Lawsuits: Dismiss Class Actions

Class actions are pointless. They cost too much, and usually only the lawyers benefit. Pro or con?

Pro: Even Lawyers Get Skunked on Class Actions

You receive a notification via mail that you—as a stockholder of the Widget Manufacturing Co.—are entitled to payment from the settlement of a stockholders’ class action against Widget. You wend your way through pages of legal gobbledygook and find that you might receive a portion of the settlement by inserting your mother’s maiden name, her date and place of birth, and on and on and on. Getting into an Ivy League college is easier than cashing in on a class action settlement.

Personal experience has forged my attitude about class actions. Forty years ago, I represented a financier claimant in a lawsuit against a major financial scam operation. Our financier’s case was consolidated with a class action against the same scam. I cooperated with the class action lawyers and thought that we were brothers. Their part of the arrangement was that the class action lawyers would keep all the case files. After several years of litigation, I learned that the class action lawyers had settled their case with the defense lawyer. (I still suspect that there was a symbiotic relationship there.)

All discovery files, documents, etc., had been returned to the defendant. These included my firm’s detailed notes regarding the documents and somewhat less detailed notes about witnesses. I never suspected that the defendant would ask for the files, and was completely confounded when I learned that the class action lawyers had agreed.

At the next hearing the judge was furious at me and so was my client. Eventually my client settled for peanuts. My firm got the crumbs on the floor.

Forty years later, I am a happy lawyer, and the class action attorney is living at government expense in a low-security Federal prison. Somehow I can’t help but believe our disparate attitudes toward class actions account for the differences in our respective epilogues.

Con: Don’t Underestimate an Opportunity for Justice

Only the naive or those with hidden agendas would contend that class actions are pointless and only benefit lawyers. While the multimillion-dollar recoveries make headlines, in many instances shareholders, employees, or consumers have recovered tens of thousands of dollars where, but for the class action, their relatively small claims would never have been pursued. The class action is indispensable in just such cases.

Class actions allow plaintiffs who individually suffered relatively small injuries—but together have suffered major losses—to band together and collectively seek recovery from corporate defendants without having to individually incur the great expense of litigation. By allowing the collective pursuit of plaintiffs’ claims, class actions shift the balance of power, giving individuals the ability to litigate on an equal playing field with much larger, well-funded corporate defendants.

Private class actions are particularly necessary in times of lax regulatory enforcement often aggravated by underfunding or understaffing, circumstances woefully evident right now at the Food & Drug Administration and the Securities & Exchange Commission. The benefit of class actions has been continually recognized by courts throughout this great country, and I firmly believe it is most important at a time such as this, when government regulators are constrained by politics and economics.

By providing increased access to the legal system, class actions serve as a pause button on corporate greed that might otherwise go unchecked. It is the class action that keeps more tires from rupturing; more Enrons, Worldcoms, Adelphias, and Qwests (Q) from imploding; more bid-rigging or price-fixing schemes from hurting our free enterprise economy. I say “amen” to any measure that encourages those who consider cutting a corner, skirting a rule, bending the truth—or acting on any other money-driven temptation—to think twice.

Opinions and conclusions expressed in the BusinessWeek.com Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Curious

I'd like to see some statistics about how often the injured parties receive settlements of note and how those settlements compare to the ones their lawyers got.

Meg

Lawyers will always come out top. Always.

random

"Only the naive or those with hidden agendas would contend that class actions are pointless and only benefit lawyers."

Ah yes, the good old poison-the-well tactic. If you disagree, you're a Communist, err--naive or with a hidden agenda.

"...in many instances shareholders, employees, or consumers have recovered tens of thousands of dollars where, but for the class action, their relatively small claims would never have been pursued."

Ah, but oddly enough many of these cases are thanks to lawyers who cast a wide net of commercials looking to add more claimants to the list. How many commercials urging mesothelioma claims to go to a law office do you see on TV? How many commercials urging people to call a law firm if they took certain drugs to put together a class action lawsuit? And I don't think we're far away from seeing such ads for credit cards and mortgages.

