The Best Defense Against Class Actions

        By T. Evan Schaeffer

       For years, the big-business lobby and others who campaign for tort reform have been trying to change the rules for class actions.  Although the rules haven't changed very much, the tort-reformers can boast another victory: thanks to them, there is a growing public sentiment against class actions.

       The tort-reformers are skilled at taking advantage of the misconceptions they create about class actions.  One important business lobby, the U.S. Chamber of Commerce, recently decided to target class actions for special criticism.  While the goal of the campaign seems innocuous enough--to "reduce excessive and frivolous lawsuits"--the tort-reformers consider all class actions frivolous.

       Yet class actions serve an important function in our judicial system.  What's more, they work exactly as they were designed to work, as a powerful tool for economic justice. 

       At the simplest level, a class action is nothing more than a procedural device in which a number of people with similar claims file a single lawsuit.  By joining forces, it becomes possible for consumers to recover individual damages that are as "insignificant" as ten or twenty dollars. 

       Insignificant, that is, on the small scale.  Even the most myopic CEO knows it's possible to make millions of dollars by bilking consumers ten or twenty dollars at a time.   Without class actions, these losses would stand unchallenged, because it would not be economically feasible to recover them in individual lawsuits.

       In federal courts, class actions have around since at least 1938, the year Congress adopted the first version of what lawyers call "Rule 23."  It's the text of Rule 23 that provides answers to some of the most common criticisms the tort-reformers raise about class actions. 

       Don't class action lawyers unethically create lawsuits that would not have existed otherwise?

       In short, no.  By fashioning liberal class action rules, Congress and the courts created an incentive for concerned lawyers to act as volunteer corporate watchdogs, similar in function and effect to a state's attorney general.

       Lawyers don't "create" litigation so much as empower consumers who have already been wronged.  Though many in the business community object, that's exactly how Congress and the courts intended the system to work.

       What about those eye-popping attorneys' fees?

       Of all the objections to class actions, the one concerning attorneys' fees is the most senseless.  Class action lawyers must assume the risk and expense of class action litigation.  These gargantuan lawsuits often cost hundreds of thousands of dollars to litigate.  There is no guarantee of success.

       People ask why the lawyers should ever receive more than any individual class member.  The reason is simple: the fees should be measured against the benefits gained for the entire class, not for single individual members.  A recent study by the non-partisan Federal Judicial Center found no impropriety in the fees awarded in class actions, which are often less than the traditional one-third "contingency fee" charged by personal injury lawyers.

       Another misconception is that the class action lawyers determine the fees themselves.  Not true.  The attorneys' fees in class actions are awarded by the presiding judge, who can protect consumers against lawyers who try to abuse the system. 

       In addition, the presiding judge cannot approve a fee award until all the class members--themselves often represented by lawyers--are given a chance to explain why the fee isn't fair. 

       Don't class action lawyers file frivolous lawsuits designed to extort large settlements from helpless companies?

       To corporations seeking to deny their illegal behavior, one line of defense is always to call a lawsuit "frivolous."  Yet if this were true, the presiding judge would dismiss the lawsuit at its earliest stages.

       Even so, corporate America loves to blame lawyers and foster the myth of frivolous lawsuits.  Even companies that settle lawsuits do so begrudgingly, insisting to the last that they were not guilty of any wrongdoing. 

Back