Center for America

Speaker's Resource: 7. Class Actions, p 3

 

 

Class Actions Contents | Previous Page | Next Page

 

Key Reference Citations (KRC)

 

The Abuses of Class Action Litigation

 

The Power of the Plaintiff Class

  • “The concern over the remarkable power of the plaintiff class has been articulated by two prominent American appellate judges: Judge Henry Friendly of the Second Circuit Court of Appeals and Judge Richard Posner of the Seventh Circuit Court of Appeals.  They believe that class actions compel defendants to agree to ‘blackmail settlement, as defendants have little choice other than to agree to the plaintiff class’ demands in settlement in order to avoid the award a jury may give the plaintiff class at trial.”  (KRC: Nicolaides, “U.S. Tort Reform and the Implications…”, July 2004, p.11, citing Charles Silver, “We’re Scared to Death”: Class Certification and Blackmail, 78 N.Y.U.L.Rev. 1357, 1357 2003)

  • “Despite the absurdity of many of these suits, legitimate companies are hard-pressed to defend themselves because they face thousands or even millions of plaintiffs.  As they watch their share prices sink with bad publicity, companies almost always have to settle rather than risk billions of dollars in punitive damages.” (KRC: Manhattan Institute, Trial Lawyers, Inc., p. 8, citing Victor E. Schwartz, Mark A. Behrens & Leah Lorber, Federal Courts Should decide Interstate Class Actions: A Call for Federal Class Action Diversity Jurisdiction Reform, 37 Harvard J. On Legis. 494, 490-92 (2000))

  • “It is argued that plaintiffs’ lawyers manipulate the class action system to coerce settlements from defendants.  Moreover, many class actions assert claims that are without merit, but because the cases are brought on behalf of thousands – and sometimes millions – of claimants, the potential exposure for companies is enormous, often exceeding their assets.”  (KRC: Nicolaides, “U.S. Tort Reform and the Implications…”, July 2004, p.10, citing Institute For Legal Reform, Issues – Class Action, available at www.legalreformnow.com/issues and Institute For Legal Reform, Issues – Asbestos, available at www.legalreformnow/issues/asbestos.cfm)

  • “It is also argued that class actions deprive defendants of the opportunity of equal bargaining power with plaintiffs.  When a group of injured persons are certified as a class, and thus empowered by the court to bring all of their claims together as a class through the claim of the class representative, the class enjoys broad negotiating power.  The class retains strong negotiating power even if their underlying claim is frivolous.  This power arises from the prospect that the jury will award the class a aggregate award that is very large, and is reflected by the fact that defendants in class action lawsuits seemingly always agree to settle the claim rather than go to trial.” (KRC: Nicolaides, “U.S. Tort Reform and the Implications…”, July 2004, p.10, citing George L. Priest, Procedural Versus Substantive Controls of Mass Tort Class Actions, 26 J. Legal Stud. 521, 521 (1997))

  • “The unpredictability of trial in the face of the claimed aggregate damages, as well as the cost of defense, ordinarily makes litigating to the end an imprudent alternative. The class action device provides disproportionate leverage in favor of the plaintiffs’ attorney, which is why almost no class actions ever get tried.” (KRC: Hensler, “Class Action Dilemmas…” p. 33, fn 124, quoting William A. Montgomery, Vice President and General Counsel, State Farm Insurance Companies, 2 Working Papers of the Advisory Committee, supra note 13, at 559) 

Forced Settlements

  • “[A] central concern about the class action mechanism, [is] that mere certification of a class will force defendants to settle rather than ‘betting their company’ regardless of the evidence. For example, [one study] includes the silicon breast litigation, which settled for $4.2 billion despite strong scientific evidence showing that implants did not cause the ailments claimed by class plaintiffs.” (George L. Priest, “What We Know and What We Don’t Know About Modern Class Actions:  A Review of the Eisenberg-Miller Study”, Manhattan Institute for Policy Research, Civil Justice Report No. 9, February 2005)

  • “The class action has become ‘an opportunity for a kind of legalized blackmail.’ The courts have described class actions as “judicial blackmail” and inducements to ‘blackmail settlements’. . . [The class action] ‘has become a racket—that is the simple truth of it’. . . “The use has gone miles beyond what was anticipated.” 

    • (KRC: Hensler, “Class Action Dilemmas…” p. 33, fn 123, quoting Nicholas J. Wittner, Assistant General Counsel, Nissan North America, 4 Working Papers of the Advisory Committee, supra note 13, at 755 (citing various sources for the views quoted, as follows:  John P. Frank, “Response to 1996 Circulation of Proposed Rule 23 on Class Actions: Memorandum to My Friends on the Civil Rules Committee,” (Dec. 20, 1996), in Administrative Office of the U.S. Courts, 2 Working Papers of the Advisory Committee on Civil Rules on Proposed Amendments to Rule 23 266 (1997) (hereinafter Working Papers of the Advisory Committee). Another member of the 1966 Committee, William T. Coleman, rejects the implication that the 1966 Committee intended to facilitate “private attorneys general” class actions for the purposes of regulatory enforcement: “I respectfully submit that back in 1966, that was not an intended purpose of Rule 23(b)(3). If there is interest in deputizing all attorneys everywhere to enforce our laws, that’s a matter that should be decided by Congress, not through the class action provisions in the Federal Rules of Civil Procedure.” 4 Working Papers of the Advisory Committee, at 456. The use of private class actions for regulatory enforcement is discussed further in Chapter Three.)

