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Class Action Loose Change

Fox & Hounds, November 7, 2017

By: Ken Barnes

If you receive a notice about the availability of millions of dollars, it’s probably an overseas scam artist or trial lawyer dangling a class action settlement. Pick your poison, as both are likely to cost you money rather than increase the size of your bank account. The main difference? Scam artists steal your money upfront, whereas trial lawyers take it from you in the form of higher consumer prices to finance their luxury lifestyles. Don’t despair, help is on the way. H.R. 985, the Fairness in Class Action Litigation (FICALA) by Rep. Bob Goodlatte, seeks to level the playing field for people with legitimate claims, ensuring they are properly compensated before the lawyers.

In most non-class action cases, plaintiffs who are successful in bringing an action will receive compensation for the injury or harm they experienced. This is based on the theory that injured persons need to be made whole, thus receiving compensation for the damage. However, in class actions the lawyers are paid first and the vast majority of the class members, over 90%, receive little or nothing. That’s right: All too often trial lawyers reap several millions of dollars in class action fees, while the consumers they supposedly represent get the equivalent of loose change. 

H.R. 985 would change this by making class members, not the trial lawyers, the first priority for payment, and making those payments more commensurate with the actual harm. To accomplish this, FICALA limits eligible class members to people who have actually suffered injury.

For example, if a mobile phone manufacturer sold 1 million devices and 10,000 were defective, trial lawyers will seek to place all 1 million purchasers in a single class. If the case is settled for $10 million — class actions rarely go to trial — the lawyers may receive $3 million and the 1 million class members only $7 each – loose change. Under FICALA only the 10,000 purchasers who were harmed would be included in the class, with each truly harmed consumer receiving $700. Additionally, attorney compensation would be based on the number of class members paid. So, if only 5,000 people receive their payments — half the class — then the lawyers get half of their designated payout or $1.5 million. Currently, lawyers are compensated based on the number of participants they can convince a judge to include in a class action rather than how many people actually receive payments.

FICALA also addresses the rapidly spreading scourge of lawsuit financing. Trial lawyers often borrow money against potential verdicts, creating a perverse incentive to avoid settling cases for a reasonable amount. These undisclosed arrangements tie up the courts, as lawyers prolong cases to generate more dollars in order to pay back the debt. After the lawyers and lenders split their haul, if there’s anything left over, the actual plaintiffs may see a little change.

H.R. 985 would go a long way toward putting the focus of the law back where it belongs: protecting consumers. The courts should be a place where consumers can go to seek justice, not a tool for trial lawyers to get rich.