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Class Action

Should Class Actions Be Restricted?

Class action lawsuits have become a controversial topic in the 1990s. Once seen as a way of empowering individuals with small claims to have their day in court, class actions are viewed by many lawyers, legislators, and government officials as a vehicle for plaintiffs' lawyers to make millions of dollars on issues of dubious merit. Other critics charge that class actions have been used by defendants in mass TORT cases, such as asbestos litigation, to frustrate the large and legitimate claims of individual victims.

Defenders of class actions argue that this type of lawsuit has a legitimate social purpose. A lawyer who prosecutes a class action can be viewed as a "private attorney general" who aggressively enforces various regulatory laws or who alerts the public to FRAUD, health, and safety problems. In a time when government is seeking to reduce government regulation, class action lawsuits provide an opportunity for the private sector to take up the oversight function.

Defenders note that the class action format has most often been used to aggregate small claims that were not worth litigating separately. A class action is an effective means for holding defendants accountable for widespread harm that would otherwise go unchecked. There is public value in allowing this type of class action to go forward, even if the amount payable to each member of the class is small. The deterrent effect of a class action can be substantial, forcing the defendant to change its product or procedures.

Supporters of class actions contend that trivial cases are rare and that neither high settlement rates nor small individual recoveries demonstrate frivolous litigation. Moreover, criticism of multimillion-dollar attorney fees ignores the risk that class action attorneys take in starting such lawsuits. Not every class action will be successful and the costs of litigation can be substantial. Without a financial incentive, attorneys will not take on and plaintiffs will not find redress for certain types of injury. Defenders also point out that personal injury attorneys receive large portions of the awarded damages through CONTINGENT FEE agreements. Class action attorneys should not be treated differently.

Defenders of large claim class actions believe that mass tort cases benefit from using a class action structure. When victims of mass torts seek substantial compensation for injuries caused by a defective product, such as asbestos, breast implants, and BIRTH CONTROL devices, it makes sense to aggregate the claims. It is more economical for attorneys and the courts to manage hundreds or even thousands of similar claims as a group rather than on a case-by-case basis. The courts would be tied up for years if each case had to be handled individually, and the duplication of evidence and expert witnesses would generate needless expense. A class action, on the other hand, can resolve the central issues and develop rational compensation schedules for the victims. Settlement also becomes a more attractive option for defendants when the victims are members of a class.

Critics of class actions remain unconvinced about the social and legal value of group lawsuits. In small claims class actions, critics question the value of supporting litigation in which individual class members have very small stakes. For example, does it make sense to permit a lawyer to initiate a class action where a utility company overcharged two million customers two cents per month? Such filings demonstrate to the critics the lawyer-driven nature of most small claims class actions. The individual claimants, because they have so little at stake, do not exercise any control over the litigation or elect to opt out of the class and pursue individual claims. With the plaintiffs' lawyer in total control, the dynamics of the lawsuit change. The lawyer has the largest economic stake in the outcome, leading to settlements that guarantee high attorney fees and minimal payouts to the class members.

Critics also dispute the value of the private attorney general role. Most class action attorneys, they contend, are seeking lucrative financial awards rather than social justice. Moreover, class actions may interfere with the regulatory and oversight functions of the appropriate government agency. The agency may conclude that the injuries attributed to the defendant are insignificant and do not warrant prosecution. A class action substitutes the judgment of the private attorney for that of the public's elected officials.

As to the deterrence value of class actions, the critics maintain that state and federal law enforcement organizations have the ability to investigate and punish cases involving widespread small-scale fraud and offer an alternative means of addressing wrongful conduct. Private enforcement through a class action reduces the accountability of the law enforcement effort and delegates to the plaintiffs' attorney control over enforcement priorities.

As to large claim class actions, critics believe that the victims may not be fairly served. They contend that large claim cases raise concerns about the capacity of the class action format to provide individualized justice, the ability of class attorneys to effectively represent the various needs of class members, and the impact on future class members who do not, at the time of litigation, have a ripe claim (their injury is not yet apparent).

Critics argue that in these large claim cases, defendants have sought class action status as a way of limiting liability. In some cases, the parties propose a settlement before a complaint has ever been filed, suggesting the possibility of collusion between the attorneys for the two sides. Finally, defendants in mass tort class actions have an incentive to search for and negotiate with the plaintiffs' attorney for the lowest settlement amount.

Critics of class actions propose that legislation and court rules be changed to give more power to the courts to examine class action applications. Courts should carefully review the applications and deny class status to small claims cases with little social value in the adjudicating the claims. Another alternative is to sharply reduce attorney fees, which would reduce the incentive for frivolous actions.

FURTHER READINGS

Conte, Alba, and Herbert B. Newberg. 2002. Newberg on Class Actions. 4th ed. St. Paul, Minn.: Thomson/West.

Coyle, Marcia. 2003. "Bill Targets Class Action Lawyer Fees: Sparked by Ire Over Tobacco Money. The National Law Journal 25 (May 19): 1.

Feldman, Joel S., and Keith M. Fleischman. 2002. Non-Federal Question Class Actions 2002: Prosecution & Defense Strategies. New York: Practicing Law Institute.

Schwartz, Robert Alexander. 2003. "Can Arbitration Do More for Consumers? The TILA Class Action Reconsidered." New York University Law Review 78 (May): 809–44.

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