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Collapse Of 5-Hour Energy Case Reveals The Secrets Of Class Action Lawyers

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Howard W. Rubinstein has been disbarred once and has had his law license suspended twice by the State Bar of Texas for violations including misuse of client funds. But things really fell apart when he decided to sue billionaire Manoj Bhargava’s 5-Hour Energy drink.

Five years after Rubinstein claimed 5-Hour Energy didn’t provide the promised five hours of crash-free energy on its label, his case was dead, his client had been convicted of fraud in an unrelated case, and the peripatetic attorney, who once worked out of the bar of the Little Nell Hotel in Aspen, had consented to a $141,000 judgment in 5-Hour's lawsuit accusing him of malicious prosecution.

How this case disintegrated, and the embarrassing evidence that spilled out in the process, says a lot about the class-action lawsuit industry in America today. Rubinstein – his given name, which he has never legally changed, is Howard Marvin Rubenstein Weil – is just an unusually sloppy practitioner in a business that uses the threat of expensive litigation and potentially ruinous damages to pry billions of dollars in settlements and hundreds of millions of dollars in legal fees from businesses each year. The recovery rates for real consumers are infinitesimal, according to this 2013 study, and plaintiff lawyers frequently agree to dismiss the cases of their clients before they get to class certification in exchange for a fee.

Rubinstein has filed more than 100 cases in federal court since 2000, as both Howard W. and Howard M. Rubinstein, against big companies like Kellogg and Toyota, and small ones like Aidell’s Sausage. Most of his cases accuse companies of misleading consumers in some way, many in the wake of news that the Federal Trade Commission or state regulators have investigated a company over similar claims. “When the FTC sanctions, they settle quickly,” Rubinstein noted in one 2011 e-mail that 5-hour turned up in its lawsuit, referring to another company he’d sued.

Not all Rubinstein’s lawsuits follow government probes. Sometimes he tries to break new legal ground. He once sued Pepsi ’s Quaker Oats unit claiming consumers were misled into believing the “Crunchberries” in Cap’n Crunch were an actual fruit. A judge dismissed that case, saying “a reasonable consumer would not be deceived into believing that the product in the instant case contained a fruit that does not exist…” Even losers can be winners in this business, however, as companies will pay lawyers a six-figure fee just to drop their appeals and end the further expense of paying defense attorneys.

Another e-mail from Rubinstein, titled “Done cases before Oct.”, lists 11 lawsuits with notes like “Kellogg mini wheats…fee to be paid…our share 300 thousand” and “Musclemilk…share 650 thousand.” Some of the payoffs came in cases that were dismissed early, and others in cases that were never even filed.

That may have been Rubinstein’s goal in the 5-Hour case. Rubinstein and a California lawyer that frequently worked with him, Howard M. Hewell, sent 5-Hour’s parent company Innovation Ventures a letter in June, 2010, with a draft complaint and an invitation to “open a channel for discussion and possible informal resolution of the claims.”

Jerry Hawxhurst, 5-Hour’s attorney, said he called Rubinstein after receiving the letter and the lawyer told him “I’m in the business of selling protection,” meaning he could engineer a settlement that provided res judicata, or protection against any further claims in state or federal court over the same issue. Rubinstein warned that if 5-Hour refused, he would file similar lawsuits in other states to run up the costs, Hawxhurst told me.

“I remember asking him `Who do you think you are, Tony Soprano?” said Hawxhurst, whose firm, Crone Hawxhurst, does plaintiff and defense trial work. Rubinstein seemed surprised, Hawxhurst recalled, since many defense lawyers earn a good living responding to class actions.

“C’mon Jerry, you know how it works,” Hawxhurst said Rubinstein told him. “It’s guys like me that make you guys rich.”

Rubinstein, in a deposition in the 5-Hour case, denied ever using the word “protection” with Hawxhurst. Reached by FORBES, he referred all other questions to his attorney, Savannah Blackwell, who said “one thing I know about Howard Rubinstein is he believes in his cases.” Kevin Roddy, a veteran class-action lawyer who served as an expert witness for Rubinstein, was even more forceful in his defense. Even if Rubinstein had said he was selling protection there would be nothing illegal or unethical about it, Roddy told me.

“It’s not an extortionate term,” said Roddy, a onetime partner in Milberg Weiss, the class-action firm whose principals, Bill Lerach and Mel Weiss, later went to jail for paying kickbacks to clients. (Roddy was not implicated in that case.) “It’s a shorthand way of saying `how much peace do you want to buy?’”

Even if their claims are flimsy, all class-action lawyers still need a client, a real person willing to serve as the representative for the rest of the class. This is where Lerach and Weiss got in trouble, since lawyers aren’t supposed to pay people to serve in that role (judges can award so-called lead plaintiffs a fee, typically less than $10,000, after the case is concluded). The lead plaintiff also is supposed to know about the case and the lawyers she has hired to pursue it, details that are sometimes lacking when defense lawyers put those plaintiffs under oath.

The lead plaintiff in the 5-Hour case was an attractive young woman named Vi Nguyen who worked in marketing for a cosmetic surgery center in California. But in a grueling, five-hour deposition, Nguyen admitted she had been recruited to serve as a plaintiff by her cousin, who worked for a Texas lawyer Rubinstein knew; had purchased two bottles of 5-Hour Energy specifically to sue the manufacturer; had never complained to the company or sought a refund; and had signed a backdated retainer agreement with Rubinstein the week before the deposition in order to comply with California law, months after she’d lent her name to his lawsuit.

