Can David Still Sue Goliath?

Class-action lawsuits, a longtime check on powerful interests, are getting harder to file. Now, lawyers with large groups of clients are getting creative in reuniting the aggrieved.

Shannon Stapleton/Reuters

Katlyn Beggs, a 2009 alum of the California School of Culinary Arts, calls herself one of the lucky ones: After graduating, she got a job. How did she get so lucky? Partly by having worked in the food industry—but also by not telling her future boss that she’d gone to CSCA. “He’s gone on the record a couple times saying that he will not hire anyone from my particular school,” she explains. “I did not tell him I went to culinary school, and that’s the only reason I got the job.”

Among the class of 30 she attended with, Beggs guesses that she’s one of about four graduates who still work in the food industry. Those who do, she says, tend to work unenviable, menial jobs at low-end chains. And, thanks to their time in school, they are saddled with lots of debt: Sometimes well over $50,000, financed at interest rates that can run as high as 19 percent.

David Valdez, a 2007 graduate, describes the debt as “a horrible experience—it’s never-ending.” Valdez had hoped to work in the culinary field after graduating, but eventually returned to his old job as a municipal customer-service worker—the wages available in food service wouldn’t have even covered his loan payments. “I couldn’t have lived on what I would have been making,” he says.

Starting in 2008, CSCA graduates began filing lawsuits against their former culinary school, alleging fraudulent and unfair business practices. By 2012, five of their complaints had been combined into one consolidated and amended complaint, filed in Los Angeles County Superior Court.

The graduates’ claims offer a window into one corner of for-profit higher education, an industry that has drawn some harsh scrutiny in recent years. The complaints allege a host of marketing tricks designed to convince prospective students that they were making a “great investment” in their future and would be able to graduate as “Cordon Bleu level culinary chef[s]” earning generous salaries. “This could be your year for a fresh start in a new career as a chef or pastry chef,” advised one of the television commercials that ran during the relevant years.

Instead, in exchange for their debt-financed tuition money, the graduates argue that they ended up with a degree that their complaint describes as “worthless”: The ones who did get culinary positions at all would be working as baristas and prep cooks earning $8 to $12 per hour, jobs and wages they could have gotten without the costly degree. CSCA knew these facts through its own research, the complaint claims, but did not share them with prospective students.

CSCA, for their part, denies that there was any deception about what prospective students were getting themselves into. “They received written disclosures telling them that they weren’t promised any kind of a job—that they signed. They got a catalog that said they would start out at an entry-level position,” says Stuart Richter, one of the lawyers who represented CSCA. “And it was basically our position that nobody in their right mind believes that they graduate from school and immediately become the CEO.”

Mark Spencer, a spokesman for CSCA’s parent company, adds by email: “As with any education institution, the instruction we provide affords opportunity, but is no guarantee of personal success.” The graduates’ allegations, he contends, “should not be considered representative of the experience of all students, the majority of whom we believe are satisfied with their education.”

If you’re sympathetic to the graduates’ side of this story, their predicament might sound like a good candidate for the kind of lawsuit a few of them filed in 2008: a class action. That’s a lawsuit in which a small group of representative plaintiffs sue on behalf of a larger group, potentially winning results for everybody (or, alternatively, settling or losing on everyone’s behalf).

As a legal device, the class action can serve as a vital check on powerful actors, from corporations to landlords. If each consumer who suffered a small- or medium-sized wrong (non-fatal food poisoning, for example) were forced to sue individually, corporations could deal out small- and medium-sized wrongs more or less with impunity: Given the high price of lawyers, it would almost never be economical for an individual consumer to take a minor claim to court.

The class action addresses this problem by letting one voice speak for all. And, as Harvard law professor William B. Rubenstein has pointed out, the benefits don’t just accrue to the plaintiffs: Just by looming as a means of enforcement, the class action produces a positive externality for society by keeping companies honest. “The mechanism,” Rubenstein writes, “makes possible the production of a good that would not otherwise be produced. That good is a lawsuit.”

