Tweet
Class Action Lawsuits: Millions for Lawyers, Nothing for Consumers, Ruin for Businesses
The New American
Gregory A. Hession, J.D.
3/26/2015
Excerpt:
Manufacturers of consumer goods in the United States have a lot to fear from the government, and becoming the target of a class action lawsuit is right up there in the first tier of those concerns. An astounding 52 percent of major corporations are engaged in class action litigation right now. Federal judges have complete discretion about whether to certify a class action lawsuit, and then whether to approve large attorney fee requests. Once certified as a federal class action, an otherwise small lawsuit turns into a massive cash drain for the target company and a money machine for the lawyers.
The real goal of many of these lawsuits is to extract a large attorney fee for the law firm bringing the case. The class of alleged consumer victims — their clients — is often a secondary concern, and is usually left with relatively little financial benefit, sometimes merely a few cents.
Class action lawsuits were originally set up to make it easier for a large group of people, all of whom were allegedly harmed by a defendant, to sue as a group. Class actions are defined on Lawyer.com as follows:
In most consumer product class action cases, the damage to each member of the class — a person who used the product at some point — is minor. The class action format makes it economically feasible to get redress against a company that has allegedly damaged or defrauded a large number of people in the marketplace for a small amount each.
There have been some larger, high-profile cases that have resulted in larger damages for each class member, such as for defective medical devices, tainted building materials, malfunctioning automobiles, and death due to addiction to cigarettes, but they are the numerical minority. You can imagine how disconcerting it must be to find out that your heart pacemaker was not manufactured correctly, or that your car could suddenly accelerate without any notice. In those situations, the class action is a helpful means to address the problem of a large number of claimants.
But most class actions are much more mundane, and are brought on behalf of purchasers of regular consumer products that one would find on a store shelf. That type of case isn’t about much money or life disruption for consumers. For example, some recent cases were on behalf of buyers of Red Bull energy drink, Ghirardelli Chocolates, and VitaminWater, and small performance defects in PC computer chips in 15-year-old computers. When a consumer “victim” purchases a product that is slightly less impressive than expected, she does not run breathlessly to her attorney for redress; rather, lawyers drive the business. They find a “class representative,” a person to use as a placeholder for a consumer product lawsuit.
How They Work
In the rarefied world of the large class action law firm, cases are selected exactly backward from what the well-meaning person would expect. Law firms now do research to identify a suitable target company, write a lawsuit against that defendant (without that company knowing anything about it), and then — and only then — find a “lead” plaintiff to represent the class of “victims.”
Once the case is in place and filed in court, the lawyers pressure the target defendant company to negotiate some sort of token compensation for the users of the product, plus a large attorney’s fee, which is in essence a payoff to drop the matter.
The law firm then departs after obtaining its thousands or millions of dollars from the defendant company, and the consumers who bought the product may get a few dollars apiece, or a coupon for some more of the offending items, along with a cumbersome process to obtain their meager winnings.
A typical example of a class action lawyer bonanza is the lawsuit against one franchise of Backyard Burgers, a chain of about 65 burger restaurants based in Nashville, Tennessee. One of its franchisees in Nebraska negligently printed credit card expiration dates on its receipts for several months. When the lawyers swooped in to save the day and sued on behalf of the class of “victims,” namely all customers who bought a burger on a credit card in late 2010 through April 2011, they netted each victim a coupon for a free soft drink with the purchase of a burger if the victim submitted a claim form and an affidavit under oath, but only if the customer could find the receipt from four years ago. The lawyers will be drinking something more expensive, however, since they got $1.2 million for righting this grievous wrong.
Even smaller class action cases can reap a rich harvest. A 2012 case in Boston, Massachusetts, Domenico v. National Grange Insurance, involved less than $14,000 in damages, derived from the insurance company failing to pay a small sliver of interest to a bunch of claimants in a much larger insurance lawsuit. The lawyers wanted $136,000 (at $550 per hour) for ferreting it out and getting those few cents for each person in the class. Large numbers of such cases grind through the state and federal court systems on a daily basis.
Here are two other astounding facts about class action cases from Chicago law firm Mayer-Brown (one of the largest in the world), in a study that they did of cases open in 2009: First, of the 148 class action cases reviewed, not a single one went to trial. They were all settled or dismissed. Class action lawyers never want to go to a trial, but instead try to force a settlement. To force the target company to the negotiating table, they create a huge burden for the target company by the way of complying with paperwork requests, such as disclosing all of their financial rec*ords, internal communications, scientific research, e-mails, and marketing information. It just becomes cheaper to pay them off to go away.
Supreme Court Justice Ruth Bader Ginsburg lamented that “a court’s decision to certify a class … places pressure on the defendant to settle even unmeritorious claims.” Some of these lawsuits are high-risk “bet the company” cases, where a negative outcome could cause bankruptcy, dissolution, or ruin. Hence, settlement is the only reasonable business decision.
