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Friday, August 10, 2012

Class action lawsuits that waste my time

Four class action lawsuits were recently settled in my favor: Nortel's 401(k) plan, Netflix, Groupon, and Budget (the rental car company) were the defendants. On the surface I'm gratified that the courts are protecting me, but payouts for individual members of these four classes are tiny. Lawyers have a term for this, de minimis; accountants have their own term, immaterial. Unless the benefit to me is firm and would exceed $20, it's a waste of my time to fill out the claim paperwork. I just trash the notification of settlement.

The interests of the class members are not served by these miniscule settlements, so whose interests are? Lawyers for the plaintiffs, and secondarily the agencies that administer the claims. They are paid at court-approved rates off the top of the settlements. Although a law firm pursuing a class action occasionally takes a bath on the outcome, there appears to be an endless supply of firms willing to take these cases. The implication is that the cases are compensatory enough.

Does society benefit from these cases? Hard to say. Plaintiffs' lawyers assert that society does, but consider the source. I concede that no business likes to be sued; it's bad publicity, and management has better things to think about. One might argue that the financial pain inflicted by a settlement is another disincentive to behave badly -- but that argument works only if the settlement is large enough to be material to the business. Few settlements actually are. In theory the outcomes of these cases serve as precedents for future cases, but often the defendants are allowed to disclaim any wrongdoing as part of the settlement process.

The plain truth is that class action suits resulting in tiny settlements on a per-member basis don't benefit anyone except the lawyers who file them. I support the concept of a class action suit because, on occasion, there is a matter serious enough to truly threaten a corporation and to provide meaningful recovery of damages. The law firm of Beasley Allen in my home town is notably successful in that regard, but they choose their targets carefully. Let's retain the concept of a class action, but I believe we need reform at the low end.