Trial Lawyer Protection Act

Trial Lawyer Protection Act

 

A new study shows that consumers lose in most class actions.

 

From the Wall Street Journal

Trial lawyers market themselves as champions of the little guy against corporate America. So how's that working out for the little guy? Not so well, according to a new study by the Mayer Brown law firm for the Chamber of Commerce Institute for Legal Reform, which shows that in the vast majority of class actions, the class members end up empty-handed. In two-thirds of the resolved class actions studied, the class members didn't see a penny.

Out of 148 federal class actions reported by two major litigation publications in 2009, none of the cases went to trial and won a judgment for the plaintiffs. Zero. Fourteen percent of the cases remain pending. Of the 127 cases that had been resolved by September 2013, 35% were voluntarily dismissed by the plaintiff, 31% were dismissed on the merits by the court and 33% were settled.

Settlements are the real goal of plaintiffs lawyers, who know that many companies will cave to frivolous charges because they can't afford the legal bills and reputational damage from fighting a high-profile lawsuit. Lawyers profit handsomely from these agreements that give them a cut of the winnings off the top, but the odds for regular Joe Plaintiff aren't good. According to the study, only 33% of federal class actions settled compared with 67% for all federal cases.

It gets worse. Settlement details aren't always available, but in consumer class actions many class members don't collect their winnings at all and procedures to seek out class members and distribute the cash are rare. Mayer Brown says that "of the six cases in our data set for which settlement distribution data was public, five delivered funds to only miniscule percentages of the class: 0.000006%, 0.33%, 1.5%, 9.66%, and 12%."

The firm launched its study out of concern that an ongoing review of arbitration agreements by the new Consumer Financial Protection Bureau could be headed toward regulating or banning the agreements altogether. Under Dodd-Frank, the bureau has the authority to override the Federal Arbitration Act but it is required to do a study first. While it is studying—no extra credit for guessing the outcome—Minnesota Democrat Al Franken is pushing legislation that would effectively ban arbitration in all consumer and employment contracts.

While arbitration agreements are often an efficient way for consumers to settle claims with companies cheaply and quickly, liberals don't like anything that threatens the primacy of class actions. In its preliminary research released in early December on the use of arbitration agreements related to consumer financial products, the CFPB noted that nine out of 10 arbitration agreements allowed banks to keep consumers from joining class actions.

Considering the pitiful track record of class actions delivering for consumers, that's a good thing. The only beneficiaries of expanding the potential pool of class-action lawsuits are the plaintiff's attorneys—and their yacht-builders.