The second conclusion from the Mayer-Brown study is that less than one percent of the eligible class in these lawsuits usually makes a claim for benefits. Sometimes less than a tenth of a percent does. This statistic makes the real issue quite plain, namely that it is the lawyers who benefit most from these cases. The little Domenico case from Boston cited above drew a stinging rebuke from the judge, “Plaintiff’s counsel … clearly benefited most from this action.”
Why is this type of lawsuit legal at all? Because the lawyers themselves write their own ethics rules. The American Bar Association, which is comprised of lawyers who profit handsomely from these cases, unsurprisingly does not find any ethical problem with them.
Who Benefits?
Consumer product lawsuits are a “shooting fish in a barrel” issue for large law firms, but not for the consumers. For example, Red Bull energy drink became a target of lawyers in a New York class action lawsuit filed in 2013. According to the official complaint document, which lays out the case against the makers of the drink, the “class representative” bought a can of Red Bull, expecting that it would fulfill its advertising slogan, “Red Bull gives you wings,” and that it “revitalizes body and mind.”
It is only exaggerating slightly to say that when feathered appendages did not appear on the customer, and he did not feel “revitalized” after imbibing, the big law firm easily convinced the gentleman to sue the offending beverage company. The poor sap alleges that he was “lured” by the “puffery” of the company’s advertising into buying the drink, but that it had less caffeine than a Starbucks coffee, and thus he was the victim of an unfair and deceptive trade practice. Plus, he couldn’t fly.
Hopefully, his wings will be renewed by the prospect of using his winnings in the case: He (and other disappointed customers) gets a $10 coupon for more of the allegedly impotent Red Bull energy drink. The lawyers, however, can afford some real wings, since they pocketed $4.75 million for their work, enough to buy a private jet.
In a similar case, involving Ghirardelli Chocolate Bars, the manufacturer allegedly misrepresented the proportion of white chocolate in a particular product. Victims can console themselves with their coupon for 75 cents toward the purchase of another bag of Ghirardelli comfort food, while the lawyers’ consolation comes in the form of a $1.665 million payout.
A large number of class actions result in no benefit whatsoever to consumers, but solely to the lawyers. For example, lawyers brought a class action against CocaCola, the parent company of VitaminWater, alleging that promotion of its health benefits was misleading. They pointed to advertising claims such as “Vitamins + water = all you need,” and “it will keep you healthy as a horse” as untrue, because the bottled beverage had too much sugar and not enough nutrients.
......................................
View the complete article at:
http://www.thenewamerican.com/usnews...for-businesses
The New American
Gregory A. Hession, J.D.
3/26/2015
Excerpt:
Manufacturers of consumer goods in the United States have a lot to fear from the government, and becoming the target of a class action lawsuit is right up there in the first tier of those concerns. An astounding 52 percent of major corporations are engaged in class action litigation right now. Federal judges have complete discretion about whether to certify a class action lawsuit, and then whether to approve large attorney fee requests. Once certified as a federal class action, an otherwise small lawsuit turns into a massive cash drain for the target company and a money machine for the lawyers.
The real goal of many of these lawsuits is to extract a large attorney fee for the law firm bringing the case. The class of alleged consumer victims — their clients — is often a secondary concern, and is usually left with relatively little financial benefit, sometimes merely a few cents.
Class action lawsuits were originally set up to make it easier for a large group of people, all of whom were allegedly harmed by a defendant, to sue as a group. Class actions are defined on Lawyer.com as follows:
A class action lawsuit is when one (or sometimes a few people) file a single lawsuit on behalf of a larger group of people (called the “class”) who have the same or similar legal claim. Who speaks for the class? The lead plaintiff, sometimes called the “named plaintiff,” or “class representative.”
In most consumer product class action cases, the damage to each member of the class — a person who used the product at some point — is minor. The class action format makes it economically feasible to get redress against a company that has allegedly damaged or defrauded a large number of people in the marketplace for a small amount each.
There have been some larger, high-profile cases that have resulted in larger damages for each class member, such as for defective medical devices, tainted building materials, malfunctioning automobiles, and death due to addiction to cigarettes, but they are the numerical minority. You can imagine how disconcerting it must be to find out that your heart pacemaker was not manufactured correctly, or that your car could suddenly accelerate without any notice. In those situations, the class action is a helpful means to address the problem of a large number of claimants.
But most class actions are much more mundane, and are brought on behalf of purchasers of regular consumer products that one would find on a store shelf. That type of case isn’t about much money or life disruption for consumers. For example, some recent cases were on behalf of buyers of Red Bull energy drink, Ghirardelli Chocolates, and VitaminWater, and small performance defects in PC computer chips in 15-year-old computers. When a consumer “victim” purchases a product that is slightly less impressive than expected, she does not run breathlessly to her attorney for redress; rather, lawyers drive the business. They find a “class representative,” a person to use as a placeholder for a consumer product lawsuit.
How They Work
In the rarefied world of the large class action law firm, cases are selected exactly backward from what the well-meaning person would expect. Law firms now do research to identify a suitable target company, write a lawsuit against that defendant (without that company knowing anything about it), and then — and only then — find a “lead” plaintiff to represent the class of “victims.”
