NCPA - National Center for Policy Analysis

Two Sides To Class-Action Suits

November 1, 1999

Lawyers' fees and costs sometimes exceed total compensation to members in class-action lawsuits, according to a new study from the Rand Institute for Civil Justice. Researchers who conducted the study recommend that judges take a more active role in settlements of such suits.

The think tank found both positives and negatives at work in class actions:

  • Plaintiffs' lawyers play a role in unearthing and identifying corporate misconduct.
  • But in some cases where settlements require consumers to fill out and send in forms to recover any money, many members of the class apparently feel the sums involved are too small to be worth the trouble.
  • As a result, millions of unclaimed dollars revert to corporate treasuries -- while lawyers, through their fees, become the prime beneficiaries.
  • Such problems arise, Rand found, partly because judges approve settlements without much scrutiny.

In several cases, judges failed to identify the actual losses plaintiffs incurred in deciding whether to approve a settlement. Deborah Hensler, the study's lead author, says that few judges conducted any significant follow-up to see what consumers eventually received from the settlements.

The conclusions were reached after the group conducted intensive case studies of 10 settlements involving everything from questionable insurance practices to contaminated blood products.

Source: Richard S. Schmitt, "Stronger Role Is Urged for Judges in Class Actions," Wall Street Journal, November 1, 1999.


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