SEATTLE/ Conservative Monitor -- Lawsuits create huge inefficiencies in the economy, diverting resources from more productive use. Frivolous lawsuits appear to make up a disproportionate share of these cases today. A lawsuit has been filed against McDonalds over alleged fraud in its "Monopoly" and "Who wants to be a Millionaire" games, seeking return of extra sales the company received from its promotion. Returned to whom, the consumer or the competitors? Over the years companies have been bankrupted over questionable lawsuits but most are settled for little more than the lawyers fees.

While we see an occasional lawsuit like the McDonalds case, with the stock market decline, shareholder lawsuits are the recent craze. I've just received notice that I may be eligible for a financial settlement regarding the "Sunbeam Securities Litigation", perhaps as much as $1+ per share. I have been a stockholder in a number of such suits and expect that I will be in some yet unnamed. The lawyers always managed to settle in the past but after the lawyers received their fees and other costs there never seems to be anything for the shareholders. I have never received any financial rewards even though everyone was settled in favor of the shareholders. If I receive any money from this shareholder lawsuit it will be the first time.

The only benefit I have received from previous shareholder lawsuits, if it could have been called a benefit, was from the US West (now part of Qwest) shareholders lawsuit. In that case I received the opportunity to buy additional shares of US West without paying the brokers fee. In my case a savings of less than $0.29 a share, worth even less after taxes if the stock increased in value. At the time I wasn't sure why the then stockholders should jump at this opportunity, if management was so untrustworthy that the lawyers felt they should institute a shareholders lawsuit.

Have shareholders ever received any meaningful compensation from these lawsuits? I find it interesting that the shareholders, assuming they held the stock, would want to sue themselves. The company pays any settlement, including the lawyer's fees and costs. Since the shareholders receive nothing, or certainly less than the lawyers, they are usually worse off after the lawsuit as profits of the company would be reduced by the lawsuit costs.

The lawyers seem to find shareholders with ease when filing a shareholder lawsuit but when a settlement is reached what then? If my experience is typical, and from what others have said it appears that this is the situation. In most cases I had to specifically opt out if I didn't want to be party to the lawsuit. It wasn't worth the trouble since it wouldn't stop the lawsuit and if by some remote chance there was a settlement...but then I'm still waiting. In the case of the old Wicks Corporation, the lawyers tracked me around the world but after the settlement I heard nothing, even after two letters to the law firm to find out how I might be affected by the settlement. Since I received no response I guess I know the answer.

Occasionally, these lawsuits are because of dishonest management but most are about poor management decisions. Management and the board use company funds to buy insurance coverage against shareholder lawsuit and to pay any settlement against them personally. The lawsuit distracts management from running the company and uses company resources to fight the lawsuit. It is time something else was done to protect shareholders from dishonest management versus bad management rather than lawsuits that benefit no one but lawyers.

While management may have given misleading information to analysts that then promote the stock, the analysts have a responsibility to ferret out the truth. That's what they are paid for. The SEC will take a student who promotes a stock over an Internet chat room and threaten them with jail time and force them to return all profits. Somehow I don't feel sorry for those who lose money from following a tip over an Internet chat room.

Following a reputable (?) stockbroker's or bank's analyst's advice is something else. These analysts are supposedly paid to give well-researched unbiased advice. How naive we are. Analysts that receive compensation, directly or indirectly, from companies they promote are seldom punished. Perhaps these lawyers should direct their effort to lawsuits against the brokers and banks. Keeping them from doing their job and misleading the public could be considered a public service. Woops, a judge in the suit against the Internet stock analyst Mary Meeker decided it was ridiculous to blame Meeker and her employer, Morgan Stanley Dean Witter, for investor losses in Internet stocks.

Now if the courts would only do the same for most shareholders lawsuits. The problem, the economic incentive for the company is to pay several millions in lawyer's fees rather than contest the lawsuit and have unpleasant information about management be released. The lawyer's interests are satisfied as they are compensated more than adequately. Only the shareholder is left out of this neat arrangement. But then, who really represents individual shareholders in a class action lawsuit? The lawyers is only interested if they can reach a settlement that would make the contingency fee greater than their fees and other costs. The company has no interest in challenging the lawsuit since it will almost surely cost more even if they win.

Perhaps it is time to hold the lawyers and management accountable. Courts should dismiss cases if there isn't evidence of illegal activities by the board and management. If the judge believes the case has merit, then the judge should be able to refuse to accept a settlement that provides no significant remuneration to the shareholders or punishes the board or management. What most shareholders want are a responsive and responsible capable and honest management and board. Perhaps guidelines should be developed as to what is a fair settlement and procedures developed to replace boards and management when they act contrary to the public interest.

Another solution is to give more responsibility to the courts. If a lawsuit is considered questionable then the lawyers must pay any costs associated with the lawsuit unless the shareholders specifically agree to such costs. If a shareholders lawsuit is successful, including a settlement out of court, the judge determines the lawyer's fees assuring a fair return to the shareholders. Also, a vote for a new board should be conducted within a specific time period and that management and the board cannot vote their shares. Radical, yes but it might just shift the economic incentive for boards and management to address shareholders concerns and for lawyers to represent the shareholders interests. The cost to society of questionable lawsuits has become too great to continue to ignore the impact of such cases.