Tackling Class Action Lawsuits
Originally published on February 21, 2018
The American legal system is a complex entity, and a particularly controversial portion of it is class action lawsuits. Class action lawsuits are lawsuits put together when a large number of people have been similarly wronged by a single defendant. It can be any sort of defendant, but more often than not the defendant is a corporation, largely due to the nature of business. There are pros and cons to class action suits for both plaintiffs and defendants. For the people bringing the class action, it puts less of the burden of the case, both financially and mentally, on one person. But, the on the other hand, the reward is usually smaller. For the court system, it becomes more efficient because cases are consolidated, and there’s less potential for courts to differ in their judgements. The court system never wants to have discrepancies in the law. Lastly, for corporations, class action lawsuits usually bring about a lot of negative effects, most notably bad publicity. The corporation does not want to be associated with a large lawsuit affecting many different people all across the country. It makes the company look bad, and it usually lowers their market value. Furthermore, many corporations argue that lawyers are fishing for problems in order to get a class action lawsuit going and to potentially have access to the corporation’s deep pockets. Lawyers get a cut of whatever the settlement ends up, and the bigger the settlement, the bigger the cut.
Usually big law firms will have entire departments and people equipped to deal with class action lawsuits because of the size of the task. For both the plaintiff and defendant, a class action requires immense amounts of resources to keep up a lawsuit, especially a class action lawsuit. One of the biggest obstacles for resources comes out of the question of jurisdiction, if a court has the authority to make a decision on a case. Because of the nature of class action lawsuits the jurisdiction can be anywhere. For example, a corporation could be incorporated in one state, headquartered in another, and do business in many more states. The plaintiffs can be in any one of those places where the corporation does business. Having the issue cross over many states automatically makes it a federal question, meaning that the litigation and the question being asked needs to happen in a federal court with the jurisdiction to hear it.
Once these types of cases get past the jurisdiction phase, they’ll more often than not settle. Settlement is the practice of coming to a resolution about a case often before the case goes to the court room in front of a judge. Usually settlement comes in the form of structured settlement, in which the parties agree to future payments and insurance instead of litigation. Even though this will more often than not result in one party paying more than they would like to, or not arguing the amount, it’s bad public relations. PR is everything to a corporation: bad PR could lower market value of the company. But even if the bad PR doesn’t do that, it will change customer relations. Customer relationships are built on trust with the company and now more than ever consumers are channeling their activism via their wallets. If they see a company attached to a nasty lawsuit or even doing things that they don’t agree with within the process, people may decide that they want to take their business elsewhere. If this happens in big enough numbers, this effect has the potential to seriously harm or disrupt the company. Corporations never want to look bad in the eyes of the market or consumers, even if they are in the wrong. That is why there is sometimes a corporate hostility towards class action lawsuits.
In 2005, President George W. Bush signed in the Class Action Fairness Act. This Act cracked down on class action suits related to federal questions. It permitted larger multistate actions to be heard in federal district courts instead of state courts. Furthermore, it limited attorney fees where the plaintiffs would receive little value, meaning if the settlement would be incredibly small that corresponded directly with the lawyer’s compensation. Earlier this year, the House of Representatives proposed another bill to further restrict what can happen in class action lawsuits. This bill was an extension of the previous law trying to limit class action lawsuits and really make sure they were coming to court for the right reasons. Critics think these bills are a way to favor corporations because they make it harder to file and the corporations were lobbying for this type of legislation. However, on the other hand the supporters argue that this legislation is necessary for fairness towards corporations and needs to happen in order to stop ill-intentioned lawyers. Where ever you land on class action lawsuits, they always seem to be controversial, get a lot of attention, and generally attempt to tackle some question of negligence.
Sources:
Daniel Fisher, “House Bill Would Make Life Much, Much Harder For Class-Action Lawyers,” Forbes, accessed September 25, 2017, https://www.forbes.com/sites/danielfisher/2017/02/16/house-bill-would-make-life-much-much-harder-for-class-action-lawyers/;
“Proposed Fairness in Class Action Litigation Act of 2017 | Section of Litigation / Commercial and Business Litigation | Section of Litigation,” accessed September 25, 2017, https://www.americanbar.org/publications/litigation-committees/commercial-business/articles/2017/proposed-fairness-class-action-litigation-act-of-2017.html;
“The Class Action Fairness Act of 2005: Summary and Analysis,” accessed September 25, 2017, https://www.hklaw.com/publications/the-class-action-fairness-act-of-2005-summary-and-analysis-09-15-2005/.