That good has gotten harder to produce in recent years. As Justice Elena Kagan wrote in a trenchant dissent to one business-friendly Supreme Court decision, “To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of [the federal rule governing class actions], everything looks like a class action, ready to be dismantled.”

Perhaps most prominently, the Court issued a ruling in 2011 that refused to allow the plaintiffs—women who had worked for Walmart and believed they had been victims of a systematic practice of gender discrimination—to sue as a class. Writing for the majority, Justice Scalia argued that, in the absence of a “companywide discriminatory pay and promotion policy,” there was no “common question” among all the potential victims that would justify certifying them as a class. The decision (along with the 2013 decision in Comcast v. Behrend, a similar case) suggests a harsh new precedent for large groups whose members have each suffered slightly different variations on very similar harms.

Which brings us back to Beggs, Valdez, and their fellow graduates, any of whom, especially after Wal-Mart, were almost certain to be turned down for class certification (as they were, under an order citing Wal-Mart, in 2012). None of them, meanwhile, would have been able to afford to press a claim individually, nor would the potential damages in most cases have looked high enough for a lawyer to justify taking one on in exchange for a cut of the proceeds.

So their lawyers—California attorneys Ray Gallo and Michael Kelly—ran a different kind of case: one that presents a growing alternative to the contemporary class action. The image of the class action has always been a bit of a fiction. In his essay, Rubenstein notes that “most observers, including lawyers and judges, believe that a class case involves a group of people descending on the courthouse en masse.” But Gallo’s idea was to use technology to join a large number of potential class members to the case. Electronically, Gallo, Kelly, and a legion of plaintiffs—more than 1,400 graduates from the relevant years of a possible 8,000, according to the case filings—would descend on the courthouse en masse.

Mass actions like this one are not new; Gallo’s point is that new technology can make them much cheaper and easier to run. The insight grew out of a previous case, Amador et al. v. California Culinary Academy, which Gallo had filed in 2007 on behalf of similar culinary-school graduates in San Francisco. (He was drawn to the case by SF Weekly’s reporting on their plight.) After a few months of work, Gallo had gathered a couple hundred plaintiffs through word-of-mouth.

Then, one day, one of his clients posted the documents for joining the suit on MySpace (a tactic, of course, that would only work in the aughts). All of a sudden, completed screening questionnaires and signed attorney-fee agreements were rolling in through the web. By the time the case settled for more than $40 million, Gallo had added hundreds more clients and was working with them through Yahoo groups and bulk emails. He was also working on a software platform that would let him manage more clients, more efficiently.

Taking on the case of Beggs, Valdez, and their fellow CSCA graduates in Los Angeles gave Gallo a chance to test his strategy and his new suite of digital tools. He launched a website through which he and his co-counsel could run much of the information- and signature-gathering for the suit. Potential plaintiffs could not only download the initial complaint and sign up for email updates, but also submit answers to several rounds of screening and intake questions, execute a fee agreement online, and upload their own details for complaint and discovery purposes.

This last part is key: Discovery is the phase of the case in which each side shares its evidence with the other, and it can be extremely expensive. In this case, the two parties had agreed on a standardized “fact sheet” that each plaintiff could fill out online to substantiate their claims, in lieu of a blizzard of document requests and questions. “It isn’t anything that you can’t do with a bank of law clerks and telephones…but it was much more efficient,” Kelly explains. “And it’s a lot more accessible for the actual claimants. A lot of those people are working two or three jobs now trying to get out of this hole that they’re in. And so for them to set aside an hour during our business hours, to sit down and go through this is much more difficult. A lot of these people are night owls. They get off work at 1 in the morning, they come home—and a lot of the stuff that they send in is between one and five in the morning. And so I think it makes it a lot more accessible for the claimants.”

