Monday, April 21, 2008

Class Action Lawsuits

Though I'm a lawyer, I don't claim to be an expert on class action lawsuits, but I've read plenty of complaints about them (usually from Republican circles). The complaints generally allege that class actions are somehow frivolous ways for lawyers to get huge, undeserved legal fees while giving consumers token coupons that are basically worthless as part of a class action settlement.

I'll address each one of those complaints in turn.

First, the notion that somehow class actions are generally frivolous. Any discussion of "frivolous" lawsuits should begin with a discussion of the fact that actually filing a friviolous lawsuit - heck, just a frivolous notion within a legitimate lawsuit - opens a lawyer, his or her law firm, and even the client, to sanctions and penalties. It could be argued that the sanctions aren't levied often enough, but the threat of them is there. More to the point, any filing that is truly frivolous also doesn't have a chance in hell of actually going anywhere. The court will rule against it, and in the off chance there is an idiotic judge who does not, it will be quickly reversed on appeal. Simply put - filing a frivolous motion of any kind has a whole lot of downside with not really much in the way of upside. Even if it is just dismissed, you'll very likely have pissed off the judge, or at least lowered the judge's estimation of your abilities, making it less likely the judge will look kindly on even a more legimate motion.

Beyond that, one has to wonder about those who call class actions with settlements frivolous. It is true that sometimes it is cheaper and easier to settle to make a complainant go away than it is to go to trial and win, but the aggregate costs of most class actions are so high that one would think it would always be much cheaper to go to trial if the suit is so weak as to be frivolous. In other words, it is not very likely that a class action suit where there has been a settlement was frivolous - just the opposite, in fact. So claims of frivoloty about such suits are bullshit, plain and simple.

Second, there is the notion of huge, undeserved legal fees for lawyers in class action suits. It is true that lawyers typically get anywhere between 30 and 40% of a suit that is done on contingency. But keep in mind that there is also the chance that they will lose and then get nothing. What it means is that the lawyer or law firm assumes the risk of the lawsuit. What is great about this is that it allows even people with no money to get top-flight legal representation that can go toe to toe with the richest of tortfeasors. Were this not the case, one could stomp all over the propety rights of those with no money with wild abandon without any fear of being taken to account over it. With this system, even the mightiest of billion dollar corporations still needs to worry about not injuring even the most poor among us (though for various reasons, they still have less to fear about injuring the poor than the well-off, but that is a digression I'll leave alone for now).

I call this an unambiguous good that makes our society a whole lot safer than those societies without such a system. There's a reason that when some minor disaster happens in the US, you see minimal deaths and injuries but that in some other nations, such things cause thousands or even millions of deaths. Class action lawsuits are a small but significant part of that.

Dealing with the second part of the lawyer fees - whether they are "deserved" - I say that they clearly are. Were it not for those fees, as noted above, the poor could be trod upon with impunity (as it is, they still often are, but it would be much much worse without this). Putting together a class action suit is hard work that requires specialized lawyers with years of experience and also requires spending a lot of cash upfront on the part of the law firm. Only a large, rich law firm can handle class action suits for that reason. Veteran lawyers with highly specialized skills are needed. They don't come cheap, for good reason. They work hard, working long hours, sometimes for years, and all with the chance that in the end, they will get nothing. So the winning cases not only have to pay them for their time for those cases, they also have to cover all of the money spent on losing cases or on cases that, despite winning, still did not cover the cost of their actual time spent. In short, they deserve every penny - they work hard for it. Which brings us to the next point.

Third, there is the notion that these suits are scams because after paying all of those legal fees, the actual consumers (who can number in the hundreds, thousands, or even millions, depending on the suit) often don't get much more than a coupon or something that seems somewhat worthless. But this is overlooking some very important points. First, lawsuits are meant to make plaintiffs whole. Which means that they are meant to restore a plaintiff (monetarily) to where they would be if they hadn't been cheated out of money (or otherwise damaged) in the first place. So in many cases, where there is a class action, there might only have been a small amount of damage to each individual consumer - so the coupon really does make them whole. (And more on that later). But not all class actions result in coupons. I've been a member of class action suits - probably at least a half dozen of them. And I did not get just coupons or peanuts from them. Several netted me about $50. One, involving my title company (for my home mortgage) resulted in around $300. Not exactly chump change.

