HLLI director Theodore H. Frank appeared on the Future of Freedom podcast hosted by Scot Bertram on the America’s Talking network. Frank rebutted Prof. Brian Fitzpatrick, who contends that conservatives should prefer class actions to government regulation.
While Frank supports class actions, which ideally allow consumers to aggregate and vindicate their small claims, class action settlements currently fall short. Settlements are rife with self-dealing and gimmicks that deny class members meaningful relief. Moreover, class action lawsuits indiscriminately impose costs on businesses, which fails to deter corporate wrongdoing as Fitzpatrick asserted.
Frank explains:
[16:23] Well, the underlying problem in the class action settlement process is the conflict of interest between the class counsel, the attorney representing the class and class members, and the thousands, hundreds of thousands, millions of consumers or shareholders who are represented by that class counsel involuntarily. And the class counsel has the incentive to set the settlement along with the defendants, who whose main concern is getting out of the lawsuit as cheaply as possible without regard to who gets the money. But the class attorney has the incentive to structure the settlement to create the illusion of relief to maximize how large the fees would be approved by the court while minimizing the actual recovery to the class because every dollar that’s going to the class is a dollar that doesn’t go to the attorney.
…
[18:48] So, for example, we had a settlement over Wesson Oil labeling and the attorney came in and they said “well, we made tens of millions of dollars available to the class plus we got this injunction and our expert says the injunction’s worth 20 million dollars so therefore our seven million dollar fee is reasonable” and we objected and we said “wait a second, the class is only getting less than a million dollars because nobody made a claim and then on top of that the injunction doesn’t actually require the defendant to do anything and is economically worthless to class members much less the class members who were allegedly previously injured by the allegedly defective labeling.” The district court was still inclined to approve the settlement because, well, this litigation had gone on for several years and he wanted to get a case off of his docket.
Fortunately, we got the Ninth Circuit to reverse that but if we had not shown up that settlement would have been rubber stamped.
…
[30:55] If the case is meritorious the government’s probably already on top of that and already insisting on reimbursement so you know Brian absolutely argues for the deterrent value but when the good companies are sued just as often as the bad companies that eliminates the real deterrent value because you’re going to get sued whether you do good or whether you do bad so there’s no incentive to do good. The idea would be that if you do bad you’ll get sued but if you do good you’re going to get sued anyway so that’s not the marginal incentive to be deterred.
Listen to the entire episode on iTunes, Spotify, or YouTube.