Illinois State University’s Professor Carson Varner, who specializes in finance, insurance, and law, weighs in on consumer access to class action litigation.
Varner:
In the Old West the bounty hunter had, at best, a mixed reputation. Not quite a vigilante, sometimes ridding the territory of a bad guy, but often of questionable ethics and tactics. The class action law firm is a modern equivalent.
The current state of law and process is reviewed in this New York Times 19-page article. The authors find our system wanting, but give enough information that a reader can take the opposite view. The article, I think, rightly concludes that small print arbitration clauses have largely ended consumer access to class action litigation. If this is good or bad has a lot to do with your attitude towards bounty hunters.
Modern class action begins in 1966 under rules approved by the Supreme Court. In law school, we learned that if a utility or a bank overcharged customers or imposed illegal fees that put each customer out by say $200, it would not be practicable for them to sue individually. But together, as a class, it is big money, and justice could be achieved.
In almost every class action case, if the company has broken a law that should bring in the authorities—be it the SEC, FTC, Labor Department, or local officials. But as in our Old West, a lack of sufficient law enforcement resources means the bounty hunter enters.
Rewards for the law firms can be huge. The article mentions a case where the injured parties received a coupon for $50 or $100 and the law firm $22 million.
Businesses naturally assert that our system doesn’t need this sort of thing. Their tactic has been to insert small print arbitration clauses in contracts with customers. It was alleged that AT&T offered a free phone with a contract, but charged $30.22 anyway. In a class action, it would be millions for the law firm if they win, and a token for the customers. But the contract had a small print arbitration clause which forbids joining a class action. The article finds that these clauses, with some California and Massachusetts exceptions, are almost always valid.
Another case involved a waiter at Applebee’s who, with the extra duties assigned, received less than minimum wage, even with tips. If this were a common practice, a class action would remedy a wrong. Arbitration clauses in the employment contract forbid class action. A complaint to the Labor Department could have solved the problem.
In another case, that would stir the blood of every small business person, was an attempted class action by a small restaurant against American Express for charging outrageous fees (30 percent more than Visa). The small restaurant felt compelled to accept American Express, but did not have the strength to sue on their own. The restaurant’s case was legally very weak because it is not illegal for American Express to charge outrageous fees. The law firm would hope for a multi-million out-of-court settlement paying to avoid the deserved unfavorable publicity.
Most class action cases involve an alleged small wrong, multiplied many times. AT&T is majority owned by funds, which means your pension plan. The high cost of these actions is paid with your money, not just fat-cat corporate America. So, it’s up to you, the consumer, to let things go, beef up government oversight, or give it to the bounty hunters.