But consider this. Even if all consumers get is a coupon for ten dollars off some product, or something else of negligible value, this still matters. Because if class actions were limited to cases where each individual consumer (and there could be millions as noted above) got a significant amount of settlement money, you'd essentially be granting a license to steal. Because then all companies would have to do is come up with scams that cheat consumers out of only an amount equal to or less than the threshhold amount for class action suits. It might not seem like much, but when multiplied by ten million consumers, it can really add up. Say the threshhold is $100 - that is a license to find a way to steal $99 from each consumer, and if you have in excess of ten million consumers that you get this from, then that's a billion dollars you just made - and all without fear of any lawsuit forcing you to pay it back. Because though each consumer could still sue you individually, even for $99, it isn't worth the time, hassle, and cost of a lawsuit to get it back. Hell, unless it is thousands of dollars, it isn't worth it. (True, there is small claims court, but even that isn't worth the time and hassle if the amount is that small - for some, it already costs more than $99 just to take time off work for a day to go to court).

So without class action suits, this sort of theft would be entirely unchecked. Thus, you should take satisfaction even with a dollar coupon payout from a class action suit - because you will have been a party to preventing a company from getting away with such a scam. That, I think, is the primary benefit of class action lawsuits - it allows claims that would otherwise never be made because they are of too low a value to support a lawsuit to come to fruition because, in the aggregate, they matter.

I just wish that these simple points of refutation would be brought out every single time a bullshit complaint about class action suits is trotted out of the GOP talking point box. I know I'm dreaming (given the right-wing stranglehold on the MSM) but I think it is good to dream.


Erin said...

Despite your more than cogent argument about per-plaintiff settlement amount, it is still sometimes frustrating to look at the combination of relatively low payouts and the hoops many plaintiffs have to jump through to be represented in the suit.

Recently, a medical clinic here in town was busted re-using needles and other disposable surgical implements, causing an outbreak of Hep-C, possibly exposing tens of thousands of people to other bloodborne illnesses such as HIV. In a town where a huge percentage of people earn their living in foodservice, hospitality, and other such close-contact employment sectors (and where tourism pays for everything from schools to highways), this is a HUGE deal.

The endoscopy center in question mailed out 40,000 letters to patients warning them they might have been infected with hepatitis or even HIV. That day, commercials started airing soliciting people to join the class-action suit.

The part I have a problem with, though, is that in order to be represented in the suit, you have to get tested for hep and HIV, but no one has yet ponied up the money to pay for uninsured clinic patients, and some people are even having trouble getting their own insurance to pay for the tests because they are unwilling to become enmeshed in something they see as "not their problem."

So what will you get if you got tested, confirmed that you have contracted hep-C, and win the class-action suit?

Seventy-five dollars, essentially just enough to pay for the tests in the first place. (Or, if your insurance paid for yours, half of a ticket to Celine Dion.)

Erin said...

Ha ha ha, the security vord verification that just came up is "cpenis."

DBB said...

Damn - that's just nasty! Anyone get any criminal charges?

In this case, though, I'd think that unless the clinic is part of some huge organization or has oodles of insurance, the problem is, they probably simply don't have enough money to pay out the damages done. If you really think about it, that makes sense - a jury would want to give millions to a single individual who was given a death sentence by such poor practices. Multiply that by 10,000 and you see that there simply would not be enough money to cover everyone. Probably it is the case that they have money equal to $75 times the number of patients exposed (plus 30% for the legal fees).

You could opt out and sue individually, but you may find the well already run dry. Becuase the sad fact is even if you win a million-dollar suit, you still get nothing if the defendant is insolvent and can't pay.

That's why deep-pocketed defendants are so desired as lawsuit targets - like billion dollar corporations - they can actually pay when they lose a million-dollar suit. You could sue me and win a million dollars, but after I paid my defense lawyer, I'd have enough left over to buy you a pack of gum... and then I'd have no choice but to declare bankruptcy and you'd end up not collecting probably a single dime.

Back to the clinic - I sure hope those responsible are getting life in prison. That's akin to murder, AFAIC. That's the other factor about class action suits against corporations - since you can't put a corporation in jail, often the ONLY punishment ever meted out is monetary, and often it is only from private lawsuits like class-action suits.

I think even more important than making people whole (which is important, though not as big a deal when there are only small per-person amounts) is making corporations think twice about doing it again.

DBB said...

My blog's verification was cpenis? I knew one could feel expoesd from blogging, I just didn't know how exposed I would be... heh.

BadTux said...

But you are forgetting the main target of the Republican onslaught. What they are really concerned about is rule of law. Rule of law allows the little people to have recourse when the high and mighty wish to abuse them. This cannot be allowed. All the baloney about "tort reform" is just part of a concerted propaganda campaign to poison the American public against rule of law and instead replace it by rule of, well, those who have the most guns -- i.e., the wealthy, who are capable of buying politicians, police forces, armies, the works. And if you don't like it, why, just go out and inherit a few hundred million dollars yourself, why don't you? It's your own fault for choosing to be born to a middle-class family rather than a rich family! If you'd been thinking ahead when you were a zygote, you would have chosen to be implanted in a rich lady. The nerve of some people... wanting special treatment for their own poor choices in life. Sheesh.

-- Badtux the Snarky Penguin