Law & the Courts

A Counterintuitive and Compelling Case for Class-Action Lawsuits

(Pixabay)
A new book argues that class actions are a market-oriented solution to address real wrongs.

Last year, companies spent nearly $2.5 billion defending against class-action lawsuits, according to a recent survey of over 400 in-house lawyers at Fortune 1000 and other large companies. That survey also revealed that in-house attorneys devote about 20 hours a week solely to class-action defense work. And these numbers are expected to spike up further this year.

Conservatives have long inveighed against class-action lawsuits and the plaintiffs’ lawyers who champion them. The U.S. Chamber of Commerce publishes an annual list of lawsuits that it deems frivolous, and class-action lawsuits abound on that list. For example, the Chamber highlighted several class-action lawsuits seeking millions of dollars against Starbucks for allegedly defrauding customers by putting too much milk or ice (and not enough coffee) in their coffee beverages. Not surprisingly, class-action lawsuits are not conservatives’ cup of tea.

Conservatives’ criticism of class-action lawsuits largely rests on two interrelated points.

First, they argue that consumers benefit little from class-action lawsuits, while plaintiffs’ lawyers reap millions of dollars. Most of us have received class-settlement notices in the mail informing us that we are eligible to receive a few dollars or perhaps a coupon based on our past purchase — and most of us promptly throw away such notices. (Redemption rates in class actions are notoriously low.) Yet the plaintiffs’ lawyers typically receive 20 to 30 percent of the entire settlement fund for the class, which will often be in the tens or even hundreds of millions of dollars.

Second, conservatives argue that many companies settle meritless class-action lawsuits because of the specter of a staggering class-action judgment. Companies calculate that it’s better to settle even a frivolous lawsuit for a seven-figure sum than to risk an eight- or nine-figure judgment based on the unpredictable whims of a jury, according to this criticism

These critiques of class-action lawsuits amount to a shibboleth among conservatives and big businesses. But don’t count Brian T. Fitzpatrick, a professor at Vanderbilt Law School, among them. He boasts unimpeachable conservative credentials: He clerked for Diarmuid O’Scannlain, a well-known conservative Ninth Circuit judge, and then landed a coveted clerkship with Justice Antonin Scalia. He also worked for Senator John Cornyn, is a stalwart of the Federalist Society, and is a longtime reader of National Review. (Full disclosure: I’ve known Fitzpatrick since law school, and can attest to his conservative/libertarian bona fides.)

In his new thought-provoking book, The Conservative Case for Class Actions, he argues that conservatives — as opposed to big business — should not reflexively oppose class-action lawsuits, because they are in fact a market-oriented solution to remedy real wrongs committed by businesses. It is a clever, contrarian, and counterintuitive take on class actions that should open the eyes of both conservatives and liberals.

Like many book titles and click-bait newspaper headlines, the title of his book overstates his case: Fitzpatrick is not an unabashed proponent of class actions, but rather argues that they can serve a useful and important purpose in many instances. He is primarily focused on “small-ticket” class-action lawsuits that conservatives generally loathe, in which the harm to each individual consumer is small such that he or she would have little incentive to sue a company to recoup merely a few dollars.

Like most mainstream conservatives and libertarians, he has faith in the free market but he acknowledges that the market must have some rules to function properly. And he takes a pragmatic approach in explaining why class-action lawsuits are necessary:

In their absence, the government will invariably fill the void and make the problem worse.

So, for example, if class-action lawsuits challenging ice or milk content in Starbucks coffee are banned, the government will likely intervene and establish extreme edicts on espressos. Or perhaps a state attorney general would file a lawsuit, which would lead either to under-enforcement (because public employees don’t have the same financial incentive to prosecute the case aggressively) or overzealous enforcement (because the state attorney general may have a political axe to grind).

Fitzpatrick points out that companies in many foreign countries must often obtain pre-approval from the government before they can introduce a product to the market or take certain actions. In contrast, companies in the United States — apart from those in highly regulated fields such as the drug industry — generally do not need the blessing of the government before they market a new product or service, though they must still comply with established rules that may be enforced by private attorneys.

Conservatives should prefer the latter over the former, according to Fitzpatrick, and class-action lawsuits are more consistent with a free-market framework. Private parties try to resolve a dispute (with the judge as the arbiter) — without onerous government regulations, or incompetent or overzealous public officials. He even praises the large attorneys’ fees awarded to plaintiffs’ attorneys: What’s more conservative than relying on the profit motive to incentivize people? Put another way, class actions reflect a more decentralized approach to regulation than the command-and-control regime preferred by many liberals, according to Fitzpatrick.

In support of his argument, Fitzpatrick marshals market-based ideas advanced by conservative and libertarian icons, ranging from Milton Friedman to Friedrich Hayek. He particularly does a commendable job of explaining esoteric legal and economic concepts in easy-to-digest nuggets that even lay readers can appreciate.

Fitzpatrick’s defense of class actions is somewhat less convincing when he addresses the costs that potentially frivolous lawsuits may impose on companies. He argues that judges can root them out at the early stages of a case. But he concedes that some judges allow discovery to proceed while a company’s motion to dismiss the lawsuit is pending, i.e., the plaintiff can request a large swath of documents and emails from the defendant. Discovery costs, especially in the era of emails and electronic data, can easily reach mid-six-figures within a few months. Moreover, even if a court halts discovery during the early stage of a case, submitting a motion to dismiss the lawsuit can cost a company a hundred-thousand dollars — not a large sum, but not insubstantial, either, if the case is truly frivolous.

Perhaps the book’s most useful contribution is that it challenges our assumptions. Take, for example, the “small ticket” class-action lawsuits that are the focus of Fitzpatrick’s book. As he points out, many “conservatives argue that we should not bother rectifying small harms at all. So what if some company stole $5 from you? Is it literally worth making a federal case out of it?”

I’m reminded of the cult-classic movie Office Space, in which Peter, the protagonist office drone, tries to morally justify pilfering a fraction of a cent from millions of transactions conducted by his employer by saying that it’s akin to taking a penny from a 7-11 change tray, albeit a million times. His girlfriend, Joanna (played by Jennifer Aniston), however, will have none of it. She asks, “How’s that not stealing? It seems wrong.”

Fitzpatrick makes the same point as Jennifer Aniston’s Joanna but with perhaps a bit more flair: “I really don’t understand why we [conservatives] would want to give companies the incentive to steal even small amounts from us. . . . Conservatives don’t like theft.”

I suspect that many conservatives haven’t overtly considered Fitzpatrick’s point because they believe that corporations play a vital role in our free-market economy, providing goods and services that people want. In other words, don’t sweat the small stuff — corporations are generally good, and so what if they occasionally commit a small harm. Conversely, I would venture that many liberals view profit-motivated corporations with some suspicion and assume that many will try to bilk consumers if they can do so. And these divergent assumptions about corporations likely color liberals’ and conservatives’ instinctual gut reactions to class-action lawsuits.

In a country where so many people now live in their own isolated echo-chamber bubbles, Fitzpatrick’s The Conservative Case for Class Actions is a refreshing antidote that challenges us to reassess our assumptions and think critically without regard to partisan loyalties.

 

Kenneth K. Lee serves as a judge on the U.S. Court of Appeals for the Ninth Circuit. 

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