OTLA Trial Lawyer Fall 2021

41 Trial Lawyer • Fall 2021 recovered attorney fees as part of a judg- ment in a consumer protection case could no longer deduct fees from in- come. 6 In low-value cases, plaintiffs would be worse off because fees would outstrip the damages awarded, such that tax bills could exceed amounts recovered. The tax problem proved daunting. Second, we expected if we had tried these five cases to juries, we would have prevailed on liability four or five times. Our arbitrators were much harder on liability. Plaintiffs prevailed in only two of the first five cases heard. This liability problem raised bigger concerns. While we could re-engineer some of the future cases, we detected a strong pro-corporate bias among some of the arbitrators. The first problem — the tax issue — proved to be solvable. We learned if consumers recovered funds in a class action settlement, the attorney fees would not be taxable to individual class members. The second problem proved to be less onerous than expected. While the chances of prevailing were lower, defendants still paid a hefty price to de- fend each arbitration. They may have been headstrong corporatists, but they could understand the math. Our settlement team took the chal- lenge in stride and ultimately crafted a class-wide settlement for the mass of arbitrations. 7 The outcome was not easy, but it was favorable. Members of the arbitration settlement class received net refunds of roughly 50 percent of their tuition payment. Lessons learned As other colleagues have dramatically demonstrated, it is quite possible to thrive in mass arbitration. 8 In the right circumstances, corporate interests can face a rude, expensive and nasty reckon- ing. In the right case, they will literally flip and ask for a class settlement. They were fortunate the tax code revisions saved them. Had the tax consequences not changed, I would have been inclined to require them to enter individual settle- ments or litigate every case in the mass. Cold rage does not fade. I would have been delighted to give them the full benefit of the bargain they extracted from these consumers. The litigation took a total of 12 years to complete. In that time, we had one member of the legal team die, two major changes in the law (arbitration, taxation), a delay of years at the Court of Appeals, two separate classes certified, settled and paid, and countless nights of insomnia. That is a long of way of saying the mass arbitration option is not to be un- dertaken lightly. But here are a few screening criteria that help us assess whether, and to what extent, we want to consider future mass arbitrations. These include: 1. How much is at stake? (A small-value claim is not going to motivate a con- sumer or employee to sign up for ar- bitration.) 2. What is the underlying harm? (Some harms — profound debt, wage theft — are more likely to motivate people to take action.) 3. What are the economics? (What are the costs of arbitration, the likely damages awards and the costs of sup- porting infrastructure?) 4. Can you prove your case with little or no discovery? (You will get little or no discovery in arbitration.) 5. Are you sure you want to do this? (It will absorb most of your practice while it is going, and it will be a war.) The acid test for me is whether, know- ing what I know at the end, would I do it again? I would. The recoveries from the mass arbitrations changed the fortunes and lives of 330 people. We also got paid for our work. In the right case, I would strongly encourage consumer protection and employment lawyers to opt for mass arbitration. We provided real relief that got 330 people out of lifetime debt traps. As well, we were able to channel cold rage into a favorable outcome. In the right case, this is a fine solution. David Sugerman practices law in Portland, Oregon. Sugerman is a member of the OTLA Guardians of Civil Justice at the Guardians Club level. His office is located at 707 SWWashington St. Ste. 600, Port- land, OR 97205. He can be reached at david@davidsugerman.com or 503-228- 6474. 1 276 Or App 1 on reconsideration 277 Or App 384 (2016). The case was later retitled Surrett v. Western Culinary Institute Multnomah County Circuit Court Case No. 0803-03530. The case started when my friend and colleague, Brian Campf, called me up out of the blue and said, “So I think there’s this case….” Tragically, Brian passed away during the pendency of the case. My beloved collaborators in consumer fraud cases, Tim Quenelle and Amy Johnson, stepped in to help us bring the initial class ac- tion to resolution. 2 563 US 333 (2011) 3 Gozzi v.Western Culinary Institute , 276 Or App at 14. 4 Eblen Freed agreed to co-counsel the arbitra- tions. Tim Eblen, Michelle Freed and their staff carried much of the load on the arbitrations, including day-to-day case management and co-counseling five arbitration hearings. Their experience in handling a high-volume con- sumer case load proved invaluable. We also had all of the adventures of discovery and trial that make for the unique and beautiful bond be- tween co-counsel. 5 https://www.leverage.law/ 6 The author is not qualified to give tax advice and is not intending to do so here. Tax treat- ment of settlement monies is a complex area of tax law, with a number of variations. Please consult with a qualified tax professional to understand whether fees generated in a par- ticular settlement are deductible. Our under- standing: the Tax Cut and Jobs of Act of 2017, PL 115-97 (Dec. 22, 2017) eliminated per- sonal deductions for attorney fees. Probasco, Jim, “Tax Deductions that Went Away, Starting with 2018 Taxes” Investopedia, https://www. investopedia.com/tax-deductions-that-are-going- away-4582165 (last accessed Jul. 12, 2021). 7 We retained Resolution Strategies LLP, Eric English and Pat O’Malley, before the first mediation and called upon them again to take on the settlement counsel role in resolving the mass arbitrations. The latter required a very high level of skill. 8 Mulvaney, E., “DoorDash Got Its Arbitration Wish, Costing Millions Upfront (2)” Bloom- berg Law (Feb. 20, 2020) https://news.bloom- berglaw.com/daily-labor-report/doordash-got-its- arbitration-wish-costing-millions-upfront (last visited Jul. 12, 2021).