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  • Class Action Lawsuits aren't a Bad thing

       February 18, 2005

    President Bush is going to sign a bill that would severely restrict class action lawsuits. I know that the reaction of most people is to say "good, lawyers are scum," but I don't think that those people fully understand how beneficial the class action lawsuit is to most consumers.

    From a piece that I wrote last year on another blog:

    Enter the class action - the class action allows an attorney to sue on behalf of a group of consumers, and to collect a fee on the totality of the judgment amount. This arrangement, while it may seem like a windfall for the greedy lawyers, it actually pro-consumer. First, it acts as an incentive for a lawyer to take the case. As I described above, without the class action lawsuit, many, if not most, of these cases would never be heard. The second major benefit to consumers is that the wrongdoing doesn't continue. For instance, a phone company may be charged in class action with overcharging 1 million customers $1 each. The settlement from that suit will be something like: each consumer gets 66 cents, and the attorney gets $334,000. True, the 66 cents doesn't benefit the consumer very much. But the stopping of the wrongdoing, the fact that he won't be overcharged $1 per month for the rest of his life, is where the real benefit comes.

    I'm not saying that there aren't problems with the class action system, but people should understand that the advent of the class action suit was a huge triumph for the consumer. Today, many seem to be trying to cast the class-action suit as somehow being "anti-consumer," saying that "we all pay for these huge judgments, so we should all stop them." Please - that argument is a bit like saying "we all pay to house and feed criminals, so we should stop putting criminals in prison."

    The fact is, companies lose class actions when they rip-of consumers. Severely restricting or eliminating the class action will once again give companies license to do exactly that, without fear of reprisal.


    Posted by jkhat at February 18, 2005 08:08 AM

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    Comments

    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: Zorro at February 18, 2005 12:17 PM

    Another example of this administrations' shaping legistlature to suit their corporate backers.

    Good to see folks on the right taking a stand on domestic follies, now if only they would wake up and see the forign follies for what they are. After all, they're being driven by the same people for the same reasons.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at February 18, 2005 12:27 PM


    just because A results in B doesnt mean that B was the motivation for A, zorro.

    "out of control litigation" is seen as a problem in this country, by both sides. the solutions proffered are often designed to get big media coverage, to impress voters, b/c in today's world of uneducated voters (like you) no one knows any more than a few soundbytes about any particular topic.

    this topic happens to be very complex, yet you have a very simple understanding of it and the motivations for president bush's policy.

    your seeming response to everything is "oh, bush did it to help his rich cronies!!!!!!" as usual, your comments reveal you to be a fool, bitbucket man zorro.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: John Tant at February 18, 2005 01:24 PM

    James, good post. A question, if I may:

    I agree that class action suits, in and of themselves, can be beneficial. What do we do to curb misuse of those suits? I think the class action system, as it sits, also creates an incentive for attorneys to roll the dice on a shaky lawsuit in the hopes of a sympathetic jury and a large payday. Isn't the incentive system a little overbroad?

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: Zorro at February 18, 2005 01:28 PM

    Out of control litigation is things like people suing McDonald's for spilling hot coffee in their lap...failure-to-warn suits levelled against sporting goods companies or recreationa areas...and that sort of thing. Class-action suits are rarely frivolous.

    JKHat correctly addresses the issue in the post above...and I (correctly) point out that B is the motivation for A. This bill is aimed at class-action suits...not the frivolous types of you are thinking of.

    I know it's difficult for your little-boy-brain to grasp that daddy might do something bad...but get used to it...
    ...you overweight, undersexed, pointy-headed little turdblossom.