The website also featured a blog and FAQ, through which plaintiffs could ask questions and to which Gallo and his team would post responses, updates on the case, and video messages to the group. “We could answer a question once instead of 500 times,” Gallo recalls. “And it did this terrific thing, where we had a thousand clients, and they all felt well informed, and therefore they weren’t calling us, and creating a situation that would have been unworkable for a relatively small firm like ours.”

Beggs and Valdez agree. “It was pretty frickin’ easy to sign up and get information,” Beggs recalls. “I was impressed. I thought they would be like, ‘So you’re number 970, what’s your name again?’ And that wasn’t the case at all—it was really nice.” Valdez recalls the process as “simple and straightforward,” estimating that the site saved him several days’ worth of time he would have otherwise had to spend on travel, mailings, and phone tag.

The strategy does have drawbacks. Kelly notes that by lowering the barriers to joining a lawsuit, it becomes tougher to exclude people who might be snooping around for information rather than seeking to press a claim. “You lose a little control over what you consider privileged information,” he says.

Gallo also acknowledges that it could raise legal-ethics questions about a lawyer’s duty to pay individual attention to his clients. “The Bar could say you can’t do this because you have an obligation to personally interview your client at the outset—that you can’t automate that process,” he notes. But making that argument, he says, “would run counter to centuries” of legal practice. “Before telephones, attorneys were routinely hired and performed their duties entirely by correspondence,” he points out. “Really, this new approach hearkens back to those precedents.”

It also helps get results. The vast majority of claims were settled late last month, with CSCA’s parent corporation agreeing to pay $17.5 million into a fund, to be allocated by an independent overseer—called a “Special Master”—based on the details of each plaintiff’s case. (Some of the other cases have settled separately, or gone through arbitration.) All in all, Gallo and Kelly have been able to help more than 1,300 CSCA graduates obtain some form of settlement relief.

Moreover, Kelly says, it prompted “significant changes” to CSCA’s practices—the kind of social benefits that class actions are supposed to confer. “They lowered their tuition,” he reports. “They now disclose to people what their prospects of earning based on their education are after they leave. They give them actual information. They have stopped using things like success stories—you know, 'This one guy that came through here did this, this, and this'—and they’ve gone to giving out information on the actual gross success of the students. And so I’m satisfied that I don’t need to go out and be the town crier about how bad their practices were, because I think they’ve made substantial improvement on them.”

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The outcome of the CSCA litigation is partly a story about technology, but it also fits with a broader strategy for leveling a steeply angled playing field: When one voice can’t stand for all, lawyers have to find a way to raise a whole lot of voices to change a powerful actor’s behavior.

A lower-tech example comes from the late Gary Bellow, a longtime champion of public-interest law. Early in his career, Bellow ran class actions in California that helped migrant farm workers win crucial rights. Later on, backed by a legion of Harvard and Northeastern law-student volunteers, he turned toward a “focused-case” strategy (sometimes called “case aggregation” strategy) to help poor people with housing problems in Boston’s Jamaica Plain neighborhood. As he recalled in a 1996 essay:

We designated an “eviction-free zone,” took as many eviction cases from that area as possible, and pressed the cases in ways that not only sought to preserve tenants' possession of the property, but communicated directly to landlords the risk of increased cost and exposure that would accompany efforts to empty substandard residential property for redevelopment ... [W]e pursued aggregate results by filing large numbers of individual cases.

In contrast to the fiction of a class action, Bellow and his clients were, essentially, descending on the Jamaica Plain courthouses en masse. But instead of stretching his resources through technology, Bellow was summoning new resources—the student volunteers—who could help press hundreds of claims.

As University of the District of Columbia law professor Joseph Tulman, who knew Bellow and now employs a similar strategy in Washington, D.C., reflects, "Lots of times the law is pretty good, but nobody's using or enforcing the law on behalf of low-income people." "[Bellow’s] strategy," Tulman says, "was if you could plunk in a bunch of law students and let these low-income tenants know that they had the warranty of habitability [a tenant-friendly legal doctrine] on their side, it would change what the landlords’ attorneys could get away with and change the expectations of the judges, the tenants, and the landlords’ attorneys."

