1.2 The Need for Consumer Class Actions
A class action is an exception to the general rule that litigation is conducted by and on behalf of individual named parties only.2 There are many advantages to the unitary resolution of multiple claims by means of class action procedure. In theory, one benefit of the class procedure is its efficiency: adjudication of a properly constituted class action “saves the resources of both the courts and the parties by permitting an issue potentially affecting every [class member] to be litigated in an economical fashion.”3
In reality, a consumer class action is rarely filed to supplant numerous individual lawsuits; rather, class actions are often the only economically viable way to provide legal representation for clients with relatively small claims.
The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor.4
In cases that involve small individual damages, there will never be a recovery for anyone at any time in the absence of a class action. As Judge Richard Posner succinctly put it: “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.”5
Without the legal restraint imposed by a lawsuit, a defendant that has obtained a sizeable windfall wrongly by stealing small sums of money from a large group of people will continue doing business in the future as in the past. No attorney will file a lawsuit for any one person for a wrongful $30 fee a company might charge, but if the company charges one million people that wrongful $30 fee—and the claims can be handled in a single suit—the case starts to look like a matter worthy of attention. Class actions address the unlikelihood that people will pursue small claims by aggregating relatively small sums into a total amount worth an attorney’s time and effort.
Even if some individual claims are filed, a company may treat small individual judgments as a cost of doing business and continue to engage in illegal conduct with its other customers because there is no economic disincentive to stop wrongful conduct if a profit is to be made. On the other hand, a company will take much more seriously the threat of a classwide judgment, especially if the company will be liable for statutory damages, punitive damages, and/or attorney fees in addition to actual damages.
Thus, there is a societal benefit from class actions. First, class actions are far more likely to result in recoveries for a large proportion of the people harmed by a particular practice, rather than the tiny fraction who might pursue their own cases and find attorneys willing to represent them. Second, even if the benefit to each individual class member is nominal, forcing the defendant to disgorge wrongfully obtained funds creates a financial disincentive for that defendant to engage in wrongful conduct in the future. Third, a message is sent out to other potential defendants, usually corporations, that the practice for which suit was filed is not financially lucrative, should they be considering similar conduct. Consequently, a class action may not only correct the defendant’s illegal behavior but may modify that of other companies nationwide who engage in the same practice.
The continued availability of the class action procedure is an access to justice issue. In 1973, a highly respected jurist, Judge Jack B. Weinstein, stated:
It seems to me that this matter touches on the credibility of our judicial system. Either we are committed to make reasonable efforts to provide a forum for the adjudication of disputes involving all our citizens—including those deprived of human rights, consumers who overpay for products because of antitrust violations, and investors who are victimized by misleading information—or we are not. There are those who will not ignore the irony of courts ready to imprison a man who steals some goods in interstate commerce, while unwilling to grant a civil remedy against a corporation, which has benefitted to the extent of many millions of dollars from collusive, illegal pricing of goods.6
The logic of Judge Weinstein’s statement above is even more relevant today than it was in 1973. As noted in Shaw v. Toshiba America Information Systems, “[i]t is now apparent that the increasing complexity and urbanization of modern American Society has tremendously magnified the importance of a class action as a procedural device for resolving disputes affecting numerous people.”7
Class actions are critical in labor, civil rights, and many other contexts, but consumer claims provide perhaps the quintessential example of large-scale illegal profit-seeking behavior by firms that nevertheless do not financially harm any individual enough to induce litigation in the absence of the class action device. “Class actions are often the most suitable method for resolving suits to enforce compliance with consumer protection laws because the awards in an individual case are usually too small to encourage the lone consumer to file suit.”8 As another court put it:
In a large and impersonal society, class actions are often the last barricade of consumer protection. . . . “To consumerists, the consumer class action is an inviting procedural device to cope with frauds causing small damages to large groups. The slight loss to the individual, when aggregated in the coffers of the wrongdoer, results in gains which are both handsome and tempting. The alternatives to the class action—private suits or governmental actions—have been so often found wanting in controlling consumer frauds that not even the ardent critics of class actions seriously contend that they are truly effective. The consumer class action, when brought by those who have no other avenue of legal redress, provides restitution to the injured, and deterrence of the wrongdoer.”9
Instead of sending clients to small claims courts on their own, an attorney can bring a class action, which better protects the individual clients but and numerous other consumers victimized by the same practice. A class need not include thousands of members. For example, it could be a group of thirty or forty students enrolled in the same vocational school or fifty residents of a manufactured-home park. Class actions also provide legal representation for many class members who would never file a case on their own because they are ignorant of their rights, intimidated by the legal system, or barred by the economics of litigation.