It's one thing when a large number of claimants approach an attorney with a petition and ask to consolidate their cases. It's completely different than fishing for potential claimants to build a potentially lucrative class action case. Unfortunately, it's the latter that seems to make up the bulk of class actions--ambulance chasers looking for a quick score and a long list of names.

Favor Class Actions

Most of the negativity about class actions centers around the exorbitant fees of the plaintiffs' attorneys. Class actions do serve a valuable purpose by giving access to potential recoveries for injured parties with relatively small damages. Why should attorneys in these cases make $700 million (Enron fee request) or $460 million (Tyco fee request) when they have maybe $50 million in billable time, which in itself is usually highly inflated with temporary legal staff billed out at $300 an hour? Will plaintiff firms really stop litigating these cases if they only receive a fee of $50 million instead of $460 million? Of course not. Let most of the money go to the truly damaged parties instead of the attorneys, and the advantages of the class action system will shine through without all the negativity about the greedy attorneys.

Skeptic

Maybe class action suits should only be prosecuted by attorneys working for government or other not-for-profit legal organizations.

MA

This isn't about whether class actions are good or bad in general. It's about doing the right thing, whatever the case.

LFJ

Class actions lawsuits were set up to encourage an attorney to take the risk and expense up front and possibly receive a large amount of the settlement in return. It allows many people to go up against large and powerful corporations without the risk or cost it would take to pursue the litigation on their own. This is beneficial to society as a whole.

Unfortunately, many attorneys require their clients to pay up front should the lawsuit not receive class action status. This pushes risk to the client.

Overall, I believe that the process works by not only giving payment to those who have been hurt, but also keeping a check on corporations. The replacement for litigation would be government regulation, which would costly and inefficient.

Retired Attorney

As with most yes or no answers, the question is pointless. Some of the class actions actually make the corporations do better, and some are just greed. Lawyers are no better at being magnanimous than society. Some are great. Some are just as bad as Carl Icahn.

DannyBoy

Class action is all about making the lawyers rich. That is the whole purpose. The plaintiffs get to fill out reams of paperwork and get nothing for it. The defendant companies and their shareholders all loose. Anyone who agrees with the concept thinks of companies as deep pockets, but it is the shareholders' pockets that are being picked. And the losers are all of us if not directly, and then by way of the mutual funds or 401Ks or IRAs that we are invested in. Lawyers are the vermin of our society and the main problem with our economy and government.

John Merchant

Class actions were designed to protect consumers, but instead they have made billions of dollars for trial lawyers and left most plaintiffs with little more than they started with. Settlements involving coupons rather than pay outs for the plaintiffs have become all too common--coupons to the same business that plaintiffs claimed wronged them in the first place.

Not only do class action lawsuits fail to help the "little guys," they can actually hurt them in the end. When a business is forced to pay out millions, or even billions, in settlements, it often must resort to raising prices or cutting back on services to make up the cost, thereby passing the burden onto consumers. Plaintiffs' lawyers are the only winners in this flawed system.

Without reform, we are encouraging the abuse of the class action system. There are simple steps that would go a long way, such as requiring class action lawyers to obtain permission before adding someone to a class of plaintiffs and tying lawyers' fees to the number of plaintiffs who actually claim their share of any award. These are commonsense solutions that would ensure our legal system is used for justice instead of greed.

We must make our voices heard. Without reform, plaintiffs' attorneys will continue to benefit at the expense of businesses and consumers.

Tony

How do you protect yourself against lawsuits?

Join the Debate

 

Participate More!

Please send us your ideas for new Debate Room topics. If you're an academic, association officer, or other industry expert and would like to write a Debate Room essay, send us a query. Questions? See the

BW Mall - Sponsored Links

Buy a link now!