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Love ’em or loathe ’em, class-action lawyers wield enormous — and
controversial — influence in business and politics. Critics charge that
class- action lawyers often practice a kind of legal extortion, shaking
down large and small businesses with threats of litigation and, more
often than not, winning generous settlements without even going to
trial. According to critics, plaintiffs suing for damages often receive
precious little, but their lawyers walk away with multimillion dollar
payouts. Companies are put under severe stress, often cutting jobs or
even going bankrupt.Defenders of the class action bar
are equally passionate. They say it is an instrument of social justice
that holds powerful corporations to account, shines a light on
wrongdoing, and brings a measure of recompense to the little guy.
These
conflicting views are likely to get a thorough airing in the coming
months. In Los Angeles, the influential class-action law firm Milberg
Weiss is slated to go on trial in a sweeping fraud and conspiracy
scheme; the firm denies the charges. And in Kentucky, The New York
Times reported last week, three class-action lawyers are under
investigation by a federal grand jury for cheating clients out of
millions of dollars in settlements; the lawyers deny the charges.
But what, precisely, is a class-action lawsuit? How are suits brought, and how are they resolved?
Heard
about controversies over the asbestos industry, tobacco companies, or
the manufacturers of silicone breast implants? All are class- action
cases. Class-action lawsuits can be brought over claims of defective
products or health hazards, allegations of misconduct or
discrimination, or even a decline in a company's share price.
A
class-action lawsuit is a civil case brought by a group of people (the
class) and their lawyers against a common target. That target is
usually a business or industry sector. In the public imagination, big
business is often perceived as bad, even evil. Think of Julia Roberts
in “Erin Brockovich,” John Travolta in “A Civil Action,” Russell Crowe
in “The Insider.” All these movies were based in part on real-life
class action cases.
Thus, class action plays to a powerful
cultural stereotype — the sinister business executive. That stereotype
can exert a significant influence on juries, giving class-action
lawyers an edge in the courtroom.
The theory of “class” action,
as opposed to individual lawsuits, is that the plaintiffs achieve
strength in numbers. Each member of the class believes that the target
has caused him or her a wrong — physical harm, emotional suffering,
financial loss.
In the real-life Erin Brockovich case, for
example, residents of Hinkley, Calif., sued Pacific Gas & Electric,
alleging that a toxin in the groundwater came from company and caused
serious illnesses. PG&E settled for $333 million.
By coming
together as a group, the legal theory goes, the plaintiff class levels
the playing field with powerful corporations. In turn, the defendant
company gets to deal with one lawsuit instead of hundreds or thousands,
and the courts handle one case instead of many.
Nice theory. But how does it play out in the real world?
Class-action
cases can be divided into three overlapping types: mass torts,
traditional class-action cases and securities suits. Mass torts are the
Big Ugly of class action — often involving widespread charges of
wrongdoing based on the genuine suffering of the few and, critics
charge, turned into the legal version of all-out war by avaricious
lawyers.
“Tort” simply means a civil, as opposed to a criminal,
wrong. The terms “tort” and “class action” are often used
interchangeably. “Tort lawyer” and “trial lawyer” are often used to
describe the attorneys who bring class-action suits.
The most
spectacular mass torts cut across wide swaths of time and space and can
involve millions of plaintiffs. There is no real center in mass torts,
no single defining set of “fact patterns.” Asbestos is a good example.
Decades ago, the wide use of asbestos in American industries exposed
some workers to serious health risks. There’s no doubt that people
suffer and die from asbestos-linked mesothelioma, a form of cancer.
Statistics suggest that about 4,000 new cases of mesothelioma appear in
the U.S. each year.
But the rate of mesothelioma-related claims
filed by class-action lawyers dwarfs that figure. According to a 2005
study by the nonpartisan Rand Corp., more than 730,000 claims of health
injury due to asbestos have been filed. Even the lawyer-friendly
American Bar Association has expressed concern, noting in a recent memo
that the claims have “created an enormous backlog in court dockets that
delays awards for severely impaired victims of asbestos exposure.”
The
reason for the litigation explosion? Critics blame unscrupulous lawyers
who search for any connection to asbestos and then go “forum shopping”
for jurisdictions noted for huge payouts. Mississippi is a favored
forum for tort lawyers. In one Mississippi asbestos case, a jury
awarded $25 million each to six former railroad workers, even though
none showed any signs of asbestos-related illness.
Class-action
lawyers operate on “contingency fees.” If they lose, they get little or
nothing. If they win, they win big, usually pocketing about 30 percent
of the money collected.
In the Kentucky case now under federal
investigation, lawyers were entitled to about 33 percent — $65 million
— of the settlement with American Home Products over allegations that
the company’s diet drug, phen-fen, caused heart damage. Instead,
according to The New York Times report, lawyers pocketed about $126
million.
Victory for class-action lawyers can translate into
catastrophe for the losers. Total costs for companies hit by asbestos
litigation now top $70 billion, according to the Rand study, with
nearly $20 billion going to trial lawyers. Seventy-three companies have
filed for bankruptcy.
And that’s just asbestos. According to a
study released Tuesday by the Pacific Research Institute, a
conservative think tank, total annual “static” costs for class action
litigation — fees, settlements, expenses and the like — are $328
billion.
“Lawsuit abuse causes real economic harm,” says Larry
Akey, a spokesman for the U.S. Chamber’s Institute of Legal Reform.
Facing serious mass litigation, “companies hold back on development and
innovation, and divert resources that might go to higher wages or
better benefits.”