The flood of lawsuits produced the positive externality of changed expectations—which in turn could create Bellow’s “eviction-free zone.”

* * *

It’s important not to oversell what lawyerly creativity can accomplish in the face of judicial constraints. Bellow was able to run all those cases in Jamaica Plain, after all, because progressive judges had, in the years preceding, developed new legal doctrines that protected clients like his. Meanwhile, though Gallo has been able to achieve results for more than a thousand culinary-school graduates with medium-sized claims, millions of American consumers who have suffered smaller harms have perhaps less recourse than ever before.

Take, for example, two recent Supreme Court decisions that are less famous than Wal-Mart, but arguably much more pernicious: AT&T Mobility v. Concepcion (2011) and American Express v. Italian Colors Restaurant (2013). Both cases addressed the validity of so-called “arbitration agreements”—terms-and-conditions clauses requiring the customer to pursue legal claims through individual arbitration rather than a class action. Most of us sign these kinds of agreements with the click of a button every day, and past courts have often held them to be unenforceable. But now, the Supreme Court’s slim conservative majority has suggested that those days are gone.

In cases like Concepion and Italian Colors, the small-harms problem looms large. Neither case dealt with blockbuster wrongs: In Concepcion, the dispute was over $30.22 in unexpected charges for what AT&T had billed as a “free” phone. “What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim?” asked Justice Breyer in his dissent, quoting Seventh Circuit Judge Richard Posner’s opinion in another case: “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

The result for these small harms, the critics note, asymptotically approaches corporate immunity. As Justice Kagan wrote in her Italian Colors dissent:

So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse. And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.

“It’s a get-out-of-liability-free card,” explains Doug McNamara, a lawyer with Cohen Milstein, a prominent class-action firm. His firm, he explains, has had to pass on “a whole lot of good cases” because of the new judicial constraints; big cases they’ve won in the past, he observes, could never have been brought in the first place. “It basically says, if you nickel-and-dime people, you’ll get away with it.”

You’re especially likely to get away with it because arbitration, though it may sound promising, is not a great form of recourse. Beyond the lack of economic incentive for lawyers to take anything below a multi-thousand-dollar case, McNamara notes, arbitration confidentiality rules dictate that you can’t even use previous wins to your advantage in future litigation: “Even if you get an arbitrator to say, 'you’re right, this was wrong, you get this money,' you can’t use that in another arbitration.” And, he points out, there’s a capture problem: The arbitrators are paid by corporations, who are repeat players. If they don’t like how you rule, they can hire another arbitrator.

It’s not clear how even the most creative, high-tech lawyering can solve the small-harms problem: It’s hard to envision millions of plaintiffs banding together. The challenge may, instead, be a job for organizers, of both the consumer-advocacy and political kind.

To the extent, for example, that consumer-advocacy groups can mobilize customers to press the claims they have in simple and cost-efficient ways, they can exercise at least some deterrence power. Corporations generally have to foot the bill for arbitration, and pressing claims is not always onerous: It can increasingly be done online or by phone.

Politics can also drive judicial change, albeit slowly. “It’s rough right now,” McNamara says. “But a lot of these decisions are somewhat tenuous. It’s a five-four majority in Italian Colors. It’s a five-four majority in Concepion. It’s five-four in Comcast [another class-action case, more similar to Wal-Mart]. And it’s the same five-four in Hobby Lobby; it’s the same five-four on voting rights. This is a very sharply divided, ideological court right now. And it’s the same five conservative justices on a lot of these issues.”

Which implies, as the composition of the Supreme Court teeters, that these questions are never wholly irrelevant to that other storied mass action: descending, en masse, on the polling booths.