    ;D

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: John Tant at February 18, 2005 02:34 PM

    I disagree with the thought that class actions are rarely frivolous. From my research on the subject (research not as in depth as that of James, which is why I'm asking him the question), I know the current class action system allows courts to certify particular classes when they really shouldn't. In other words, those classes may be made up of people who actually don't have similar claims, and an overbroad class makes it easier to bring a frivolous suit to bear. Given a frivolous class, the class could literally consist of many hundreds if not thousands of people, all represented by one attorney, carried out in one trial. Little wonder corporations are forced to settle in such cases, even if the case itself has no merit. In fact, often the settlement itself is negotiated without the input or knowledge of the class. And based on stats from the Federal Judicial Conference, class actions have increased by 300% to 1000% over the past three years (http://thomas.loc.gov/cgi-bin/cpquery/?&db_id=cp105&r_n=hr702.105&sel=TOC_16082&). That could be because more companies are trying to rip off more people...in the same way Hillary Clinton "could have" made a couple hundred grand in cattle futures.

    Indeed, the very same link points out a few hallmarks of so-called "collusive" class actions. For instance, issuing discount coupons in lieu of cash payments to the class, or "reversionary settlements."

    Again, I am not saying class actions in and of themselves are necessarily bad. I am saying the system, from my perspective, doesn't seem to have much in the way of preventing misuse.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: tornilla at February 18, 2005 05:42 PM

    >>Out of control litigation is things like
    >>people suing McDonald's for spilling hot
    >>coffee in their lap

    Actually that was a very meritorious lawsuit, and it was McDonald's own callous indifference that led to its loss in that case. The coffee was too hot. The plaintiff was burned horribly. Company documents showed that during the prior ten years, McDonald's had received at least 700 reports of coffee burns ranging from mild to third degree, and had settled claims arising from scalding injuries for more than $500,000.

    The best way to curb class action abuse is to make the class action determination immediately appealable. Fed. R. Civ. P. 23 was amended to permit this, and Colorado just did it too. Experience shows that, once the class certification battle is lost, the case loses its appeal pretty darn fast.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at February 18, 2005 07:25 PM

    There are "incentive[s] for attorneys to roll the dice on a shaky lawsuit in the hopes of a sympathetic jury and a large payday" in many areas, John, personal injury and medical malpractice being two of the most famous, but simple unjust enrichment being a big one, too.

    Undoubtedly, that incentive should be reduced where possible, but often times the solutions are more just as troublesome as the problem itself. (Traditional solutions include the award of fees and costs and professional sanctions (i.e. Rule 11) for attorneys who bring frivolous suits).

    For instance, Florida has either recently implemented or is considering implementing (im not sure which, don't know a lot about it) a system whereby medical malpractice suits have to first be "approved" by a board of doctors and lawyers before they're allowed to proceed. The goal of the legislation is to reduce medical malpractice insurance costs in Florida, thus "shielding" doctors from increased premiums and liability, resulting in more doctors sticking around Florida and dreams of lower medical costs. A noble goal, to be sure, but the solution itself, in my opinion, is much more troublesome than the problem - it essentially empowers an advisory board with powers that should be vested with the judge and jury, robbing all of us of our right to an accountable government. Hey, why not just do away with juries in all civil cases and instead let University of Chicago economists pick everyone's award? (not even getting into the issues of panel member selection, bias, lobbying, etc.) Bottom line is that the new system is undemocratic and decidedly anti-American.

    This new class-action suit legislation signed by President Bush today takes a few steps towards eliminating some of the problems with the class action system, namely the "forum shopping" that has resulted in most class action suits being filed in a handful of rural communities that are known for giving out large awards. It does so by taking power away from the states and giving it to the Federal Government, which I can't say that I'm a big fan of, but I think it does so in a way that preserves the jurisdiction of any one state to adjudicate its own citizens' disputes by way of the exception for suits where at least 1/3 of the class is from the forum state.

    However, the fact still remails that its ultimate solution is that "federal judges are better than state judges" and do think that's wrong. That aside, as far as this being a solution to the problem, I don't think it's a particularly bad one.

