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Monday, May 7, 2012

New York Times "The Haggler" Column Muses on Class Actions

SouqDavid Segal has provided blog fodder for us before, both in his role as the bête noire of the legal profession, and in his more mild-mannered guise as author of the New York Times' column "The Haggler" (lacking a public domain image depicing haggling, we have settled from an image from an open-air market, a prime locus for haggling).  Nancy Kim posted most recently on the "The Haggler" column.  We have posted on Mr. Segal's smack-downs on law schools here and here.  Sunday's column is, once again, right up our alley.

Its topic is the fall-out from the Supreme Court's recent trilogy of arbitration decisions about which we have blogged incessantly.  Mr. Segal's column will add little to our readers' knowledge base on the subject, but it's nice to have a popular column that provides a useful recap of the state of play.  The main ground covered in Sunday's "The Haggler" can be summarized as follows:

  • Post Concepcion, most consumer class actions are being dismissed in favor of arbitration at which class action resolution is not available;
  • Businesses oppose class actions on the ground that they result in "settlements in which lawyers take home millions in fees and consumers wind up with piddling sums, often in the form of coupons";
  • According to the Camber of Commerce, "the class-action system is flawed because it is designed by and for lawyers," but arbitration "can work";
  • However, as Judge Posner pointed out, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

At this point, "The Haggler," having satisfied journalistic conventions by citing arguments from both sides, throws up his hands and suggests that there must be some better option. A fair arbitration system might work, but many people do not even know that they are entitled to make a claim, and the class action option enlightens them.

"The Haggler" misses the point.  The problem with $30 claims is not that people do not know that they have them but that they have no incentive to bring them even if they know.  Even if the arbitrataion is paid for by the defendant, it's just not worth the time.  Moreover, class actions are a public good in that they hold corporate defendants accountable in ways that matter and can have prospective effects that help plaintiffs and others similarly situated even if the plaintiffs in the class actions end up only with coupons.  Plaintiffs are not the ones complaining, litigating and lobbying to get rid of class actions.  

The argument that the class action system is flawed because it is designed by and for lawyers is specious.  Arbitration clauses are also designed by lawyers, and where exactly is the evidence that the class action system was desigend for lawyers?  Was the criminal justice system designed for lawyers because they get paid to litigate criminal proceedings, while neither crime victims nor criminal defendants stand to gain?

[JT]

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Comments

I think you miss how tone deaf your argument sounds. The fundamental reality is this (a) I am a consumer (b) I have suffered an injury (c) All I got was a damn coupon and the other guys raked in millions. You're right that it's not in my interest to sue for $30. But it's not in my self-interest to be part of a suit so that some damn lawyer can make $22 million dollars and I get $2, either.

I'll always consider class actions to be a lawyers scam on the public irrespective of whether it was designed that way or not. Follow the money. The overwhelming majority of the money goes into the lawyer's pocket. I understand the economics of the class action suit. I get the risk factor. But in the big picture it looks wrong.

If class actions are a public good then let the institution primarily responsible for the public good deal with it, the Executive branch. I like Obama's approach with a consumer protection agency. Only it needs real teeth and the one we got doesn't have that. But I think long term that's the better direction to go than class actions.

Posted by: Daniel | May 7, 2012 10:12:37 PM

Tone deaf perhaps, Daniel. You are angry and you want to stay angry and nothing I can write can change that. But why are you angry?

I'm a consumer too, and I have suffered many a trifling injustice about which I do not care to sue. I am not sure where the $22 million figure comes from, but class action settlements are approved by courts. Presumably, the attorney gets $22 million because a court has found that she and her firm did $22 million worth of work. I, by contrast, do not feel entitled to anything more than the piddling sum not worth suing over and some mechanism to prevent the corporation from doing it again. I valued the law suit at or near zero, so a coupon is just fine with me, since someone else called the corporation to account and it took up none of my time or energy. I do regard that result as in my long-term self-interest.

I agree with you that a consumer protection agency modeled on what President Obama has proposed has efficiency advantages over class action suits. However, just as we have found that we need private attorneys general to enforce the securities laws for which the SEC was designed to be the primary enforcement agency, I think we will find that the job of consumer protection is too big for any federal agency to handle. Class actions -- or the possibility of class actions -- are still a valuable tool.

Posted by: Jeremy Telman | May 8, 2012 4:22:43 AM

I do think there are problems with the class action lawsuit but without it, I fear a lack of incentives on the part of businesses to address "minor" injuries that, in the aggregate, add up to a lot. Perhaps we could put some kind of cap on lawyers' fees and create some kind of fund instead that would pay for minor claims or some kind of fast track system to deal with these very small claims. There may even be a way to come up with a computer program to deal with these - if there are X number of complaints about the same thing (over charge of say $3.00), it would be presumed that the company made a mistake and would have to pay that amount to each consumer without forcing that consumer to "prove" it. If the company contests, then the plaintiffs could go ahead with litigation. Just some off the cuff suggestions. Thanks for the post, Jeremy.

Posted by: Nancy Kim | May 8, 2012 2:17:39 PM

Nancy,

I think your solution may work for some cases, but I do not think it would work for the typical case. In many cases, only an attorney (incentivized by the prospect of fees) could identify the nature of the wrong. For example, perhaps a telecommunications company is charging fees in excess of the maximum allowed under federal regulations; perhaps a lender is not complying with the Truth in Lending Act and as a result is hiding fees in ways that the typical borrower would not notice even upon inspection; perhaps an employer underpays its female employees but because they do not have information about their male peers' salaries, they do not know that they are the victims of gender bias.

I should say that when I was in practice I defended against class actions, and I never had the impression that the class action plaintiffs attorneys who were my adversaries were particularly virtuous as a group. Nonetheless, in the aggregate, I think they serve an important role in keeping companies honest.

Posted by: Jeremy Telman | May 8, 2012 3:40:14 PM

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