ATLANTA (Legal Newsline) - A recent university study offers objective empirical evidence that no-injury class action lawsuits only benefit the attorneys who bring the litigation, leaving little to trickle down to the plaintiffs while raising costs for consumers.
The findings of Emory University School of Law professor Joanna Shepherd are backed by Philadelphia attorney James Beck, who works for Reed Smith's Life Sciences Health Industries Group.
“A class action tax is pretty much being levied on every product,” Beck said. “Businesses pass on these costs to consumers.”
The study found that class members of no-injury class actions typically receive less than nine percent of the total settlement, with nearly 38 percent going to attorneys’ fees and the balance collected by third parties.
“What a colossal waste of time, money and effort,” Beck recently wrote.
He said no bias was evident in the study, which identified class action settlements that occurred between the years 2005 and 2015 and then culled from those settlements in which the plaintiffs sustained no actual harm.
Instead, the key issue identified was a technical statutory violation, such as a case involving the federal Telephone Consumer Protection Act.
“It was as objective as it can be,” Beck said about the study. “It’s not an easy thing to research.”
He concluded that, if anything, the study let class action lawyers off easily because at one point it found that at most, 15 percent of settlement funds potentially available to plaintiffs actually went to the class members.
Beck said that figure related to insurance class actions, however. In no-injury cases, the plaintiffs are often left with much less than 15 percent and sometimes less than one percent, he said.
Shepherd herself concluded in her study of 432 settlements, “A result in which plaintiffs recover less than 10 percent of the award, with the rest going to lawyers or unrelated groups, clearly does not achieve the compensatory goals of class actions.”
Beck’s article explains that a key to understanding where funds go in such class action cases is the legal doctrine of cy pres — that is, when the identified recipient of a settlement cannot be found or is absent, the money is then earmarked to a substitute group in a supposedly similar situation.
That’s where the bulk of settlement funds go, the study found.
Beck believes the third parties that receive this money can become “slush funds” that finance future litigation.
Beck said that the named class members in the lawsuit might each receive $5,000 to $20,000, but that pales in comparison to what plaintiffs’ attorneys receive as a result of class actions.
Beck also sees the current system as self-perpetuating because any particular defendant in such a lawsuit may find it makes more economic sense to seek a settlement rather than continue a court fight. But he sees such settlements as continuing to fuel the current class action system.
He advises defendants and companies to get involved with legal groups that are trying to put an end to the system, adding that the passage of additional legislation may be the answer.
“These things are a drag on the system and the economy,” Beck said. “The amounts of money are obscene.”
Beck noted that amendments to the Federal Rules of Civil Procedure that took effect in December may be a step in the right direction, but none of them address key class action problems.
“They are ignoring the elephant in the room and are going after a few mice,” he said.