Class Actions - Love Them or Hate Them?

We read about a really big and important class action every year or so - suits against tobacco companies settled for billions of dollars, or against drug manufacturers settled for hundreds of millions. Other defendants who have paid big, big money in class action suits include utility companies, manufacturers of toys, tires, breast implants, and computers, and financial institutions such as banks or stock brokerage companies.

The business and insurance lobbies hate class actions with a white hot passion. Some plaintiff's lawyers make millions of dollars handling them, and most people have little understanding of what they are.

A class action is a lawsuit brought on behalf of a large group of people by several "class representatives" and their lawyers. Class actions cannot be brought at all until the court determines that the number of people in the "class" is so large that it is either impractical or impossible to get all of the people affected by the particular problem into the suit. For example, filing suit on behalf of hundreds of thousands of buyers of a particular type of computer would be a logistical nightmare - just putting their names on the court documents would take up many file drawers, let alone the time and expense that would be required for testimony, exhibits and court time. On the other hand, 15 or even 50 plaintiffs would be too small to be considered for class action status.

Not just any group of people can file a class action. The court must first determine that they all have a "common" complaint about the same defendant (or group of defendants) and that their damages are substantially the same. For example, a group of 2,000 people mad at the telephone company for different reasons could not file a class action, while 2,000 people who were intentionally billed for the same expense which none of them owed would be a viable class and could bring suit as such.

Many class actions arise in just such a circumstance - a company makes it a practice to overcharge all of its customers a few cents or a few dollars, knowing that it isn't entitled to the money - but also knowing that nobody can afford to sue over a few dollars. Without class actions, there would be no reason a big company wouldn't engage in this sort of practice: losing a few customers who figure out they've been cheated means nothing when thousands or tens of thousands of other customers go on paying the overcharge and the company makes millions of dollars as a result.

Individuals cannot afford to sue in this situation, and no lawyer would take a case involving mere pennies, or even a few hundred dollars, for an individual client. However, the stakes change dramatically with a class action: suddenly the amount in controversy is the amount that all of the customers were overcharged, and there is a potential for multi-million dollar recoveries for the class. This kind of suit has in fact brought changes for millions of consumers in the fields of insurance, telephone service, air travel, drug manufacturing and birth control devices - to name just a few of the many successful class actions in the last 10 years.

There have been some real abuses of the class action provisions in the law. Some of these abuses are by unscrupulous lawyers who essentially create a dispute in order to extort settlement from companies for incredibly miniscule and harmless mistakes. Other abuses are those by companies who actually encourage lawyers to file a collusive class action, hoping to preclude other litigation by individuals who would otherwise be able to sue for their injuries.

The result is that nearly everyone who looks at the class action provisions and how they are used (and abused) can find something that they strongly believe should be changed - but there is rarely enough agreement on what those changes should be to make real changes in the law. In practice, it is individual judges who determine whether a class action can or cannot go forward - and whether his decision was "fair" or "ridiculous" always depends on which of the parties you talk to. Conservative commentators, for example, can be heard complaining on any radio station at any time of the day about judges "legislating" - but are oddly silent when pro-business judges fail to allow a class action to go forward when the requirements of the class action statutes are clearly satisfied. Like so many other issues in politics today, the label placed on a result is often dependent on what the result costs the person doing the talking.