It’s Time To Ban Class Action Suits

One of the plagues of our time is the class action suit. I understand the reason for them, but they don’t work. At this point, they are nothing more than enrichment vehicles for a small group of attorneys. We should ban them to protect our economy, to protect injured people, and to protect the integrity of our legal system.

Under our legal system, legal rights are inherently personal. That means that only the person who has been injured can sue, and they can only seek compensation for the injury they themselves suffered. But class action suits are different. They let one person sue on behalf of millions of others, and that’s the problem.

History of Class Action Suits

Class action suits first arose in the United States in 1833. They were created out of a doctrine called “virtual representation,” which was created to allow judges to settle all of the property interests of a deceased person’s estate. Without that doctrine, anyone trying to settle an estate would need to obtain jurisdiction over every person potentially interested in the estate before the matter could be resolved. This would be potentially impossible (as many could not be found and some wouldn't even be born yet). By using the virtual representation doctrine, this requirement could be skipped.

Between 1833 and 1966, this remained essentially an “equitable doctrine,” which was used mainly to prevent injustices that might otherwise arise because of legal procedures. The example of settling the estate is a classic example where such a doctrine could be used to prevent injustices.

But in 1966, the rule was amended dramatically. This change created the problematic modern version of the class action suit. In 1966, Congress created what was called the “opt-out class action.” What this means is that once the suit is classified as a class action, anyone who wants to bring their own suit needs to “opt out” of the suit or their interests will be decided as part of the class.

The Theory of Class Action Suits

In theory class action suits make sense. If a million people are injured or might still be injured, rather than having a million suits filed and clogging the courts, each needlessly duplicating the efforts of the others, you could have one suit filed that represents all million people. This dramatically cuts down on the burden to the person/company being sued, it cuts down on the burden to the courts, and it makes it easier for injured persons to obtain justice, because they don’t need to go through the trouble of bringing their own suits. Moreover, this theoretically prevents any one plaintiff from draining all of the assets of the company before others can bring suit (often, others don’t even know yet that they’ve been injured when these suits are settled). So far so good. But like all things lawyers touch, this has become corrupted.

Why Class Action Suits Don’t Work

Modern class action suits are dominated by a small group of predatory firms -- you’ve seen their ads on television. They spend their time frantically searching for the next big hit: be it a drug with side effects, harmful chemicals in products, or obvious dangers that hillbillies ignore when they go off-roading on ATFs at high rates of speed through the woods. When they find one of these, they scramble to find the most horrifically injured plaintiff they can, who also must live in a jurisdiction with favorable laws. Then they rush out and bring suit. Once the suit is filed, they move for class certification. To get this, they need to show that it will be impossible to identify everyone who was (or will be) injured and that their plaintiff will be fairly representative of the others.

Only one class can be certified and it's first come first serve. So once the class is certified, that suit becomes THE class action and that plaintiff becomes THE plaintiff -- everyone else becomes part of the class. At that point, the battle is over. The lawyers sit back and negotiate a settlement. One huge fee later, they leave the crumbs in a pool for each of the injured people to fight over.

The reason this is so attractive to these lawyers is that while they might have gotten a few hundred thousand dollars from suing on behalf of one client, they can get BILLIONS from a class action suit. They also rarely need to take these to trial, whereas individual defendants usually need to go trial if they want full compensation.

The problems are this. First, there’s an incredible incentive to bring these suits, far out of proportion to what the incentive should be for lawyers. In a normal suit, a litigator is likely to get 40% of the proceeds. That means $400,000 if their client gets a million dollars. But for the same amount of effort, a class action lawyer can walk away with a hundred times or a thousand times that because now they are technically representing thousands of plaintiffs. . . even though no additional effort is required. Thus, lawyers push these things like drug dealers pushing crack.

Further, because the potential damages are so high -- most class action suits will kill companies -- the companies have a major incentive to enter into settlements just to survive, even if they did nothing wrong. It’s the same principle as extortion. Give us 80% of what you have or we’ll take 100%.

Third, and most importantly, these suits are intensely unfair to anyone except the lawyers. In a regular suit, there is no need to fight about how to split up the verdict or settlement. In this case there is. That means that each plaintiff needs their own attorney just to get their share out of the fund that gets created. That means a 40% fee on what they recover, which is already reduced by the 40% taken by the attorneys who brought the suit in the first place. Thus, whereas a regular plaintiff would be assured of collecting 60% of whatever is recovered, most class action plaintiffs are, at best, looking at 36% -- even if we assume the split if fair. . . which it isn't.

When a class action arises, many more people are added to the class than would otherwise have sued. Indeed, many people whose claims are very minor or even frivolous suddenly are added to the class, as are people who are "expected" to become plaintiffs -- even if they never do. This means that more people split the pot than would have if each suit had to be examined on its own merits. That means that the legitimately injured receive a smaller share than they should have.

Conclusion

As the system currently sits, it’s bad for companies, bad for the victims, and bad for the integrity of the system. The only people who benefit are the lawyers. While it might be worth it to reform the system by dramatically cutting the attorneys fees, that still won’t solve all the problems. . . especially as lawyers will be doing the reforming. Thus, I think the time has come to simply ban these suits.