Once the case is in place and filed in court, the lawyers pressure the target defendant company to negotiate some sort of token compensation for the users of the product, plus a large attorney’s fee, which is in essence a payoff to drop the matter.
The law firm then departs after obtaining its thousands or millions of dollars from the defendant company, and the consumers who bought the product may get a few dollars apiece, or a coupon for some more of the offending items, along with a cumbersome process to obtain their meager winnings.
A typical example of a class action lawyer bonanza is the lawsuit against one franchise of Backyard Burgers, a chain of about 65 burger restaurants based in Nashville, Tennessee. One of its franchisees in Nebraska negligently printed credit card expiration dates on its receipts for several months. When the lawyers swooped in to save the day and sued on behalf of the class of “victims,” namely all customers who bought a burger on a credit card in late 2010 through April 2011, they netted each victim a coupon for a free soft drink with the purchase of a burger if the victim submitted a claim form and an affidavit under oath, but only if the customer could find the receipt from four years ago. The lawyers will be drinking something more expensive, however, since they got $1.2 million for righting this grievous wrong.
Even smaller class action cases can reap a rich harvest. A 2012 case in Boston, Massachusetts, Domenico v. National Grange Insurance, involved less than $14,000 in damages, derived from the insurance company failing to pay a small sliver of interest to a bunch of claimants in a much larger insurance lawsuit. The lawyers wanted $136,000 (at $550 per hour) for ferreting it out and getting those few cents for each person in the class. Large numbers of such cases grind through the state and federal court systems on a daily basis.
Here are two other astounding facts about class action cases from Chicago law firm Mayer-Brown (one of the largest in the world), in a study that they did of cases open in 2009: First, of the 148 class action cases reviewed, not a single one went to trial. They were all settled or dismissed. Class action lawyers never want to go to a trial, but instead try to force a settlement. To force the target company to the negotiating table, they create a huge burden for the target company by the way of complying with paperwork requests, such as disclosing all of their financial rec*ords, internal communications, scientific research, e-mails, and marketing information. It just becomes cheaper to pay them off to go away.
Supreme Court Justice Ruth Bader Ginsburg lamented that “a court’s decision to certify a class … places pressure on the defendant to settle even unmeritorious claims.” Some of these lawsuits are high-risk “bet the company” cases, where a negative outcome could cause bankruptcy, dissolution, or ruin. Hence, settlement is the only reasonable business decision.
The second conclusion from the Mayer-Brown study is that less than one percent of the eligible class in these lawsuits usually makes a claim for benefits. Sometimes less than a tenth of a percent does. This statistic makes the real issue quite plain, namely that it is the lawyers who benefit most from these cases. The little Domenico case from Boston cited above drew a stinging rebuke from the judge, “Plaintiff’s counsel … clearly benefited most from this action.”
Why is this type of lawsuit legal at all? Because the lawyers themselves write their own ethics rules. The American Bar Association, which is comprised of lawyers who profit handsomely from these cases, unsurprisingly does not find any ethical problem with them.
Who Benefits?
Consumer product lawsuits are a “shooting fish in a barrel” issue for large law firms, but not for the consumers. For example, Red Bull energy drink became a target of lawyers in a New York class action lawsuit filed in 2013. According to the official complaint document, which lays out the case against the makers of the drink, the “class representative” bought a can of Red Bull, expecting that it would fulfill its advertising slogan, “Red Bull gives you wings,” and that it “revitalizes body and mind.”
It is only exaggerating slightly to say that when feathered appendages did not appear on the customer, and he did not feel “revitalized” after imbibing, the big law firm easily convinced the gentleman to sue the offending beverage company. The poor sap alleges that he was “lured” by the “puffery” of the company’s advertising into buying the drink, but that it had less caffeine than a Starbucks coffee, and thus he was the victim of an unfair and deceptive trade practice. Plus, he couldn’t fly.
Hopefully, his wings will be renewed by the prospect of using his winnings in the case: He (and other disappointed customers) gets a $10 coupon for more of the allegedly impotent Red Bull energy drink. The lawyers, however, can afford some real wings, since they pocketed $4.75 million for their work, enough to buy a private jet.
In a similar case, involving Ghirardelli Chocolate Bars, the manufacturer allegedly misrepresented the proportion of white chocolate in a particular product. Victims can console themselves with their coupon for 75 cents toward the purchase of another bag of Ghirardelli comfort food, while the lawyers’ consolation comes in the form of a $1.665 million payout.
A large number of class actions result in no benefit whatsoever to consumers, but solely to the lawyers. For example, lawyers brought a class action against CocaCola, the parent company of VitaminWater, alleging that promotion of its health benefits was misleading. They pointed to advertising claims such as “Vitamins + water = all you need,” and “it will keep you healthy as a horse” as untrue, because the bottled beverage had too much sugar and not enough nutrients.
......................................
View the complete article at:
http://www.thenewamerican.com/usnews...for-businesses
Comment