  • “The unpredictability of trial in the face of the claimed aggregate damages, as well as the cost of defense, ordinarily makes litigating to the end an imprudent alternative. The class action device provides disproportionate leverage in favor of the plaintiffs’ attorney, which is why almost no class actions ever get tried.”  

    • (KRC: Hensler, “Class Action Dilemmas…” p. 33, fn 124, quoting William A. Montgomery, Vice President and General Counsel, State Farm Insurance Companies, 2 Working Papers of the Advisory Committee, supra note 13, at 559) John P. Frank, “Response to 1996 Circulation of Proposed Rule 23 on Class Actions: Memorandum to My Friends on the Civil Rules Committee,” (Dec. 20, 1996), in Administrative Office of the U.S. Courts, 2 Working Papers of the Advisory Committee on Civil Rules on Proposed Amendments to Rule 23 266 (1997) (hereinafter Working Papers of the Advisory Committee). Another member of the 1966 Committee, William T. Coleman, rejects the implication that the 1966 Committee intended to facilitate “private attorneys general” class actions for the purposes of regulatory enforcement: “I respectfully submit that back in 1966, that was not an intended purpose of Rule 23(b)(3). If there is interest in deputizing all attorneys everywhere to enforce our laws, that’s a matter that should be decided by Congress, not through the class action provisions in the Federal Rules of Civil Procedure.” 4 Working Papers of the Advisory Committee, at 456. The use of private class actions for regulatory enforcement is discussed further in Chapter Three.)

  • “Class actions are often interpreted as brazen attempts to lure innocent corporate defendants into settling cases because of the implicit threat of much more costly, protracted litigation.  And, often these ‘settlements’ provide only meager compensation to the actual plaintiffs, while enriching the attorneys who encouraged their initiation.” (www.namic.org, State and Legislative Resources, “Tort Reform: An Overview of State Legislative Efforts to Improve the Legal System”; Class Actions; as accessed on September 27, 2002)

  • “67% of Americans believe that lawyers benefit most from the current class action lawsuit system while 61% think that consumers (32%) and class members (29%) benefit least from the current system.” (www.instituteforlegalreform.com , Surveys and Studies, “Public Attitudes Toward The American Legal System and Proposed Class Action Reform Legislation”, 2001, as accessed on September 27, 2005)

  • “Because of the huge financial exposure associated with these mega-lawsuits, manufacturers say they feel forced to settle damage class actions, rather than contest them. The end result, they claim, is to drive good products from the market and to deter investment in developing other beneficial products.”  (KRC: Hensler, “Class Action Dilemmas…”, p. 50)

“The Clientless Practice”

  • The law allows thousands of claimants to be conscripted into class actions without their knowledge; their consent is assumed unless they “opt out”. This practice prompted class action impresario Bill Lerach to quip, “I have the greatest practice of law in the world…I have no clients”.  (KRC: Hantler, “Seven Myths….", p. 13, citing W. Kip Viscusi, “The Social Costs of Punitive Damages Against Corporations”, 87 Geo. L.J. p. 288, 1998)

  • “This is, indeed, clientless law. Certainly many of the complaints go by unnoticed by the plaintiffs. [One judge said] that it ‘appears to be the class litigation equivalent of the ‘squeegee boys’ who used to frequent major urban intersections and who would run up to a stopped car, splash soapy water on its perfectly clean windshield and expect payment for the uninvited service of wiping it off’.”  (KRC: Hantler, “Seven Myths….", p.13, citing Jason Hoppin,"Florida Judge compares Milberg to Squeegee Boy”, The Recorder, April 16, 2002)

  • “In larger class actions, where only a small sum was at stake per member, it was typical for most class members to take no action one way or the other [i.e. does not opt in or out of the case], which meant that the lucky lawyer designated to manage the action might acquire a huge book of nominal ‘clients’ who were in no position to oversee the manner in which he handled their interests.” (KRC:  Olson, The Rule of Lawyers, p. 11)

  • “40% [of Americans] have received a notice in the mail that they may be a party to a class action lawsuit.  Of these, 30% have taken the steps necessary to participate in the lawsuit.  Of those who took the steps, 53% report that they didn’t receive anything of meaningful value.” (www.instituteforlegalreform.com , Surveys and Studies, “Public Attitudes Toward  The American Legal System and Proposed Class Action Reform Legislation”, 2001, as accessed on September 27, 2005)

Class Actions Contents | Previous Page | Next Page

 

 

Please Note:  The material presented in this Speaker's Resource has been collected from a wide variety of sources.  You are welcome to use this material for quotations and factual material in your speeches, presentations and articles.  To the best of our ability, we have provided original citations so that you can document the comments you use.  If you become aware that any of the citations or facts presented in this collection are inaccurate or outdated by newer information, please send an email to Speakers@lawexec.com to tell us so that we can update this material.  The materials cited are generally copyrighted by the original author and when you quote from their material, you should include the original attribution to acknowledge their role as authors.  Original material © 2005 American Justice Partnership.