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Reforming consumer class actions

ATRA has released a report on consumer class action abuse:

Consumer protection lawsuits have strayed from their intended purpose. Rather than provide assistance to ordinary people who are duped by a seller's fraudulent conduct into making a purchase, today, consumer protection laws are the new tool-of-choice of plaintiffs' lawyers and special interest groups. The potent combination of a vague definition of illegal conduct (unfair or deceptive), availability of large monetary awards and attorneys' fees, and lax proof requirements and class certification standards make them particularly attractive to lawyers. Special interest groups have come to view consumer protection statutes as a means to achieve regulatory objectives through the courts that they could not obtain through the legislative or regulatory process because they lack public support—a fundamentally undemocratic result. Courts and legislatures can and should restore the consumer-to-consumer protection laws. They can do so by ensuring that those who lose money because they were deceived are made whole, while eliminating the lawyer and interest group-generated lawsuits that are brought for profit and politics.

As reported in the National Law Journal, the American Legislative Exchange Council (ALEC) is pushing model legislation, similar to the successful Prop 64 in California, that would eliminate the ability of plaintiffs' attorneys to seek damages for class plaintiffs who have not suffered injury. (Meanwhile, in California itself, Public Citizen and others in the litigation lobby successfully persuaded the California Supreme Court to review Pfizer v. Superior Court; the plaintiffs' bar is asking the Court to gut the reliance requirement that that initiative added to California's infamous � 17200, and returning California to the abusive pre-Prop 64 world. (E.g., Overlawyered, Nov. 1, 2004.) Public Citizen's Brian Wolfman discusses that case on his blog.)

While the legislation explicitly permits private lawsuits for consumers who "reasonably relies upon an act or practice declared unlawful" and suffers a monetary or property loss as a result, this is not enough for Ira Rheingold, who objects on the Public Citizen blog.

Victor Schwartz, writing in the Kansas Law Review, puts forward the argument for the ALEC reforms. Relatedly, Moin Yahya explains in a paper posted to SSRN why the benefit of the bargain theory behind so many injury-less class actions is bad economics and bad law. See also the oft-mentioned Michael Greve, Harm-Less Lawsuits? What's Wrong with Consumer Class Actions.



Rafael Mangual
Project Manager,
Legal Policy

Katherine Lazarski
Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.