The Senate this week voted down a new rule that would have
expanded the range of class action lawsuits allowed. Democrats were (predictably) outraged, claiming that it was a giveaway to Wall Street and big corporations. No one
of course mentioned how this system really works.
I have been part of several class action lawsuits – not that
I entered them voluntarily, but I got notices in the mail advising me that
since I had purchased this or that item in the past I was now automatically
part of a class action lawsuit against the manufacturer unless I actively
withdrew. And I eventually actually got settlement
payments, the largest of which, if I recall correctly, was under $5. The lawyers who filed these cases, if I
recall correctly, got fees ranging from about $1.5 million to $2.5 million.
The scam runs like this: find a manufacturer who has committed
some sort of error, initiate a class action lawsuit in one of the jurisdictions
that is especially friendly to such suits, get a settlement and then petition
the court for extravagant legal fees, which are usually approved. I’d like to
have a job where I could charge $500/hour for my time! Some law firms make a
steady and highly profitable business of this.
Manufacturers of course pass on their costs to their customers in higher
prices.
So who really got hurt by rejecting this proposed rule were
the few highly profitable law firms who make their living by milking companies with
class action lawsuits (just under 70% of US companies get one or more class action
lawsuits each year – it’s big business for the lawyers). Of course no one wants
to openly admit this, so Democrats spin the story by claiming Wall Street and
corporations are the real winners. Yet more Washington political spin.
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