Tuesday, July 2, 2013

The Class Action Racket

April 1, 2013
By Lawrence W. Schonbrun
Have you ever received a notice in the mail informing you that you might be a member of a class action lawsuit? You probably have. Did you even bother to read it? Probably not. Did you ever file a claim for compensation? Probably not. Did you ever file an objection to the settlement? Certainly not. Did you know that the lawyers bringing these suits get paid regardless of how many people file claims and regardless of how many class members actually get anything out of the settlement?

In what could be the poster child for the dysfunctional class action system, plaintiffs' lawyers in the Ford Explorer SUV class action settlement were awarded $25 million in attorneys' fees by claiming that the class members were receiving a benefit of $500 million. However, what class members actually received were $500 coupons towards the purchase of a new Ford vehicle, and only 148 were redeemed for a total value of $74,000. That's right. $25 million for the lawyers although the class members actually received $74,000.

But it gets worse. Take the infamous Bank of Boston class action. In that case, class members had their accounts credited between $2.19 and $8.76 as a result of the settlement, but also had their accounts debited with a "miscellaneous deduction" of up to $91 -- to cover the costs of the settlement, i.e. plaintiffs' and defendants' attorneys' fees and litigation costs.

For this so-called "benefit" to class members, class counsel received $8.5 million in attorneys' fees. It is all about focus. Class action lawyers never want the public to focus on the negative aspects of class action settlements -- the $91 the lawsuit is costing you. They want you to focus on the $2.19 you're getting. Like the Bank of Boston case, all class action settlements focus on the benefits, however meager, but never disclose the costs to class members and consumers generally.

Why do the lawyers get so much when their clients get so little? In the words of Federal Judge William G. Young, "simply put, the class action vehicle is broken." Unfortunately, it's broken in a way that the people who run it -- lawyers -- and the people who are in a position to fix it -- judges and legislators -- are benefitting from the status quo. The injured class members who are supposed to be the primary focus of these cases have become its primary victims. The plaintiffs' lawyers are happy because they are getting overpaid -- massively; the defendants' lawyers and the experts (hired by both sides and an important part of the class action scheme) are happy because they're getting well paid (if not overpaid); the defendants are happy because they are avoiding further costly legal proceedings with unknown outcomes.

And, last but not least, the judges are happy because they are getting a case cleared off their dockets. Unfortunately, the criterion for good judging these days is how quickly cases are processed to conclusion, not how well reasoned the outcomes. The judge gets the additional satisfaction of having made an important decision in a big case, thereby enhancing his or her self-importance and reputation. Some class members may even be happy -- at least those few who actually read the notice and redeemed their coupons. (Although is getting a $500 coupon towards the purchase of a $25,000 car really something to gloat about?)

Even some class members who didn't redeem their coupons may be happy because they assume that a bad corporation has been punished for some actual or alleged misdeed. But we as a society should not be happy because money (we're talking hundreds of millions if not billions of dollars) that could be going to a better use becomes nothing more than slop for thousands of lawyers feeding at the class action trough. What's wrong with the class action system? Why does it put lawyers' interests first and class members' interests last?