While critics have asserted that class actions are inappropriate when individual recoveries are very small and the only individuals who recover a significant amount are the plaintiff’s attorneys,10 such critics miss—or willfully ignore—the central importance of class actions as a deterrent to illegal conduct. As the NACA guidelines explain:
The importance of deterrence in consumer cases is shown by the frequency with which Congress and the state legislatures have included fee-shifting provisions in consumer protection statutes. By shifting fees, Congress and the state legislatures encourage enforcement of consumer laws through a system of “private attorneys general,” even where the amount of damages at stake would be too small to support litigation if the plaintiff had to absorb the cost of attorney fees. See, e.g., de Jesus v. Banco Popular de Puerto Rico, 918 F.2d 232, 234 (1st Cir. 1990) (construing the Truth in Lending Act). This recognition of the importance of enforcing consumer protection laws, even in cases where the amount of damage to an individual consumer is small, is at least as applicable in the class action context as in the individual case context.
NACA strongly believes that one small claims consumer class action that provides real relief to thousands of consumers will always be superior to the theoretical potential to litigate thousands of individual small lawsuits. Such a theoretical potential will never become a reality when the individual claims are small. In our society, consumers engage in far more economic transactions than previously and do so with nationwide or regional companies using take-it-or-leave-it standardized forms, contracts, and sales methods. To combat abuses in these practices, class actions continue to be essential.
Using class actions to deter widespread consumer fraud may be better than the only practical alternative: punitive damage awards. If small compensation class actions are discouraged, the alternative will be to seek large punitive damage awards on behalf of a few consumers who, while litigating relatively small individual claims, can prove willful, wide-spread misconduct by defendants. While both alternatives may extract large payments from defendants, class actions distribute that payment to the victims, rather than providing relief to the few consumers who prevailed in their individual punitive damage claims.11
The NACA guidelines also make this critical point:
[W]hat may seem “small” to those of us fortunate enough to be lawyers and judges may be significant to those consumers whose annual incomes are at or below the poverty level. A check for $100.00 represents one percent of the total annual poverty guideline allotment for one person under the United States Department of Health and Human Services 2005 poverty guidelines. 70 Fed. Reg. 8373, 8374 (Feb. 18, 2005). For a low-income consumer, that “trivial” $100.00 individual recovery has significant value, equivalent, as a percentage of income, to a $1,000 recovery by a single person earning $100,000 a year.12
Perhaps the best evidence for the power and importance of class actions to policing businesses is the energy and resources businesses have poured into weakening or limiting the availability of the procedure. Corporations have engaged in systematic efforts through public relations campaigns, political donations, lobbying, litigation strategy and other means to convince judges, lawmakers, and the public that there is excessive, non-meritorious class litigation activity occurring that merits further restrictions on the procedure.13 Most recently, the assault has extended not only to certification issues but to groups that would benefit consumers through cy pres awards made from the proceeds of class settlements.
Of course, collusive settlements and unethical behavior by class action attorneys do sometimes occur. However, Federal Rule of Civil Procedure 23, limitations on coupon settlements, enforcement of ethical rules, judicial oversight of litigation and settlements, and other protections (including the voluntary standards expressed in the NACA guidelines) exist to prevent and counteract these problems. As the NACA guidelines state:
While class actions, like any procedures, may sometimes be abused, protections against abuse already exist. Courts may and do refuse to allow classes to be certified where the potential recovery to each consumer is nominal or where a distribution would consume such substantial time and expense that the class members are unlikely to receive any appreciable benefit. See, e.g., Buchet v. ITT Consumer Financial Corp., 845 F. Supp. 684 (D. Minn. 1994); Blue Chip Stamps v. Superior Court, 18 Cal. 3d 381, 386 (1976); City of San Jose v. Superior Court, 12 Cal. 3d 447, 459 (1974). Further protections are found in the requirements that courts must find any settlements to be fair and reasonable to the members of the class, F.R. Civ. P. 23(e), and that courts must approve attorney fees.14
Unfortunately, efforts by business interests have been partially successful, leading to increasing barriers to successful class action litigation. These barriers are outlined in the following section.
