By James R. Copland, 05-21-2004
The class action device, in principle, is an expeditious way for people with
similar grievances to join in a common suit and get compensated for injuries.
As described by noted scholar Richard Epstein, class actions are important tools
legal tools that allow tort claims to proceed in cases in which:
a) The number of individuals similarly situated with respect to a common defendant
becomes very large,
b)The loss sustained by each party is relatively small, and
c)The administrative costs of [each] individual suit turn out to be quite high.
Since individuals will not pursue claims unless their expected recovery from suing
exceeds their cost of pursuing the suit-and the cost of pursuing suits is expensive,
given lawyers' fees-the class action device is necessary for the tort system to deter
large but dispersed wrongdoings.
Unfortunately, the class action device suffers from inherent difficulties.
First, it is often not the case that claimants are, in actuality, "similarly situated."
Often, various factual differences that might lead to disparate outcomes in
individually litigated claims are glossed over were such claims joined into a class.
Secondly, there is a significant agency problem in class action litigation; since,
by definition, individual claims are small for class litigation, no individual
plaintiff typically has sufficient interest to monitor or control the class attorneys.
At the most basic level, this problem is apparent: with a large, disparate class of
plaintiffs, who negotiates with the attorneys over fees?
One leading class action securities lawyer famously quipped that his was the best
legal practice in the world - he didn't have any clients! In the securities arena,
Congress has tried to improve the agency problem through the Private Securities
Litigation Reform Act of 1995, which gives extra control over securities class
action litigation to large, institutional shareholders. In many other typical
class actions, however, the problem of monitoring the class attorneys remains endemic.
Class action litigation also creates special problems in that it tends to involve
plaintiffs from multiple jurisdictions, if not from all over the nation. Thus,
instead of filing suit at the place of residence or injury-as is normally required
in the typical single plaintiff lawsuit-plaintiffs' attorneys are able to "shop"
class action suits in search of the most favorable forum. Quite predictably, the best
forum winds up being a state "magnet court" well known for its hospitable treatment
of class action lawsuits, what plaintiffs' attorney Dickie Scruggs has called
For instance, Madison County, Illinois - made famous last year by handing out a
$10.1 billion verdict against Philip Morris for allegedly insinuating that its
"light" cigarettes were "safer"-has seen a tremendous upsurge in class action
filings in recent years. From 1998 to 2000, class action filings in Madison County
increased over 1,800%. Over 80% of these suits were brought on behalf of proposed
The costs associated with the proliferation of magnet courts go beyond the increased
settlement values they generate for often tenuous claims. The fact that major
national policy decisions are increasingly being made by county court judges,
who are elected by and accountable to only the several thousand residents of their
home communities, presents a serious threat to the democratic and federalist
principles underlying our constitutional design.
For example, in November 1999, an Illinois judge in a county adjacent to Madison
County awarded a national class of plaintiffs $1.2 billion in a lawsuit against State
Farm Insurance. State Farm had allegedly been "fraudulent" in authorizing the use
of generic parts in automobile repairs, even though using generic parts was not
only allowed but actually required by some states to reduce insurance costs. The
local Illinois judge thus unilaterally overrode the considered policy decisions of
many other states' democratically elected officials.
Finally, because of the sheer size of many class action claims, they can enable
plaintiffs' lawyers to attack businesses and large institutions are hard-pressed
to defend themselves. Facing thousands or even millions of plaintiffs, and watching
their share prices sink with bad publicity, companies settle rather than risk
billions of dollars in punitive damages.
In effect, class actions can enable plaintiffs' attorneys to pursue claims on behalf
of clients with little interest in the case and extract settlements from defendants
whose cases look better on the merits. For example, in one recent case, defendant
corporations settled a class action case for approximately $200 million, even though
a litigation risk expert assessed the probability of the plaintiffs' case winning
at trial at only 7 percent. The expense of litigating the claim-and the high verdict
expected in the unlikely event of loss-gave the plaintiffs' attorneys a very strong
hand despite their weak legal position. In such a context did a Florida judge reject
a securities class action settlement last year by comparing the lawyers in that case
to " 'squeegee boys' who . . . run up to a stopped car, splash soapy water on its
perfectly clean windshield and expect payment for the uninvited service of wiping it
A system that permits the combination of many claims with little attorney oversight,
to be litigated in the friendliest of jurisdictions in the nation, is obviously a
system that needs some reform. Because class action litigation remains necessary for
the reasons described at the outset, the project of responsible reform is to maintain
some ability to aggregate and resolve multiple small claims while ameliorating the
abuses inherent in the process.