Food for thought on class action lawsuits: Who is the real winner?

Are the lawsuits that cost companies millions of dollars each year successful, and do they really uncover losses for consumers?

It seems like there is always chatter about class action lawsuits from the most recent filing by people banning together to fight an injustice or a recent settlement for a group of plaintiffs who have won a prolonged fight against a company or product.  However, while the notion of a class-action lawsuit denotes a fight for the common good, triplepod.com recently posed the question, who is the real winner behind the suits? 

Are the lawsuits that cost companies millions of dollars each year successful, and do they really uncover losses for consumers? Naturally, the answer depends on whom an individual asks and often the intended result of such a lawsuit can be unclear, if not erroneous. 

By definition, a class action is a type of lawsuit in which one or several persons sue on behalf of a larger group of persons. While the issue or dispute of class action lawsuits can vary, two factors are almost always present for every class action: the issues in dispute are common to all members of the class, and the persons affected are so numerous as to make it impracticable to bring them all before the court.

According to triplepundit.com, the point of a class action lawsuit isn’t to enrich the plaintiffs nor even compensate the class members for pain and suffering. The purpose, says 

Michael Kirkpatrick, who serves as an attorney for the nonprofit consumer advocacy organization Public Citizen Litigation Group, is to stop the illegal action and make sure the accused can’t benefit from the monies he or she has acquired in the process.

“[You] are stopping the bad behavior,” Kirkpatrick explains to triplepundit.com, adding to think of class action lawsuit as a community advocacy or public policy initiative rather than a personal lawsuit.

Triplepod.com explored the validity of a class-action lawsuit with anecdotal evidence from a case dating back to 2012. Two years ago, in Florida, a trial court made history. The lawsuit concerned a debt-settlement Persels and Associates in which scores of its attorneys were hit with a class action lawsuit for “onerous, misleading fees” for its promised debt relief.  The suit started out representing 12,000 Florida residents. Kirkpatrick says Persels then requested that the court wrap in the rest of the 125,000 nationwide members. The court agreed and extended the class action to include all plaintiffs from 49 states. Washington State was left out because it had already initiated a class action against Persels under its own weighty consumer protection laws.

When it came time for the case to be settled, Persels claimed that it did not have enough money to do so. The judge accepted Persels financial claims and ruled that the 125,000 class members would receive nothing, and the representing attorneys would be compensated $300,000 for their time and expenses. The court also ordered Persels to make a charity contribution (what is called a cy pres), which is common in cases of negative value.

“But the Persels case isn’t a negative-value case,” Kirkpatrick says. Class members each lost $1,000 or more. The plaintiffs have since won an appeal, and the case has been sent back to the trial courts.

But Washington State saw things differently. According to Kirkpatrick, one reason had to do with an exception that Persels and its affiliated debt reconciliation company, CareFirst, were trying to claim. Debt-settlement laws allow companies like CareFirst that utilize legal services for debt negotiations to exempt legal firms from litigation rulings. The exemption was recognized in Florida, but was rejected in Washington, which said Persels wasn’t providing contracted services; this was its full-time business.

The loss of that exemption weakened Persels’ hand and forced it to negotiate settlements with the class members, who on average saw payments of about $500 each.

 

For more on class action suits, check out the following:

5th Circuit upholds BP oil spill settlement

A key corporate internal investigations challenge: When to make a disclosure?

Seyfarth Shaw releases annual workplace class action lawsuit report

DOJ is aggressively pursuing cartel enforcement

 

Contributing Author

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Alexis Harrison

Alexis Harrison is a Connecticut-based writer and public relations professional whose career spans both print journalism and broadcast news. Alexis started her professional life as...

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