Guest Column: Class action “cash cows”

Published 12:00 am Saturday, November 2, 2002


“Class action,” “cash cow,” “goose that laid the golden egg,” “lawsuit lottery.”

These are all phrases describing large monetary payments to the attorneys bringing the lawsuit but seldom offering any or very little actual relief to the alleged victims of the claim.

The trial attorneys bringing a lawsuit can start a victory celebration as soon as a trial judge agrees to certify the cause of action as a class action. Why? They know that some type of settlement will be reached, regardless of the merits of the cause of action. They also know there will be a cash payment for their fees but that the compensation to the “victims” (the members of the class) may or may not include a monetary settlement.

An example: Trial attorney Smith finds a person, Ms. Sue U. Jones, who has been overcharged on her account with a department store for several months. This national chain store manages more than one million charge accounts through its accounting department. Smith files a lawsuit against the department store alleging fraudulent accounting practices regarding his client. Because of the large number of potential account holders with the same overcharge, he requests that the matter be certified as a class action lawsuit.

The department store admits that there was an accounting error and an overcharge occurred on all department accounts, but says the error was corrected. However, the trial lawyer purports that he represents all of the account holders and demands that the matter be handled in a class action settlement. Due to the lawsuit, the department store cannot take the logical action of crediting all accounts with the amount of the overcharge. The trial judge agrees with Smith and issues an order certifying all account holders of the department store as members of the class of victims.

The victorious trial attorney now has the judge issue an order requiring the store to notify all of its account holders of the class action lawsuit. The notificiation must apprise them of the their right to remain as a member of the class and participate in any potential settlement or opt out of the class and pursue the matter at their own expense. The store must pay for this mailout. After consideration of that cost and the cost of a future trial, the department store and Smith reach a proposed settlement.

The store would put up a cash settlement of $4 million, half of which would go to Smith. The remaining $2 million would be set aside to compensate the million potential class members with a credit at the department store for each victim. But each account holder must file his claim with the court and document the particular overcharge to his account. The settlement notices are mailed to the million account holders who must now submit their documented claim to receive a store credit coupon. Only a small number of account holders file a documented claim.

The judge approves the settlement. Trial attorney Smith receives $2 million in attorney fees. His personal client, Ms. Sue U. Jones, scores a monetary settlement as the party bringing the action and representing the other account holders. The account holders submitting documented claims receive department store coupons. The remaining account holders receive nothing.

It is interesting to note that while all account holders were overcharged and paid the department store, only one got a cash settlement. A handful of others received store credit coupons and the remaining account holder are still victims as they received nothing. Of course, trial lawyer Smith hit the “lawsuit lottery,” “cash cow” or “the goose that laid the golden egg.”

This is not a fairy tale. The story is based on an actual lawsuit with the same results.

RON GOMEZ is executive director of Louisiana Citizens Against Lawsuit Abuse.