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Paradise Lost? A Mini-Vacation Spawns A Class Action

My daughter enjoyed a pleasant mini-vacation a couple of years ago at the Atlantis Resorts hotel complex in the Bahamas, so it is not entirely surprising that she recently received a postcard reminding her of that stay.

But the postcard contained no pictures of towering palm trees or sparkling beaches. It bore no offer of a three-day, two-night package at an irresistible rate. There was no “wish you were here” message from the Atlantis. In fact, the postcard did not come from the Atlantis at all. It came, via an intermediary, from a law firm that took the liberty of suing the hotel on behalf of my daughter and her fellow travelers.

The Atlantis charged a “mandatory housekeeping gratuity and utility service fee” between March 28, 2007 and September 14, 2011, a period that included my daughter’s visit. This, we are told, aggrieved a certain Jennifer Costa, who thereupon filed suit in March 2011 claiming that she was injured because the aforementioned fee was not provided entirely to housekeepers or used to pay utility costs.

The defendants were Kerzner International Resorts, Inc., and its affiliates, who own Atlantis. Though they denied wrongdoing, they unsurprisingly opted to settle what had become a class action suit rather than incur the costs of fighting it.

If ever a legal dispute deserved the label “nuisance suit,” this was it. According to the settlement agreement, which has received preliminary approval from U.S. District Judge Kathleen Williams in Miami, the primary benefit to the settlement class is that the Atlantis will change the fee’s name from “Mandatory Housekeeping Gratuity” to “Mandatory Gratuity.” Ms. Costa is to receive $2,000 as an “incentive award,” presumably because plaintiffs require an incentive to lend their names to nuisance suits. Other injured members of the class, including my daughter, are to receive nothing beyond the satisfaction of knowing that this injustice has been rectified. Moreover, class members also automatically lose their right to bring their own nuisance suits against the hotel for this grave violation of their personal serenity, unless they take the trouble to timely opt out of the settlement.

Of course, the plaintiffs aren’t the only interested parties in the case. The class counsel, which is the law firm of Meiselman, Denlea, Packman, Carton & Eberz P.C., according to the court’s preliminary approval order, will apply for an award of fees and costs, to be paid by Kerzner. The settlement does not specify the amount of the fee award, but caps it at $450,000, which I would guess is close to where the final bill will be. In addition, the settlement administrator, Gilardi & Co. LLC, is entitled to administrative costs of up to $150,000. This will cover items like the cost of the postcard Gilardi & Co. sent to my daughter.

I have written in this space before about the way our current system creates incentive for lawyers to seek out plaintiffs who would be otherwise unlikely to sue individually, consolidating tiny injuries into a large case that the company in question is more likely to settle than fight. Courts ought to be in the business of settling legitimate disputes between parties with a significant interest, financial or otherwise, in a case. Our absurdly loose rules governing class actions have allowed the system to be hijacked by attorneys who conjure up litigation in order to generate billable hours, which are then paid through settlements extracted, as this one was, simply to avoid litigation costs on the other side. My daughter suffered no injury and therefore had no reason to sue the hotel, but the system gave unknown lawyers an incentive to conjure a suit on her behalf that offered her no benefit whatsoever.

The only winners are the lawyers - on both sides of the case - and the settlement administrators. Taxpayers foot the bill for the judges and clerks who handle the litigation. Shareholders or, more often, customers pay for the litigation costs and insurance fees that are the price of doing business under this ridiculous system.

This approach has been described as “rough justice,” but it is not justice at all. It’s a legalized racket, and one that should have been shut down long ago.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s recently updated book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us,” and Chapter 4, “The Family Business.” Larry was also among the authors of the firm’s book The High Achiever’s Guide To Wealth.

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