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Consumer Class Actions Aren't Working

Business Law

Posted: February 12, 2008 8:40 p.m.
Updated: April 3, 2008 2:02 a.m.
 

You get them in the mail, see them in the newspapers (in small print) and, sometimes, they are on (late-night) television: NOTICE OF SETTLEMENT OF CLASS ACTION. 

They tell you that you may be entitled to some amount of money — often very small — because a lawsuit in which your rights are involved is settling. They warn you that if you do nothing the court will decide what to do with your rights. You might get nothing and lose the right to sue yourself, they advise.

While common now, consumer class actions as we know them today were not allowed anywhere before 1966. The California Supreme Court first allowed them in 1967 and gave them a ringing welcome: “Protection of unwary consumers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society ... many persons ... experience grievous exploitation by vendors using such devices as high pressure salesmanship, bait advertising, misrepresentation of prices, exorbitant prices and credit charges and sale of shoddy merchandise.

“Frequently numerous consumers are exposed to the same dubious practice by the same seller ... Individual actions by each of the defrauded consumers is often impracticable ... ; thus an unscrupulous seller retains the benefits of its wrongful conduct ... ”

Class actions exposing these “unscrupulous sellers” to multi-million dollar judgments would end these “dubious practices” the Supreme Court was sure. However, from the very beginning and throughout their life there have been those who have argued that these cases provide little benefit to anyone other than the lawyers who bring them and they should be abolished.

Lawyers do receive millions of dollars in fees in these cases. Seven-figure attorney’s fees in a case, paid by the unscrupulous seller, are common. Some attorneys now seek fees for the hours they have spent handling a class action at the rate of $1250/hour. And they ask the court to double or triple their fees because of the favorable result they have won for the class.

Equally true is the fact that few consumers directly benefit from these settlements. About 90 percent of the consumers who receive these notices throw them away and do not file claims. Most because they don’t understand them, don’t care or because it is simply not worth it to take the time. A surprisingly large number of people do nothing because they want nothing to do with lawsuits and lawyers and courts. Many believe that these notices are telling them they are being sued.

It is true that by and large class actions fail to compensate the victims of “high pressure salesmanship, bait advertising, misrepresentation of prices, exorbitant prices and credit charges and sale of shoddy merchandise.”

In large measure, class actions also fail to accomplish their second stated purpose for existence: Disgorgement from unscrupulous sellers of the profits they derive from their wrongful conduct — in effect, multi-million-dollar fines for their wrongful, predatory conduct.

Putting aside the question of why the filing of a claim should be required, the effect is to automatically reduce the “fine” by about 90 percent, an amount the defendant can readily manage and does not really move it to mend its ways. It may, in fact, reduce the amount or value of the settlement to an unreasonable level — pennies on the dollar — unfair to the consumers.

Given the failure to achieve the goals for which class actions were “invented,” the case for abolition of class actions appears to have considerable merit.

But the reasons stated by the Supreme Court in 1972 for allowing them still ring true, particularly in an age where governmental regulation of unfair business practices is ineffective and huge scandals that should have been prevented erupt (Enron, et al). The class action continues to hold the potential for accomplishing the goals set not only by the California Supreme Court, but by virtually every federal and state court and legislature. That it fails, in large measure, to deliver justice should be a cause of public concern and a case for reform, not abolition.

What has been advertised as reform in the past (e.g., The Class Action “Fairness” Act of 2005) was written by big business — big tobacco, big insurance, big drugs, big auto, etc. It was designed to frustrate the ability of the courts and attorneys to use class actions effectively.

 

Don Ricketts has been a trial lawyer for more than 40 years. His column represents his own views, and not necessarily those of The Signal. “Business Law” appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. Visit www.SCVBar.org.

Copyright: The Signal

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