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Could ‘Posner Principle’ Doom Preposterous, ‘No-Injury’ Class Actions?

The U.S. Court of Appeals for the Seventh Circuit yesterday endorsed the Delaware Court of Chancery’s January ruling that so-called “disclosure-only” settlements in shareholder class actions need to reveal a “plainly material misrepresentation or omission,” and reversed a district court’s approval of a disclosure-only settlement between Walgreen Co. and investors (Hays, et al. v. Walgreen Co., et al.).

Judge Richard Posner wrote the three-judge panel’s majority decision, saying that suits which do nothing more than get the defendant company to reveal immaterial information and hand over attorneys’ fees to class counsel is a “racket” that needs to be stopped.

“The type of class action illustrated by this case — the class action that yields fees for class counsel and nothing for the class — is no better than a racket,” Posner wrote. “It must end. No class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand” [emphasis ATRA’s].  

If defense counsel in no-injury class actions are smart, they’ll begin citing what we’re calling the “Posner Principle” (italicized above) in litigation that goes well beyond shareholder lawsuits.  All judges, federal and state, should be urged to apply the Posner Principle, dismissing all class actions – especially preposterous consumer class actions – that stand to benefit only the conniving class-action lawyers who concoct them.

Here’s some more background coverage of the Walgreens case from the Cook County Record.

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