As the Senate passed the Class Action Fairness Act, the Manhattan Institute released a new study from George Priest, the John M. Olin Professor of Law and Economics at Yale Law School and a friend of this site. The study, What We Know and What We Don�t Know about Modern Class Actions: A Review of the Eisenberg-Miller Study (PDF), concludes that the Class Action Fairness Act "would constitute a helpful, but largely a modest reform."
Professor Priest's study is the result of a commission from MI to examine another study, Attorneys Fees in Class Action Settlements: An Empirical Study, released last spring by Cornell professor Ted Eisenberg and NYU professor Geoffrey Miller. Although it was not the principal focus of their study, Eisenberg and Miller made the curious finding that the average class action recovery had not increased over the 1993-2002 period in their data set.
The New York Times trumpeted this subsidiary result on the front page of its business section: Study Disputes View of Costly Surge in Class-Action Suits. ATLA's president said, "This empirical study comes out and says the system is working correctly." Senator Russ Feingold used the study to argue against the Class Action Fairness Act, saying it was "a solution in search of a problem." Even Eisenberg himself chimed in, saying "We started out writing an article about fees, but the shocking thing was that recoveries weren�t up."
In his new study, Professor Priest looks at the Eisenberg-Miller data and reaches a very different conclusion, namely, that "class action litigation is imposing extraordinary costs on American society," that these high costs have persisted over a long period of time, and that the case for reform is all the more compelling. Even taking the Eisenberg-Miller dataset on its own terms, Professor Priest finds the average class action recovery over the ten-year period they studied was $138.6 million, which works out to an aggregate class action recovery averaging $5.13 billion per year.
Moreover, Priest argues that the Eisenberg-Miller data set significantly understates the overall magnitude of class action litigation. Eisenberg and Miller only report data taken from published opinions, and their data set is highly skewed toward securities litigation, which constitute over half their sample. Over the entire ten-year period, their data set includes only 9 civil rights class actions, 23 employment class actions, 22 ERISA class actions, and 7 mass tort class actions. (By comparison, there were 2,133 class action cases filed in federal courts in 1999 alone. We don't know the number in state courts, but in 1999 there were 54 class actions filed in just 3 counties, Madison County, Illinois; Jefferson County, Texas; and Palm Beach County, Florida. See Manhattan Institute Civil Justice Report 3.)
Professor Priest also emphasizes that Eisenberg and Miller's study does nothing to challenge some of the main criticisms of class action litigation, such as the fact that mere certification of a class will force defendants to settle rather than "betting their company," regardless of the evidence. Priest points out, for example, that the Eisenberg-Miller data set includes the silicone breast litigation, which settled for $4.2 billion even though strong scientific evidence showed that breast implants did not cause the illnesses claimed in the suit (see this Manhattan Institute study by Point of Law friend David Bernstein).
In sum, Professor Priest finds that the case for class action reform is strong. He thinks, however, that even though the Class Action Fairness Act "will help" by "[m]oving class actions involving significant different-state parties from state to federal courts," that ultimately "it is not likely to solve the problems created by modern class action litigation," which are so entrenched that they require a broader, more systemic reform.