At least Nguyen survived the deposition without taking the Fifth Amendment (although she pled guilty this year to fraud in connection with a $50 million insurance scheme at the surgery center where she was employed). Julia Meaunrit, another one of Rubinstein’s clients, cited the constitutional provision against self-incrimination more than 20 times in a 2014 deposition.

Over the course of that deposition, Meaunrit admitted she had served as a plaintiff for Rubinstein in at least four class actions over products like Swanson pot pies and lipstick, even as the two had a romantic relationship and exchanged e-mails in which Rubinstein said “This is ure business” and “u will be under less stress when the check arrives.” Efforts to reach Meaunrit were unsuccessful.

E-mails and other communications 5-Hour’s lawyers uncovered in their suit showed that Rubinstein belonged to a loose affiliation of lawyers who ran an assembly-line process of identifying companies to sue and then helping each other find plaintiffs. In a 2010 e-mail to Hewell, who also consented to judgment in 5-Hour's malicious prosecution case, Rubinstein urges his colleague to prepare a copycat lawsuit in Florida and to “use a friend that works out a lot,” presumably as the plaintiff. In another e-mail about a proposed lawsuit against Minute Maid over its pomegranate blueberry juice, a lawyer in Rubinstein’s firm said “I already have a complaint prepared for California based on the product not really being pomegranate juice. We just need a Cal client.”

Another email to lawyers at Milstein Adelman, a firm that worked with Rubinstein, lists 237 potential cases against products like University Medical Stretch Face Cream, Skinny Water, Brain Toniq and Marley’s Mellow Mood, along with the lawyers associated with each case. In an Oct. 27 e-mail about the last product, a tea named after reggae superstar Bob Marley, an associate of Rubinstein says: “Just found a San Fran client for this case. But, She bought it today for the first time if that matters.” Milstein Adelman declined comment.

Rubinstein’s frankness might be off-putting, but it doesn’t necessarily reflect anything unethical, said Roddy, who has negotiated more than $2 billion in settlements against companies including Western Union and Merrill Lynch since leaving Milberg Weiss. Roddy acknowledged that most consumer class actions start with the lawyers who file them. Finding a plaintiff comes later.

“The least likely way for a case to start is for a consumer to contact us out of the blue and say `Hey we’ve been ripped off,’” he said, although he estimated as many as a quarter of cases start with a client's complaint.

Hawxhurst’s aggressive defense in the 5-Hour case likely stems from his client’s other legal troubles, including investigations and lawsuits by attorneys general in more than 30 states into the company’s marketing practices. (5-Hour dismisses many of those claims as “myths.”)But it also reflects how some defendants have decided to respond to class actions by going on the offense, dragging plaintiffs into depositions and attacking inconsistencies in their complaints. It’s a gamble, since big class-action firms have large portfiolios of cases and can afford to persist with losing cases just to send a message to defendants: We’ll cost you either way, so why not settle?

“If you can get something to go away very quickly for almost nothing you’re almost a fool not to do it,” acknowledged Hawxhurst.

Indeed, in one e-mail to Meaunrit, Rubinstein suggests he has a good working relationship with defense lawyers representing Kraft, which apparently agreed to settle a case before it became a class action:

He believe we will receive no less than 300 thousand he held out for 400 .. will be resolved this week check takes about 7 to 10 days .. private settlement not class we receive half .. don't worry ... u will be under less stress when the check arrives or the wire .. is made .. not monopoly ..

In his own deposition, Rubinstein portrayed himself as bumbling and out of touch, unable to state when he took the California bar exam or even the address of his office in San Francisco. (In e-mails, he displays a more thorough knowledge of the Federal Rules of Civil Procedure and the elements of proof under California's consumer product laws). Things went worse when Hawxhurst deposed Meaunrit, who served as lead plaintiff in several of Rubinstein’s cases after he met her at a Le Peep restaurant in Houston. When asked if Rubinstein shared the proceeds of any lawsuits with her, she took the Fifth, as she did repeatedly when asked if the two had a relationship or a shared bank account.

Finally this exchange:

“Well, did Mr. Rubinstein say that this lawsuit that you’re testifying in right now posed a risk to his license to practice law?” Hawxhurst asked.

“Yes, sir.”

“What did he tell you, as best you can recall?”

“My law license is at stake. My law license is at stake.”

Rubinstein is currently practicing under a two-year probated suspension that runs until 2016, for failing to disclose his 1983 disbarment to federal several federal courts. There is nothing in the publicly available records suggesting the State Bar of Texas has taken further disciplinary action.

Rubinstein disputes the meaning of the judgment in 5-Hour's malicious prosecution case. Hawxhurst said the company refused to accept anything less than a judgment on claims the Nguyen case was pursued maliciously, a legal term that basically means with knowledge it was baseless. Rubinstein's attorney Blackwell said his consent to judgment in the case, and the payment of $141,000, does not include any admission of wrongdoing.

"The compromise agreement, as reflected in the final order in the case, includes no language indicating our clients, Mr. Rubinstein and Mr. Hewell, committed malicious prosecution, admitted they did so, or consented to a judgment saying so," Blackwell said.

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