maximum of $986.  The total payout, according to Canadian Press, could reach $12.4 million.

Meanwhile, legal fees were fixed at  $1.296 million--more than 10 percent of the full potential damages.  While this would be low for a contingency fee, the percentage will undoubtedly end up much higher.  Some members of the plaintiff class have long since closed their TD Waterhouse accounts and won’t go to the trouble of opening new accounts just to use their credits.  Others won’t make enough trades to use up their credits within the 6-month time limit.  Still others, like me, will be disgusted by the whole affair and won’t claim their credits. 

Clearly, the only big winners here will be the lawyers, who have nailed down their take in cash, not credits, at a multiplier three times their normal hourly rate.  For plaintiff class members, the damages are at best chump change, at worst illusory. 

This reminds me uncomfortably of the cases Olson mentions in his book:  the 1999 New Mexico class action against a life insurance company, in which plaintiffs got no payout at all, just a promise of greater disclosure, while lawyers pocketed $7.5 million; the case against an airline which settled by issuing coupons worth $75 apiece to plaintiffs while lawyers claimed fees of $25 million; and the case against a financial services company which was forced to issue plaintiffs with 96,754 coupons, only two of which were ever redeemed.

Some lawyers tout class actions as offering access to justice in cases where plaintiffs couldn’t otherwise afford lawyers.  In the TD Waterhouse case, you had to have converted more than $1 million to get the maximum damages of $986.  These plaintiffs were far from destitute.  Instead of empowering the oppressed, litigation like this simply makes a mockery of the rule de minimis non curat lex (the law does not concern itself with trifles).

In the U.S., class actions have become a “sector of the litigation world run by lawyers for their own benefit,” Olson says.  Lawyers seek out opportunities to litigate, install token plaintiffs and settle cases virtually without consulting the nominal plaintiffs.  “I have the greatest practice of law in the world.  I have no clients,” he quotes one famous class-action attorney as saying. 

With separate chapters covering tobacco, firearms, breast implant and asbestos lawsuits, Olson chronicles the increasing corruption of the U.S. justice system.  Class actions are only part of the problem.  There are also state legislatures such as Florida’s and Maryland’s who enact legislation depriving defendants of their legal defences.  “We changed centuries of precedent to assure a win in this case,” said one legislator, referring to Maryland’s lawsuit against Big Tobacco.

There are unprincipled judges, too.  The chief justice of West Virginia’s Supreme Court wrote, “As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so.  Not only is my sleep enhanced when I give someone else’s money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me.”

Rapacious provincial governments have already started taking Canada down the American pathway.  B.C. and Newfoundland have both enacted tobacco lawsuit legislation modelled on Florida’s. 

Canadians who are concerned about the further corruption of our justice system should read Olson’s book and be on guard.  My fear, however, is that unscrupulous lawyers and politicians will find it a highly instructive how-to manual for lining their pockets. 

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