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Congress, make class-action lawsuits great again

Washington Examiner, February 25, 2017

Anheuser-Busch, the maker of Beck's beer, agreed last summer to pay a class-action settlement of up to $20 million. Any of the 1.7 million people who had theoretically purchased that brand since 2012 could come forward to claim $12, no questions asked, or up to $50 in the unlikely event that they had saved their receipts.

What wrong had these beer-drinkers suffered? The language on Beck's packaging ("German Quality" and "Originated in Bremen, Germany") might have fooled them into thinking the beer brand was brewed in Germany, whereas since 2012 it had actually been brewed in St. Louis.

Twelve dollars is not much. But the creative trial lawyers who cooked up and filed this ridiculous lawsuit could build a castle out of the six-packs with the $3.5 million in fees they won for helping no one and doing nothing constructive.

Class-action cases like this one abound. So do more meritorious class-action cases in which the victims are done-over both by the defendant and their own class counsel. These serve as a reminder of the need for legal reform, something that our famously litigious president surely understands.

Class-action reform is especially important. To that end, House Judiciary Chairman Bob Goodlatte has introduced the Fairness in Class Action Litigation Act.

The incentives in class-action litigation guarantee that both parties in the lawsuit are looking out for everyone's interests except those of people actually harmed. Trial lawyers typically receive their fee as a percentage of what they win for their clients on aggregate. So their incentive is to make the class as large as possible, even if it diminishes the award that each member will receive from a judgment or settlement. Greater volume can turn settlements that are trivial for the plaintiff class into a million-dollar payday for the attorney.

The defendants in such cases, usually large corporations, share this incentive. Because even if they have to pay $10 or give out worthless coupons to a few more plaintiffs, those who fail to opt-out of a mega-class (most people ignore or miss opt-out notices) have already had their day in court and cannot sue them separately for the same thing. The system, then, is rigged in favor of everyone except actual victims. It is one of many absurdities within the America's civil court system.

Goodlatte's bill wouldn't make the system perfect, but it does make modest improvements. Attorneys in federal class-action cases would not be allowed to cash their checks until after plaintiffs have been paid. Their fees would also be measured not by the headline dollar amount in the settlement, but by the actual amount that plaintiffs recover. So if only a handful of Germanophile Beck's drinkers came forward to claim their settlement, it would substantially reduce the fees of the attorneys in the example above.

The bill would also require detailed records to be kept on the amounts awarded in such settlements, and annual publication of the data. Finally, and perhaps most importantly, it would enshrine the currentSupreme Court precedent in statute requiring plaintiff classes to be composed of people in truly similar circumstances and have suffered similar wrongs. Thus, trial lawyers could no longer fish for multi-billion dollar paydays by trying, for example, to group all women who have ever worked for Walmart into a single class, as they tried in theWalmart v. Dukes case. That gender discrimination class-action case, decided by a narrow 5-4 majority, only just averted a legal gold-rush.