Hamburger Evron & Co.

The courts tend to examine the difference between the declared amount of the claim and the actual amount given in compensation – if the gap is large, the plaintiff’s counsel will pay through a reduced fee, globes

Under the law, when filing a motion for class certification, the plaintiff is supposed to evaluate the cumulative claim sum of all members of the class. In practice, the class plaintiff does not generally have the tools to do so. To this should be added the fact that he is not required to pay a court fee, thus leading many attorneys, who are often the driving force and the initiator behind class actions, to make claims for astronomical sums of hundreds of millions and even billions of shekels, while causing harm to the defendant company only in terms of the act of filing the lawsuit.

Attorneys and class action plaintiffs do so out of a (mistaken) idea, that such conduct can improve their situation, since in this way they’ll succeed in putting improper pressure on the defendant company. But alongside the profit to the plaintiff and his or her attorney – which is found in the media exposure they gain, there is a material loss resulting from the exaggerated and inflated assessment of the amount of the class action.

Under the class action law, in determining the fee of the class counsel, the court is required, among others, to consider “the gap between the relief being claimed in the motion for class certification and the remedies awarded by the court in the class action” – that is, the gaps that can exist between the amount of the claim and the amount of compensation or the final settlement amount.

The trend in the courts today is to “settle accounts” with the class plaintiff on the actual difference between the settlement or award amount and the amount of the claim, and therein lies the real harm to the class plaintiff and their counsel.

The courts often act in this way, even though there is no possibility at the start of proceedings of assessing the damage caused to the class members, and even ignoring the fact that the settlement amount will always be lower than the original claim, because it incorporates inherent elements of risks and opportunities.

This happened, for example, in the settlement agreement signed by the class plaintiff with Tnuva and Strauss. The parties notified the court that they had reached a settlement, according to which the companies would award consumers a benefit valued at approximately NIS 5.7 million. Under the settlement agreement, the legal fee of the class counsel was set at NIS 675,000.

The District Court reduced the fee to just NIS 300,000 even though the defendant companies had already agreed to pay more than double this amount. The court ruled that the claim’s contribution to the common good was “modest”, and the agreed fee was reduced significantly, in part “considering the huge difference between the declared sum of the claim”, which was NIS 1.4 billion, and the monetary amount of compensation to the class.

The same happened in a class action filed against Coca Cola. As part of the settlement agreement, Coca Cola agreed to donate drinks of its manufacture to a value of NIS 1.8 million, and pay an agreed fee of NIS 319,000 to the class attorney. Here too, the court intervened and reduced the fee to only NIS 75,000 – a reduction of about 75 percent!

An appeal on this matter was denied by the Supreme Court which ruled, in December 2012, that “the District Court rightly ruled to reduce the fee recommended by the parties, given the huge gap between the relief stated in the motion for class certification, and the value of the relief agreed in the settlement”. All this, despite the fact that the defendant company announced it had no objection to paying the agreed legal fee.

Consequently, the class action law ought to be amended in such a way that a class plaintiff will not have to – and in fact would not be allowed to – give a numeric assessment of the damage to a class at the early stage of filing a motion for class certification.

Until such time as the law is changed, I recommend that class plaintiffs and their counsel, who are interested in not having their award and fees reduced, simply renounce the inflated headlines and file a conservative claim for the lowest amounts possible, as dictated by the circumstances.