I'm a Lawyer, You're a Barber. You Don't Know Anything

New at Reason: What's the point of a class action lawsuit that does nothing for the plaintiffs? Jacob Sullum makes his opening argument.

Comments

[joe]

If the corporation is big enough, it can amass large amounts of ill-gotten gains by stealing a little bit from a lot of people. In this situation, as you all are so quick to point out, it is extremely unlikely that any of the individuals will consider it worthwhile to go to court to get their small individual losses back.

If you read the article, the settlement was for $18 million, with the lawyers keeping half. While 50/50 is on the high end, my spidey sense tells me Reason would be making exactly the same argument if the lawyers had kept the $6 million (a third) that is standard. I wonder why Jacob decided to harp on the $.73 figure, and never mention the $18 million figure.

If a company is engaging in fraudulent business practices that result in small, difficult to notice losses to a large number of people, what's the remedy? So far, all I've heard is "let them keep the money they stole, let the segment of the victims that discovers on their own what's going on take their business elsewhere, and let the company keep ripping everyone else off." Not cutting it.

[Jeff]

Fred, that thing on the tax doesn't sound right. Plaintiff's recoveries from lawsuits aren't taxed.

[Jennifer]

I was a co-plaintiff with Jesse Walker, but I only got twenty-five cents, because I'd cancelled my Citibank card some time ago, after I mailed them a bill seven days before the due date and they claimed it arrived late. "What?" I demanded, over the phone. "Check the postmark on the envelope!"

"We don't check postmarks, ma'am," the phone voice unflappably replied.

Considering the late fees I actually had to pay, I'd guesstimate I was owed about thirty-five dollars, not twenty-five cents. Instead of a time-saving mass payout to every customer, even those who were not fleeced, I think it would have been far more punitive to force the companies to check their records, determine who is actually owed money, and pay out accordingly. They may have shelled out less money to plaintiffs, but more money in overtime to the workers who had to comb the records.

I didn't bother cashing my check; it's on the refrigerator, where it provides far more than a quarter's worth of entertainment.

[Jason Ligon]

joe:

The offset is the class action suit brought for an amount that would not be business prudent to defend, so the lawyers get a settlement. There is no demonstrated act of harm, just extortion.

Also bear in mind that civil suits have a low evidenciary bar for conviction and can be brought as many times as there are venues. Heads I win, tails I try again, so you might as well pay now.

This reminds me of how an individual in these parts has to defend themselves against a traffic ticket. The costs never work out, and you enter the defence without an assumption of innocence. You might as well pay. We might be stopping people who speed every so often with this policy, but I'm unconvinced that the process is just.

[Equality 7-2521]

Joe,

No one here is denying that CEOs of large corporations don't give a rat's ass about anyone but themselves and would be perfectly willing to fleece the public. What you don't seem to understand is that the people who would appoint themselves as your guardian are the same way. Except they have police power.

In your posts, you talk about the evil of large corporations making unearned profits, and then grudgingly acknowledge that a 50/50 split is a little on the high side. Where is the outrage that this law firm has stolen money from the class it is supposed to be representing?

[joe]

"No one here is denying that CEOs of large corporations don't give a rat's ass about anyone but themselves and would be perfectly willing to fleece the public. What you don't seem to understand is that the people who would appoint themselves as your guardian are the same way." I need to explain to a libertoid that the pursuit of self interest can promote the overall well being of society? That's odd. I'm not down on the corporation for pursuing profits; that's what they do, and it's a good thing that they do. I don't support suing corporations for making profits, only for doing so in an unethical or fraudulent manner.

"Except they have police power." No, they don't. The right to file a lawsuit is a civil right, not a police power.

In your posts, you talk about the evil of large corporations making unearned profits, and then grudgingly acknowledge that a 50/50 split is a little on the high side. Where is the outrage that this law firm has stolen money from the class it is supposed to be representing?" I've agreed that 50% is too high, earlier up. And I don't believe that your motivation to post on this is related to my emotional level.

[Equality 7-2521]

The pursuit of self interest through voluntary agreements will benefit society. Once you add coercion to the mix, it is not necessarily so. I could take a gun and do a whole lot of self interest pursuing that would not benefit society at all.

