Class Action Lawsuits

Class action lawsuits are where the real money lies in the U.S. tort system!

In general, a class action is a lawsuit where many people with similar complaints join together to sue one person, company or other organization. Some call it the predator-attorney’s weapon of mass destruction.

Without a doubt, the biggest contributor to the skyrocketing cost of the U.S. tort system are class-action lawsuits, where lawyers sue major companies for millions or billions of dollars on behalf of hundreds, thousands, tens of thousands, even millions of plaintiffs who, as the Wall Street Journal reported, “often don’t even know they are being represented.”

A growing phenomenon since the latter part of the 20^th century, class-action lawsuits have created havoc throughout business and industry, engendering a host of bankruptcies, bringing huge companies and even industries to their knees, and leaving massive unemployment in their wake.

A study by Class Action Reports indicates that plaintiffs’ attorneys typically chalk up huge fees for these cases – on average, over $1,000 an hour — while their clients often get little or nothing when all is said and done. One auto insurance case cited had the lawyer who filed the suit getting $8 million while the policyholders got $5.50 each, plus an increase on their auto insurance premium.

Arguably the most abusive practice to emerge out of the class-action orgy is the tendency for litigators to “shop” for the most favorable courts in the land, regardless of how tenuous the nexus may be between the defendant, the plaintiffs and the courts.

The most gluttonous havens for torts are in Mississippi, West Virginia, Texas, and Illinois – with Madison County, Illinois, said to have been the most tort-friendly court in America.

As for the enormity of class-action activity, consider that during one four-year period, federal class action lawsuits increased 300%, while state filings increased by more than tenfold.

In fact, during 2006-2007, federal district court judges approved 688 class action settlements involving nearly $33 billion, of which $5 billion or about 15% ended up in the lawyers’ coffers. Most of the judges involved, the study indicated, preferred to award fees by a percentage-of-the-settlement method, which varied over a broad range with a median of around 25%.

Not all judges agree on how to award fees, however. The First Circuit Court of Appeals, for example, overturned a $30 million fee awarded to class action attorneys who won a $400 million settlement against Volkswagen and Audi. Based on the attorneys’ hourly rates, the Circuit Court reduced fees to $7.7 million.

According to the U.S. Chamber of Commerce, “Abusive and frivolous class action lawsuits brokered by a handful of attorneys are overwhelming the judicial system in certain states.”

In one West Virginia trial alone, about 8,000 people sued 250 companies because of exposure to asbestos. And many of the plaintiffs were not even sick! Strange as it may appear, about two-thirds of asbestos claims being filed are by the unimpaired. This is absurd!

No longer do plaintiffs have to prove actual damage to be included in such a case. Just being likely to get ill is good enough to get a share of the compensation, which – not incidentally – eats into the payment that would otherwise go to actual victims.

So devastating has the impact of class-action lawsuits been on this industry that most asbestos manufacturers have been driven into bankruptcy, leaving mostly peripheral companies to be picked clean by future claimants.

Moreover, some estimates indicate that asbestos-related bankruptcies caused as many as 60,000 jobs to be lost to the economy, plus an additional 128,000 potential new jobs lost due to investments that failed to materialize because of the bankruptcies. Add to that another 8 jobs lost to local economies for every 10 jobs lost as a direct result of asbestos-related bankruptcies. In short, the ultimate potential impact on the nation’s unemployment is huge – and the eventual size of it is anybody’s guess.

One of the real injustices in today’s civil courts is that, unlike criminal law, which protects a defendant against double jeopardy, the deep pockets of defendants in class action lawsuits can be picked repeatedly for the same alleged offense until there is nothing left in those pockets to pick; all that remains is insolvency.

The often-huge payouts from “batch litigation” against major corporations, particularly those related to tobacco and asbestos claims, are the biggest single factor in the explosive rise of tort costs in recent years. The $368 billion “Big Tobacco” settlement in 1988 alone will provide lawyers, not plaintiffs, with about $3 billion in annual fees for 25 years.

Imagine the size war chest this annuity will provide those aggressive attorneys who are hell-bent on targeting other industries for a taste of the class-action hemlock juice they readily distribute.

The reputed purpose of mass litigation is “judicial efficiency.” The object is to resolve, in one lawsuit, similar claims by many individuals involving substantially common issues of law or fact.

In theory, class actions make a lot of sense, if the objective is to speed up justice and cut the cost of lawsuits by consolidating hundreds, sometimes thousands, even millions of claims into one giant lawsuit. One problem is that these cases can be very expensive and complex. Another very real problem is that many of these cases concern greed and not justice.

In fact, juries rarely hear class actions, since the vast majority of defendants are manipulated into settling them without a fight. That’s because many defendants would rather settle a dispute out of court than risk the millions, hundreds of millions, and sometimes billions of dollars in potential punitive damages that notoriously pro-plaintiff juries have been known to award sympathetic plaintiffs.

Another reason so many class action lawsuits are settled quietly is that many publicly-owned companies would rather do that than watch the price of their stock nosedive from the bad publicity that usually surrounds such cases.

Before a dispute can be treated as a class action, however, the court must certify it as such, based on certain criteria. These include the selection of one individual plaintiff and a set of attorneys that the court must approve to represent all of the claimants in the lawsuit.

Thus, while the organizing attorney may solicit a mass of claimants from all over the country, only the selected “class representative” must appear in the court where that representative is qualified to sue. And that court, almost without question, will be located in the most favorable state or judicial district selected by the plaintiffs’ attorneys after they “shop” for the most hospitable venue in the country. Talk about using loaded dice in a crap game.