    Only time will tell how much of an effect the legislation will have towards curbing frivolous class action suits. Personally, I don't think it will have any effect - the class action is a relatively new legal invention, designed to punish a relatively new type of behavior, i.e. committing several hundred thousand or million very tiny wrongs. It wasn't an issue 100 years ago because we didn't have as many service oriented businesses, nor did we have such omnipresent large scale electronic billing and commerce. What I'm trying to say is that I think the numbers of class action suits are going up because the types of transactions that yield these types of wrongs are also skyrocketing, not because there is a surge of frivolous suit-filing going on.

    I note that my post, which didn't discuss the legislation or my opinion of it at all, was read by liberals as being "anti-Bush" and read by our regular readers for exactly what it was - an acknowledgement that there is a problem and a caution against thinking the issue is a black and white one of "class action good! v class action bad!" Take that for what it's worth.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: BDiddy at February 19, 2005 04:49 AM

    Your analysis is incomplete. The bill doesn't do away with class lawsuits. Rather, it restores a sense of balance in our legal system. Currently, lawyers file suits opportunistically against businesses in localities or states in which the deck is stacked in their favor. As has been reported, in many of these judgments (and especially the settlements), the lawyers, not the consumers who've been harmed, were the primary beneficiaries. This is not what class-actions were intended for. The Class Action Fairness bill forces the case to be made at the federal level (if the lawsuit>$5 million); creating an equitable system. No longer can trial lawyers treat our judicial system like a lottery system; but plaintiffs will still have their day in court.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at February 19, 2005 10:49 AM

    Bdiddy, I challenge you to show me where anyone here said that the bill does away with class action suits. As far as I can tell, the only topic of my post is "Class actions aren't a bad thing."

    as far as my analysis being incomplete, i didnt put any forth. you, on the other hand, are completely wrong in almost every statement in your response. how does this create an "equitable" system? how does this prevent lawyers from treating it like a "lottery system?" class actions were intended for exactly what they're being used for. lawyers forum shop all of the time, in every area of law, and this doesnt stop it. do your homework. read the post before responding.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: at February 19, 2005 08:13 PM

    Maybe we should all go ahead and actually read the bill before we criticize it.

    http://www.theorator.com/bills108/s1751.html

    What this Bill does is move class actions which allege damages over $5 million from state to federal court. Certain state courts systems have developed reputations for giving extremely large judgment. So, lawyers file their class actions in these districts and use the threat of a huge judgment to force corporations into settling. Federal judges, on the other hand, have much more experience with Rule 23, which governs the fairness of class actions, and tend to be more consistent with damage awards.

    There is even accurate reporting on the subject:

    "The House today passed legislation that will make it harder for trial lawyers to file claims in such jurisdictions as Madison County, Illinois, that are known as havens for plaintiffs seeking large judgments. Judges would be required to hold hearings to assess the fairness of settlements, and settlements would be banned if lawyers' fees result in a net loss to consumers." (http://www.bloomberg.com/apps/news?pid=10000087&sid=aTXBXoYE7gwY&refer=top_world_news)

    This Bill does NOT stop meritorious class actions from being filed or proceeding. It simply ensures the level playing field for all parties that Due Process requires.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at February 19, 2005 11:12 PM

    previous commenter: most suits are filed in state court. that's why this new bill has been signed. your own post says that suits are prevalent in certain jurisdictions. how then, pray tell, do federal judges have "more experience" with the rules governing class actions?

    your experience argument fails. the argument that you're really making is "federal judges went to yale, while state judges went to state schools and were even sometimes (gasp!) elected by the people!"

    your argument also says that federal courts are the only place where people can get a fair trial - i love how that works, get a judgment somewhere, if you don't like it, say that it's impossible to get a fair trial in that court. hey, maybe we should start hearing ALL cases in federal court - after all, if companies can't get a fair shake there, how can we expect a criminal defendant to get one?

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: at February 20, 2005 11:00 AM

    James:

    Most class actions are filed in state court because they are seen as friendlier to plaintiffs (plaintiffs initiate the suit, thus they have the initial choice of jurisdiction). Federal judges, however, have a lot of experience with class actions because many, if not most, class actions are "removed" to Federal court under 28 USC 1441. In practice, class actions are particularly vulnerable to removal because they (almost by definition) implicate large sums of money and parties of diverse state citizenship.

