What is a class action?
A class action is a mass litigation proceeding where one or a couple people who have similar wrongs done to them file litigation on behalf of themselves AND ALL OTHERS “similarly situated” to them. (i.e. Everyone else who has also been harmed like them.)
Class actions are particularly beneficial to consumers. Why?
This is something that I think is best illustrated with two super simple examples:
Simple Example One: Checking Account
Let’s say a particular large bank has 1 million personal checking accounts and that bank arbitrarily instills a $1/month online usage fee that is not in the terms and conditions agreed upon opening the accounts. As a holder of one of the million personal checking accounts you dispute the $1 fee to the bank. The bank responds with “tough luck.” Now are you going to hire an attorney at an average hourly rate of $350/hour to retrieve the $1/month the bank took from you? No, because that doesn’t make economic sense. However, the bank did not just do this to you. They did it to all 1 million personal checking account holders. The result: the bank is clearly $1 million PER MONTH more than they are entitled to! This is where class actions are the perfect vehicle for justice.
Instead of paying an attorney to go after your $1/month, an attorney will now be able to take the case on a contingent basis on behalf of you (the class representative) and everyone else (the class members) who has also had $1/month wrongly taken from them. In essence, class actions level the planning field and create incentives to hold companies, like this hypothetical bank, accountable for the wrongs they commit.
Simple Example Two: Incorrect Labeling
As consumers we rely on the labels on items we purchase to inform us so we can make decision on whether or not to purchase the product. So let’s say there is a company who sells all natural, organic granola bars for $4 each. You rely on the truth of the label that the granola bar is made from all natural, organic ingredients to make your purchase decision. After you buy the bar and eat it, you discover that the ingredients were not all natural nor organic – in essence you bought a processed granola bar in a deceiving package. Are you going to sue to get your $4 back? Nope, because much like the example above, it does not make economic sense. Once again, this is where class action come into play. A class action levels the playing field and creates incentives for consumers to hold companies, like the one in this hypothetical, accountable. Instead of paying an attorney hourly to retrieve your $4, you, as the class representative, and the attorney can go forward on behalf of everyone who purchased those deceitfully labeled granola bars.
But its seems like the attorneys are the ones who end up making all the money?
You are not wrong, it does SEEM that way. And it is true that the attorneys do usually make a lot of money in class action cases. BUT it is because they are representing everyone in the class and are doing so on a contingent basis. These types of cases take attorneys hundreds and hundreds of hours to litigate and manage. The attorneys often advance several thousands of dollars in expenses and risk losing that money if the case is lost. In addition, the court has to approve the attorneys’ fees in class action cases and, as such, acts as a check system to keep the balance in play (i.e. an attorney won’t get millions of dollars for a case that took him a couple dozen hours). So yes, while you may only get $1 or $2 as a class member for the $4 granola bar you purchased and the attorney may get a couple million, it is all about perspective. The class representative (you) and the entire class (often thousands of people who are called class members) are being compensated as a result of that attorney’s work. Work on a case that individually would not be brought. And without bringing the case, the company would continue to profit from their deceitful labels and continue to harm consumers.
Quick Note on the difference between a class representative and a class member:
Class representatives are the people (or person) who brings the lawsuit on behalf of everyone. Notably, the class representative does receive extra compensation for their time and effort on behalf of the class. A class member is someone who has also had the same wrong as the class representative but they don’t participate in the litigation of the case. In most circumstances, class members have no idea the case is even being pursued until they get a notice. Other than fill out a claim information card, class members typically do not do anything else.
All in all, class actions often get a bad wrap as attorney money grabs but they are, in fact, a great way to pursue universal justice for wrongs done to a large group of people. They provide economic incentives for wrongs that would otherwise not be worth pursuing.
As consumers it is our job to “police” the market place for companies that inevitably deceive and harm us (often in smaller dollar amounts like discussed above). In general, we rely on things like the Food and Drug Administration (FDA) to protect us from those deceptions but in reality – companies often get around regulations or false advertising of their products. When that happens it is our responsibility to hold them accountable and ultimately prevent future harm. And the best vehicle to do that in is a class action.
But the product only cost me $5, who cares?
Viewed in isolation, we agree. This is also why individually no one would ever bother hiring an attorney at $350/hour to pursue minimal damage. However, when you consider the fact that you are one of thousands (or even millions) of people deceived….that $5 adds up really quickly. It is here that class actions come into play and hold those companies accountable.
Note: Companies, in general, hate class actions for this reason and often include class action waivers whenever they can. Class action waivers help them continue to deceive and wrong people. Like discussed above, no one is going to sue for damages of $5 and companies rely on that to continue to harm consumers to their financial advantage.