2 Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 131 S. Ct. 2541, 2550, 180 L. Ed. 2d 374 (2011); Califano v. Yamasaki, 442 U.S. 682, 700–701, 99 S. Ct. 2545, 61 L. Ed. 2d 176 (1979); Hansberry v. Lee, 311 U.S. 32, 61 S. Ct. 115, 85 L. Ed. 2d 22 (1940). See also Int’l Shoe Co. v. Washington, 362 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945); Shaw v. Toshiba Am. Info. Sys., Inc., 91 F. Supp. 2d 942, 946–951 (E.D. Tex. 2000) (discussing in detail the historical evolution of class actions).
3 Califano v. Yamasaki, 442 U.S. 682, 701, 99 S. Ct. 2545, 2364, 61 L. Ed. 2d 176 (1979).
4 Amchem Prods. v. Windsor, 521 U.S. 591, 117 S. Ct. 2231, 138 L. Ed. 2d 689, 709 (1997) (quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)); In re AT&T Mobility Wireless Data Servs. Sales Litig., 270 F.R.D. 330, 339 (N.D. Ill. 2010).
5 Carnegie v. Household Int’l, Inc., 376 F.3d 656, 661 (7th Cir. 2004).
6 Symposium Before the Judicial Conference of the Fifth Circuit, 58 F.R.D. 299, 305 (1973) (excerpts). In Eisen v. Carlisle & Jacquelin, Justice Douglas’ noted that “[t]he class action is one of the few legal remedies the small claimant has against those who command the status quo.” 417 U.S. 156, 186, 94 S. Ct. 2140, 40 L. Ed. 2d 732 (1974) (Douglas, J., dissenting).
7 Shaw v. Toshiba Am. Info. Sys., 91 F. Supp. 2d 942, 951 (E.D. Tex. 2000) (citing Gallano v. Running, 353 A.2d 158, 161 (1976)).
8 Carr v. Trans Union Corp., 1995 WL 20865 (E.D. Pa. Jan. 12, 1995) (class certified based on allegation of misleading debt collection notices). See also Amchem Prods. v. Windsor, 521 U.S. 591, 617, 117 S. Ct. 2231, 2246, 138 L. Ed. 2d 689, 709 (1997) (discussing “negative value” suits).
9 Eshaghi v. Hanley Dawson Cadillac Co., 574 N.E.2d 760, 766 (Ill. App. Ct. 1991) (quoting Hoover v. May Dep’t Stores Co., 378 N.E.2d 762, 768 (Ill. App. Ct. 1978)).
10 See, e.g., Max Boot, Stop Appeasing The Class Action Monster, Wall St. J. (May 8, 1996). But see Thomas E. Willging & Shannon R. Wheatman, Fed. Judicial Ctr., Attorney Reports on the Impact of Amchem and Ortiz on Choice of a Federal or State Forum in Class Action Litigation: Report to the Advisory Committee on Civil Rules Regarding a Case-Based Survey of Attorneys (Apr. 2004) (study found attorney fees, as a percentage of class action recoveries, have not increased substantially since 1996); Theodore Eisenberg & Geoffrey P. Miller, Attorney Fees in Class Action Settlements: An Empirical Study, 1 J. Empirical Legal Stud., No. 1, at 27–78 (Mar. 2004) (finding no robust evidence that either recoveries for plaintiffs or fees of their attorneys increased over time).
The report by the Federal Judicial Center is available online as companion material to this treatise.
11 Nat’l Ass’n of Consumer Advocates, Standards and Guidelines for Litigating and Settling Consumer Class Actions, Guideline 1, para. B (3d ed. 2014), reprinted at Appx. D, infra.
13 For example, the National Chamber Litigation Center, an affiliate of the U.S. Chamber of Commerce, regularly files amicus briefs that attempt to narrow the availability of class relief. See Nat’l Chamber Litig. Ctr., Class Actions, available at www.chamberlitigation.com. See also Class Actions Seven Years After the Class Action Fairness Act: Hearing Before the Subcomm. on the Const. of H. Comm. on the Judiciary, 112th Cong. 37 (June 1, 2012) (statement of John H. Beisner on Behalf of the U.S. Chamber Institute for Legal Reform).
14 Nat’l Ass’n of Consumer Advocates, Standards and Guidelines for Litigating and Settling Consumer Class Actions, Guideline 1, para. B (3d ed. 2014), reprinted at Appx. D, infra.