Class Action Lawsuits
Driving into town last week, I heard an absolutely awful article on Morning Edition about class action lawsuits.
They had a bit about some guy in San Diego who bought an LCD monitor that was slightly smaller than advertised. "I didn't care one bit," he said, "but then these lawyers contacted me about a lawsuit, and I joined just to see what would happen." The reporter then described how the guy only got a check for $9, while the lawyers made off with $5 million. And that was it. She then went on to describe another, unrelated, lawsuit.
The implication was that the lawsuit was frivolous (the guy didn't care that he was lied to) and that the lawyers took most of the money (they got $5 million, while he only got 9 bucks!).
Of course, this is impossible to know since the reporter didn't tell us how many people were in the affected class, how much they were bilked out of, how many people actually claimed their $9 (or whatever), nor what it cost the law firm to pursue the class action.
Saying only that someone in the class got peanuts while the lawyers made out big is meaningless at best and misleading at worst. Shame on NPR for wasting airtime with it.
A lot of people don't seem to understand why we have class action lawsuits in the first place. It seems like they are unfair to big businesses and are a giveaway to the trial lawyers. We need them, though, because they maintain the balance of power between large corporations and their customers.
If you're running a business, trying to meet payroll, or trying to squeeze out a little bit of extra profit this quarter so the board doesn't fire your ass, are you going to screw over one customer for a boatload of money or screw over a lot of them for just a little bit each? I'm reminded of the Richard Pryor character in Superman III — remember, he steals fractions of a penny from every transaction at a bank. No one notices because there's not a big discrepancy in any account balance, and yet millions of dollars have gone missing.
If you're a customer (or client) of such a business, what can you do? The amount you've lost is a drop in the bucket compared to even an hour with any decent lawyer. You've been defrauded, and there is nothing you can do about it. Sure, you could notify the Better Business Bureau or file a complaint with the Federal Trade Commission, but these won't get you the money back.
Class action lawsuits are meant to be a solution to this problem. The idea is that if enough people have been defrauded in the same way by the same company, your lawyers could request that all of these people be certified as a single class. Then each individual person wouldn't need to hire their own lawyers and file their own lawsuit — this would be a massive waste because the merits of all the separate cases are presumably the same — and the per-plaintiff costs become more manageable. If there is a settlement or judgment against the company, then the lawyers take their (usually not inconsiderable) cut, and the rest is put in a trust. Reasonable attempts are made to contact the members of the class and, after a certain period of time, the unclaimed money is returned to the company.
This kind of action is necessary to counter the fundamental asymmetry between big corporations and their customers. The corporate fascists don't like class action lawsuits because they dilute one of the most powerful advantages of being a big company: the possibility of hiring as many lawyers as needed. Without the class action mechanism, any individual or small business could not afford to fight back. True capitalism needs the threat of class action lawsuits. Otherwise, every transaction between a large corporation and one of its customers would be inefficient because the customer couldn't be sure that they were getting what they thought they bought.
Still, though, there are legitimate concerns about class action lawsuits. Because these lawsuits involve large amounts of money, they attract unscrupulous lawyers. The potential for large settlements and judgments invites frivolous lawsuits and turns a class action into a speculative venture, which encourages law firms to file as many suits as possible in the hopes that one might stick. This problem is inherent to all lawsuits, though, and could be best avoided by making sure that any frivolous lawsuit is rejected as early in the process as possible.
A similar problem is that of so-called "Judicial Hell-holes," like Madison County, Iowa. It turns out that in some jurisdictions, the judiciary in which the lawsuit is filed gets to keep the interest generated from settlement/judgment money while it is held in trust for claimants!. This is insane and encourages judges to be extremely liberal in accepting class action lawsuits. I can't believe this is legal, much less tolerated.
Another problem, caused by our federal system, is that every state has a different commercial code and different rules for civil procedure. This makes organizing a multi-district litigation tricky. Some have proposed requiring that all class-action lawsuits be filed in Federal court. This proposal may or may not make sense — but those supporting it seem to hope that forcing all these lawsuits into the already over-worked and under-funded Federal judiciary would limit the number of possible class action cases.
Imagine how awful our lives would be without class action lawsuits. A cell-phone service provider could raise your rates by $5 a month, and there'd be nothing you could do about. Suing the company would cost tens of thousands of dollars, which is not an option for most people. You could switch to another of the three providers in your area, but you've still got 16 months on your current contract. You could just not pay, but then the company would send your name to a credit reporter and a collection agency, and then you'd have to sue them.
In a capitalist society, corporations will do as much as they possibly can to wrest your money from you (as they should — that is, after all, why we invest in them), but we need a sufficiently strong countervailing force to make sure that they don't get away with breaking the law. Class action lawsuits, for all their problems, seem to me to be the best way to do this.