Class Actions Deter Corporate Wrongdoing

        By T. Evan Schaeffer

        In the recent Business Week cover story, "The Litigation Machine," class action lawyers are portrayed as greedy hustlers who crisscross the country in private jets, filing frivolous lawsuits willy-nilly, extorting money out of corporations as wholesome and pure as apple pie.

        This is a familiar view of class action lawyers, created by a corporate propaganda machine that sputtered a bit while Bill Clinton was in office, but which is being freshly oiled with the opportunities provided by his Republican successor.

        Why doesn't big business want consumers to know the truth about class actions?

        As a class action lawyer, I know the answer.  At the simplest level, a class action is a procedural device in which consumers with similar claims sue to redress their wrongs in a single lawsuit.  By joining forces, it becomes possible to recover damages that are as "insignificant" as ten or twenty dollars. 

        Insignificant, that is, on a small scale.  Even the most myopic CEO knows it's possible to make millions by bilking consumers ten or twenty dollars at a time.  Without class actions, these losses would stand unchallenged, because it would be economically unfeasible to file hundreds of individual lawsuits.

        In my years as a class action lawyer, I have been amazed by the ingenuity some corporations devote to swindling their customers.

        Consider, for example, the mortgage company that regularly doubled the price of the flood letters required for a home closing, despite regulations prohibiting such price increases; the health insurer that obtained special discounted rates from the largest area hospitals, but did not inform its customers of these savings, instead charging co-payments on completely fictional charges; and the bank that systematically switched the order in which it posted its customers' checks, biggest to smallest, thereby ensuring the maximum number of bounced-check fees.

        Of course, when these companies settled the resulting class actions with my law firm, they denied liability, even as they paid millions back to their aggrieved customers.  But admitting liability or not, the corporate minds responsible for these schemes will think twice before setting into motion their latest clever fraud. 

        Seen in this way, one of the great benefits of class actions becomes apparent.  Class actions are a deterrent to corporate wrongdoing. 

        This benefit often goes unnoticed, as the corporate spin machine serves up its steady diet of half-truths, distortions, and outright lies.  I recently reviewed a set of "talking points" put together by a decidedly-biased-for-business organization, the U.S. Chamber of Commerce.  It's an 8-page litany of grievances concerning class actions, including sixty-two "problems that have been targeted for reform."

        What do I think about the list?  It's rubbish, plain and simple.  How many times have you heard (and perhaps even begun to believe?) myths like these-

        "The lawyers get rich, class members get nothing."

        Not only is this untrue, it's senseless.  The attorneys' fees in class actions are awarded by the presiding judge, who can protect consumers against lawyers who try to abuse the system.

        Moreover, a judge cannot approve a class action settlement until all the class members are given a chance to explain why the settlement isn't fair.  A study a few years ago 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. 

        "Most class actions are frivolous."

        To corporations seeking to deny illegal behavior, one line of defense is always to call a lawsuit "frivolous."  And there is no doubt about it - some are.  But standing ready beside every Mickey-mouse class action filed by lawyers operating outside their field of expertise stands a judge ready to throw the lawsuit out.  The sooner, the better.

        "Class action lawyers are too wealthy."

        Class action lawyers 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, and more than one class action firm has been driven to bankruptcy.  Few class action lawyers live like rock stars. 

        While the lawyers who take the greatest risk and work the hardest should be rewarded for their time and effort, many of the large class actions you read about are litigated by a loose confederation of hundreds of law firms.  The legal fees are divided accordingly.

        In short, there's rarely a pot of gold at the end of a successful lawsuit.  That's okay, because it's not money that motivates most class action lawyers.

Back to Publications

Home