And bringing a lawsuit is absolutely a use of police power. The reason we have lawsuits is that sometimes people won't do the right thing willingly and the government has to be brought into the picture to force one party to behave a certain way. Like all police power, it is necessary but should be closely watched to prevent abuse.

And it's not your emotional state that bothers me, it is your willingness to turn a blind eye to theft as long as the right people are doing the stealing.

[joe]

"The pursuit of self interest through voluntary agreements will benefit society. Once you add coercion to the mix, it is not necessarily so. I could take a gun and do a whole lot of self interest pursuing that would not benefit society at all." If the fees had been voluntary, and part of an agreement, there would have been no lawsuit. Instead, the corporation was ripping people off. I don't think the method of theft is what's important here, but the necessity of punishing the thieves, in order to deter them and others from doing the same in the future.

And what "theft" are you talking about? Was any aggrieved plaintiff made poorer by the filing of this lawsuit? When a private citizen pockets some dough for suing a cheating contractor on behalf of the United States (with the rest going to the Treasury), has the US been stolen from? No, it paid a fee so that someone would protect its property rights. I'm ok with that.

[Russ D]

Even if the lawyers did it for free, Jacob would have received $1.46.

As Jennifer pointed out, anyone who was actually damaged by the rip-off would have been ripped off for way more than $1.46. Many of the people who recieved refunds or credits weren't even ripped off.

And we don't even know if the people who were ripped off were ripped off for this total sum or something larger, or somthing smaller. If I had to guess, which sum would I expect the big evil corporation to settle for?

All we do know is that some customers who weren't ripped off got 6 bits and a group of unaffected people got to make a little money from people who didn't know they were hiring them.

This is known as "keeping the attorney's economy going".

[Russ]

While I don't have a problem with civil class action suits in general, or with lawyers negotiating a percentage of the settlement or damages, I do have some issues with the way the tort system is running right now.

First of all, the judges who hear the cases today, were once the lawyers who shared in the looting. The higher the award, the more there is for the lawyers. It's hard to imagine that after spending years living of court awards, a judge would have any incentive to limit the award to a reasonable level. It's even harder to imagine that the judge doesn't mix in the same social circles as all of the lawyers that whose compensation depends on the size of his judgments. Also, someone above mentioned that it's unlikely to change because the laws are written by lawyers and are likely to remain biased toward bigger and bigger awards. (eg. $145 billion for tobacco users in Florida... the legal fees alone would have vaulted Stanley Rosenblatt straight to the top of the Forbes list for wealthiest individuals.)

Secondly, on the issue of "heads I win, tails I try again", there is little to lose and everything to gain in playing the frivolous lawsuit lottery. A "loser-pays" approach to legal costs would return some degree of normalcy to the civil justice system.

Finally, in this specific case (Citibank late payment fees), didn't the bank's clients agree to the terms of the contract, that they would pay their bills on time? Unless Citibank said it would accept payments that arrived at some later time and then failed to honour this agreement, I don't see how they "ripped off" anyone. Arbitrarily assuming that people were "ripped off" and the corporation's gains were "ill gotten" is hardly a standard for civil justice. Based on attitudes like that, it's hardly a wonder that corporations opt to settle suits rather than risking the wrath of juries populated with people like joe (post-ponytail).

[lockjaw02]

joe wrote, "And what "theft" are you talking about? Was any aggrieved plaintiff made poorer by the filing of this lawsuit?"

Actually, we probably were. I receive proceeds from these class actions from time to time on nearly all my accounts from different banking institutions. Over the last three years, I've watched the Fed drop interest rates, seen the rates of interest in my interest bearing accounts fall even faster to practically nil, and seen some of the credit card rates actually rise. All consumers are made poorer by lawyers feeding at the trough by making it that much more expensive for corporations to turn a profit. Punitive class action awards are never "eaten", but normally passed on to customers in increased fees.

[joe]

Russ, aren't those judges just as likely to come from, and mix with, the lawyers who defend corporations against lawsuits? All this bitching about lawyers, you'd think CEO's showed up in court with their cousin Elmer to give them legal advice.

[Ron Hardin]

It's supposed to make the targets follow the straight and narrow. Every lawyer becomes a prosecutor, of course, and nobody decides not to prosecute if there's money in it for them, unlike elected prosecutors. California has the practice pretty well dug in, and it's unreformable because lawyers write the laws.

