by
Dr. John Sase & Associates
"The
most valuable of all capital is that invested in human beings."
--Alfred
Marshall, Principles of Economics
As any engineer or auto executive knows,
before you can build a car you must first build the tools that will build the
car. In the Gilford vs. Detroit Edison class action lawsuit that was recently
arbitrated and settled, an economic tool had to be created to divide $45.15
million among 1,400 plaintiffs. In what could loosely be described as a wrongful
termination lawsuit, the Gilford vs. Detroit Edison case, filed in 1993, has had
six attorneys from three firms representing the plaintiffs: Michael Pitt and
Jeanne Mirer of Pitt, Dowty, McGehee & Mirer; William Roy and Lynn Schecter
of Roy, Schecter & Voight; and Alice Jennings and Carl Edwards of Edwards
& Jennings. As the economic expert who summarized the mass of work completed
by economist Dr. Nitin Paranjpe for arbitration, I stayed on after settlement to
develop, refine, and process the award model and to assist the attorneys in
administering the financial calculations of the award.
This
project was indeed unusual and complex. Instead of awarding an equal share to
each of the 1,400 claimants, as is usually done in class-action suits, we
custom-tailored each share on a case-by-case basis according to the
mosaic of human resource and legal data that we addressed. In doing so, we may
have evolved an economic precedent, a new tool for subsequent cases that adds a
dimension of subtlety and discernment--a laser instead of a battle-axe.
DEVISING
A POINT SYSTEM
The basic reason for the plaintiffs wanting
to haul Edison “the circuit-maker” into circuit court was a perceived
cruelty and crudity in the defendant's methods of "downsizing," which
involved alleged racial, sexual, and other forms of discrimination and
harassment. The arbitrators divided the settlement into four pools: two for
those class members who accepted a Voluntary Separation Offer (VSO) and two for
those who did not accept a VSO (Non-VSO). For those unfamiliar with the terms
used in this case, VSO refers to persons who received a “buyout” from the
defendant. Non-VSO refers to those persons who were terminated, demoted, or
suffered a “job reclassification” but did not receive a buyout. In
developing our award model, we interviewed each class member, reviewed
employment records, and produced a statement signed by each claimant. The
information contained therein became the “raw data” which we used to score
the type and severity of damages for each claimant.
In accordance with the judgment, the model
was divided into VSO and Non-VSO groups. Each group was awarded a separate pool
for Economic and Non-Economic damages. Individuals could "score" a
maximum of 100 points in each of the two pools for which they were eligible. For
the Non-VSOs in the Economic pool, we divided the model into five more
categories: Non-VSO Adverse Action, Earnings Impairment, Enhancements, Financial
Support, and Seniority. The VSOs had one additional point category for
Mitigation. For the Non-Economic damages, each group was given points in
four categories: Emotional Distress, Physical Injury, Treatment, and Seniority.
Each category had points awarded by using scales of various increments.
The
points themselves were based on both the existence of and the severity of a
condition. For example, a termination was assigned sixty points while a lateral
movement was assigned a maximum of ten points. (Roughly speaking, a point can be
visualized as being worth approximately $200). Once the points were calculated,
award letters were sent out to each of the class members. The letters displayed
the points awarded in each category along with any special awards that they
might receive. Of course, each plaintiff was allowed to object if they disagreed
with the allocation. In some cases, objections were filed and were reviewed by
counsel and myself. In a number of
instances, adjustments were made to ensure fairness. We are currently
approaching the final dissemination of the monies. For my part, I am
continuously auditing the process: monitoring
the disbursement and cleaning up and archiving the database.
THE
SCIENCE BEHIND IT ALL
While so-called hard sciences like physics
and geology deal with deterministic systems and are relatively easy to quantify
and prove, economics has to deal with people.
As a result, there will always be problems predicting what individuals
will do or proving why they did it. However, even these "hard"
sciences are only relatively deterministic. As Frijof Capras states in The
Tao of Physics, the actual location of an electron in its orbit around the
nucleus of an atom cannot be predicted with certainty, only to a degree of
statistical probability. Even medical doctors can only inform their patients
that there is a 50-50 or 80-20 chance that they will survive a given operation.
In the
highly charged political climate of tort reform and high court hi-jinks that is
the Edison case, perhaps a cool-headed reflection on the theoretical background
of settlement determinations would be of use. The 2000 edition of Gerald
Martin's Determining Economic Damages is a practical guide. However, we
must go back a generation to Gary Becker, the Nobel Prize-winning economist from
the University of Chicago. His book Human Capital is the coal in the
furnace of modern thought in labor economics. Becker's great achievement was the
rigorous application of statistical probability to human behavior along with the
quantification of that behavior in economic terms, a theory that makes
settlements as in Gilford vs. Edison case computable. Human Capital Theory is
still relatively new. However, its application in the cost/benefit analysis of
social activity can valuate such things as a college education or having one’s
career dragged through the dust.
CONCLUSION
Due to its size and complexity, Gilford vs.
Detroit Edison is perceived as a landmark case. Just as the case itself is a
landmark, we believe that the award model created for this case is also
significant. The model provides a more sensible and equitable means to evaluate
and award shares in a class action suit. We maintain that the model is unique
for two basic reasons: it exhibits great detail in differentiating the variety
of issues pertinent to each claimant’s individual situation, and it also
maintains understandability and manageability in calculating the individual
awards for such a large group. This model protects the wholeness of the class
while addressing the specific needs of each class member. I would like to
suggest that this model could serve as a prototype for attorneys involved in
class actions of all sizes.
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