Some Class Actions Benefit
Everyone But The Consumer

By Jon Opelt, Houston Director
Citizens Against Lawsuit Abuse
Class action lawsuits are increasing at an alarming rate. In Texas, the backlog of these cases have increased eight-fold in the past decade. Some of these class actions have provided real gains for
"Class actions should provide restitution for consumers and not just foraging for attorney fees."
consumers by forcing product changes or recalls or stopping discriminatory behavior. Others, however, represent the worst examples of lawsuit abuse, producing pennies, coupons or offers of service for victims but huge fees for lawyers. Only changes in the law, which the U.S. House of Representatives passed September 23, or appropriate discretion by judges can correct these abuses.

Of the growing litany of class action abuses, the recent “offer of service” settlement with Southwestern Bell InLine subscribers is one of the most cockamamie. The supposed gain for consumers is that they get a $15 one-time, credit or three-month access to one of three optional Southwestern Bell services, at no cost. The lawyers pocket $4.5 million in fees.

About six million Southwestern Bell customers are automatically parties to the suit unless they opt out in writing. Those who choose the free three months of service will quickly learn there is a catch. In the fourth month, and forever more, these folks will be getting a bill unless they call Southwestern Bell and tell them to turn off what was previously a free service. Many customers will come to realize they would have been better off had the suit been dismissed.

A recent class action suit was settled against Dell Computer and others regarding claims made about the sizes of their computer monitors. Class members received a $13 rebate toward the purchase of $250 in new computer equipment or the right to a $6 rebate next year – enough to cover the cost of a mouse pad. The lawyers make do with $5.8 million in fees.

In a recent escrow abuse lawsuit, class members received 23 cents per year up to a maximum settlement of 83 cents. The lawyers received $150,000 in fees.

"A court's decision to certify or approve a class of plaintiffs creates enormous pressure to settle, regardless of the merits of the case."
In many class actions, defendants pay more money to lawyers and the post office than they pay to the class members themselves. Class actions should provide restitution for consumers and not just foraging for attorney fees.

So, what’s the problem?

A court’s decision to certify or approve a class of plaintiffs creates pressure to settle, regardless of the merits of the case. Plus, the mere designation of classes can be damaging to class members and defense. This leads to settlements that don’t necessarily benefit those truly harmed. Overly broad class designations cause some individuals to receive dollar damages even though they have not suffered an injury. Formula payouts, often seen in class actions, deprive those truly injured of fair compensation.

Consumers seem to be at the mercy of an unstated conspiracy by some defense and plaintiff lawyers in class action suits. Defense attorneys want out of the lawsuit at any cost and under any condition, while plaintiff lawyers want to negotiate a deal that best serves them. Oftentimes, the consumer is dealt out.

Class actions have also become an effective court shopping tool. Current statutes allow attorneys to game the system and dictate where a class action is heard. The lawyer can virtually handpick the judge or jurisdiction as well as the state in which the laws are most favarable to his chance of winning.

"Defendants want out of the lawsuit at any cost and under any condition... Oftentimes, the consumer is dealt out."
Smaller suits, suits of a local nature or suits against the state or state officials should rightfully be heard in state court. But, big suits with interstate interests should logically be heard in federal court. Yet, plaintiff lawyers are adept at keeping cases out of federal court, knowing that federal judges are more apt to apply the law as written rather than create their own law from the bench.

For instance, the lawyer can establish local jurisdiction by naming a plaintiff who lives in that county, or the lawyer may make a statement such as “our client seeks a very small amount of money in this case” as a way of keeping defendants from transferring the case to federal court. After one year, however, the attorney recants his statement, since at that point, current statutes bar removal of the case to federal court.

Not all class action lawsuits are bad. Many of these suits provide a legitimate way to address grievances by a group of people with similar claims. Others, such as civil rights actions, serve a worthy public goal. There can be little doubt, however, that the class action tool is being abused in many ways.

Class actions are supposed to be the “little guy’s” best shot at justice. Often, however, these suits provide minimal benefit to consumers and maximum benefit to lawyers. Is this a “best shot at justice”, or simply jackpot justice for lawyers?

Citizens Against Lawsuit Abuse

2500 City West Boulevard, Suite 300 • Houston, Texas 77042
E-mail: sosueme@ • Administrative: (713) 267-2302 • Fax: (713) 267-2267