You may have heard about the attorney who sued his dry cleaner for $67 million for losing his pants, or the movie-goer who sued over her disappointment that “Drive” wasn’t another “Fast and the Furious,” or even the various lawsuits against God. Frivolous lawsuits are a big problem in America, driving up the cost of doing business and transferring massive amounts of wealth to lawyers, too often for little in return. That problem is multiplied in class-action lawsuits, in which plaintiffs claim to act on behalf of thousands, even millions, of other non-consenting individuals.
In class-action lawsuits the threat of astronomical liability drives many defendants to settle — even if the plaintiffs’ chances of success are negligible. But because there’s only so much money that defendants are willing to spend, such nuisance lawsuits often lead to settlements where the attorneys get more than their fair share. It works like a formula: The plaintiffs’ attorneys and the few named representative plaintiffs divvy up the entire cash proceeds, leaving the remainder of the class with a potpourri of worthless window dressing.
At Competitive Enterprise Institute’s Center for Class Action Fairness, we have seen this formula repeat itself time and again.
In one case, L’Oreal agreed to “give” class members new labeling on bottles of shampoo to make sure big-box-store shoppers weren’t deceived into thinking that the products they were buying were only available at salons. In another case, Bluetooth agreed to add warnings instructing consumers not to listen to their headsets at maximum volume for eight hours a day, lest they suffer noise-induced hearing loss at some point in the future. In a third case, Pampers provided on its website the brilliant advice to parents: See your child’s doctor if diaper rash occurs along with fever, blisters, boils, pus or weeping discharge. Amazingly, two of these three settlements — Bluetooth and Pampers — were initially approved before CEI had them repudiated on appeal.
Consider the most recent example: the case of the “footlong” sandwiches sold by the Subway restaurant franchise. Subway agreed to a half million dollars in fees to lawyers to settle a lawsuit alleging that people were shorted some sandwich bread, 11 or so inches rather than 12. Most customers probably didn’t notice or care if their bread was a bit shorter or wider than expected. Nonetheless, tens of millions of people who purchased a six-inch or footlong sub between January 2003 and October 2015 were roped in, mostly unawares, as members of the plaintiff class.
After more than two years of wrangling — most of that time spent negotiating class counsel’s fee award — the plaintiffs and defendants asked the court to sign off on their proposed agreement. Subway also agreed to provide $525,000 in cash, with every cent going to class counsel and the class’s 10 named representatives.
What did the average sandwich eater get in return? Nothing. Right after the social media brouhaha that led to the litigation, Subway voluntarily changed its business policies to require franchisees to keep a measuring tool on the premises, monthly inspections of five loaves of white and five loaves of wheat bread, and certain other trivial best-baking practices. The settlement that followed two years later merely required Subway to keep these practices in place for four years, something they were going to do anyway.
That’s why the CEI stepped in: to challenge this injustice and ask the court to disapprove the settlement.
Last week, the settlement was back in court, before the Seventh Circuit Court of Appeals in Chicago. One of the judges who heard the case, Judge Diane Sykes, aptly called the legal claims “baseless” and “frivolous,” and the settlement “worthless.” She also lambasted as “opportunistic” this “abuse of the legal system,” which amounted to nothing more than a “racket.”
A decision in the Subway case is expected within a year. Regardless of the outcome, something must be done to curb this sort of abuse of America’s class-action system. That system is supposed to protect the little guy, not merely enrich lawyers.
Originally posted to Real Clear Policy.