    In addition to the fact that many class actions filed in state court are removed to Federal court, Federal judges in general have more experience with class action claims (under Rule 23) because there are significantly fewer Federal judges than state judges. I live in Dane County in Wisconsin. Dane County has 15 judges in its circuit court. Wisconsin has 72 counties in total - although most will not have 15+ judges. However, there are only 7 Federal judges for the entire state (2 in the Western District; 5 in the Eastern). So, due to their lower number, Federal judges are more likely to see any particular case filed in their state.

    Moreover, as you point out above, Federal judges are appointed for life. As a group they have more experience with any type of case that they might see as opposed to state judges who may come and go depending on the whims of the electorate.

    Finally, you raise the point that state judges are generally (though not universally) elected while Federaly judges enjoy lifetime appointments. Article III of the Constitution gives Federal judges lifetime appointments specifically to allow them to do justice, even when it is unpopular with the immediate demands of the people. Without impugning anyone's honor, elected state judges are understandably more likely to side with the local, allegedly injured, plaintiff than the "big evil corporation."

    To reiterate my first post, the Bill just makes it easier to remove class actions to Federal court. It does not deny anyone their day in court. In all reality, most class actions belong in Federal court because they implicate the rights of citizens of multiple states. Why should a putative class action claiming to represent the rights of residents of all 50 states be allowed to be decided by a state court in Butte, Montana?

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at February 20, 2005 12:33 PM

    "Why should a putative class action claiming to represent the rights of residents of all 50 states be allowed to be decided by a state court in Butte, Montana?"

    because butte, montana has an interest in adjudicating the disputes of its citizens. you too easily sweep that under the rug.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: John Tant at February 20, 2005 06:52 PM

    James, thanks for the reply. Sorry if this is disjointed in places...just got back from a weekend away and I'm still collecting my thoughts on the matter.

    I too am a big fan of federalism. I'm not eager to start the meme that a federal court is, by definition, "better" than a state court either (by way of example, I offer the Ninth Circuit Court....). And as you point out, the cure for frivolous suits can be worse than the disease, as your Florida example certainly is. But isn't there a class action strategy where the case is filed in both state and Federal courts, with the idea that the latter suit will more or less force the defendant to settle in the former (I'll look for more on this topic.)? Wouldn't it make sense to have a suit filed in one or the other?

    Anyway, my main issue revolves around the cynicism that tends to surround such cases. For example, you attribute the increase in class actions, at least in part to the increase in service oriented transactions. My figures given were from a three year period, and I can't imagine the number of such transactions increasing that significantly over such a short period of time. But then I haven't dissected the source data either. And while my opinion is undoubtedly colored by sensational media coverage, I have to say I think there's more than a little truth to the opinion that such suits are prompted by the crap-shoot (and while it's true personal injury and medical malpractice suits can be similarly incented, that's just an argument to think about reform in those areas too).

    I think we both agree there is a problem with the system which is diluting the great good class actions are capable of. How to fix it is the rub, isn't it? Can we fix it in such a way that net harm doesn't result?

    What if class action rules are extended to govern how the rewards of such suits are adminstered? Right now an attorney can file suit and negotiate settlement with little to no input from the class he's representing. This results in things like the recent RCA suit, where the class sued for a product defect on a particular television set. The suit ended up with the attorney(s) being paid voluminous legal fees, and each member of the class getting a $50 coupon good for the purchase of their next RCA television set. Now I know anecdotes make for bad law, but I'd think if a settlement required a majority approval of the class members, and for that matter rewards being required to be paid in cash instead of coupons, that might help bring some measure of sanity back to the system.

    Finally, I agree that this isn't a pro-Bush or anti-Bush type topic. From my perspective, I think the system is out of whack somewhere, but I'm not sure this bill addresses it properly.

     
     

     

     


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