[Russ D]

For anyone who's wondering what "big city" is in Madison County, IL, it's Alton, 20 miles north of St. Louis, along the Mississippi River.

[WLC]

The general area near Madison County includes East St. Louis and scads of other towns (such as Alton). Along with neighboring St. Clair County, Madison is considered a Metropolitan area

[Fred Gillette]

Good Point Ron.

Kind of off the point but I heard a hard luck story on CNN about a woman who won a sex discrimination suit and was awarded $1,500,000. After the lawyer's fee and court cost it was whittled down to $350,000 or something like that. And then came the Alternative Minumum Tax. The IRS took that and is demanding another $400,000 or so.

Sorry to be so hazy with the details, but the bottom line is, 'Jesus, I give up'. So much to be righteously indignant about and so little time.

Or, back on point, one could say that this is an example of fine lawyering all around.

[joe]

The point of these lawsuits is to make sleazy business practices unattractive for corporations. If companies don't get to keep ill-gotten gains (setting aside the merits of any particular suit for a moment), they they'll have no incentives to engage in bad behavior.

But what about the lawyers' fees? If Citibank screws 10 million people out of $1 each, it is not worth anyone's time to sue them individually. If a class action lawsuit can generate an attractive reward, then there is a greater chance of someone stepping forward to hold the misbehaving corporation accountable, sort of like the Civil War era fraud law that allowed a private citizen to share in the money recouped from fraudulant manufacturers.

Libertarians love to tout lawsuits as an alternative to regulations in maintaining an honest economic sphere. Love it, until someone actually costs a corporation some money.

[Equality 7-2521]

Joe,

I think the problem most libs have with these lawsuits is not that it costs corporations money, it's that the vast majority of the plaintiffs have no interest in the lawsuit and are perfectly satisfied with the defendant. If I had a problem with CitiBank Visa all I would have to do is cancel my CitiBank card and fill out one of the 452 credit card applications I receive in the mail on any given day.

Now if a large group of CitiBank customers were dissatisfied and felt that a lawsuit was their only recourse, I would have no problem with them bringing a CA suit against CitiBank. But this group would have the ability to select their own representation and my guess is the law firm that came in with the "you get 72 cents, we get nine million dollars" bid would not get the gig.

[B.P.]

From the article: "Despite such perverse outcomes, the Association of Trial Lawyers of America (ATLA) insists there is nothing wrong with class actions that needs fixing."

Read a little harder, Joe. The author suggests FIXING, not ending, class action suits. Anyway, I thought you were against extortion.

My favorite ones are the ones like the Blockbuster case and the Ford (I believe) case, where the lawyers get a goodly chunk of the settlement and the members of the aggrieved class receive a voucher for a discount (in the case of Ford) on a future purchase of the crappy product that put the offending company in court in the first place. The attorneys make out like bandits (heck, not even "like" bandits) after some good, hard venue shopping, and the company does well also, because of the future sales associated with the vouchers.

I was a member of a class (apparently) a few years ago because of an alleged misdeed by a bank in which I own stock. My take in the settlement was pennies per share, and not worth claiming. It got me to wondering if the lawsuit and subsequent settlement actually depressed the value of my stock more than my settlement share.

Oh, and wouldn't you know it, Joe slips in strawman #3,407 by claiming that libertarians only take offense at lawsuits when corporations are on the losing end.

[Russ]

Corporate lawyers are on salary, plaintiffs lawyers get commissions.

The judge won't be taking money out of the corporate lawyers pockets buy ruling against them.

Think of it this way... would the legal profession in general benefit from higher or lower awards? How much separation is there between judges and the legal profession?

[Douglas Fletcher]

Bring back the straight razor, that'll take care of the lawyers.

[Mike Smith]

I think a simple reform of these types of lawsuits would be to place some flexible caps on the attorneys fees.

My proposal would be to pay the attorneys a fee that is the lesser of 1/3 of all money received by the plantiffs or 5 times the total expenses incurred by the attorneys. For this calculation, I think money credited on a bill should count, but uncashed checks, unidentified plantiffs and unused coupons should not count as money paid to the planitiffs.