Ted's Rant for June 5th, 2001

The Pyramid Scheme Of American Jurisprudence

Ever wonder why our legal system is so kludgy? Why it takes years of wrangling just to get a case to trial? Why the courts are clogged with all manner of idiotic lawsuits filed by whiners trying to make a buck by blaming someone else for their own mess? Why the concept of "justice" has been reduced to a joke told at garden parties? I do not profess to have all the answers, just one.

For many years now, the legal system of the United States has supported and encouraged the development of confidence games, the only purpose of which is to punish big business and make lawyers obscenely rich. Hiding behind the noble concept of preventing fraud, these attorneys actually perpetrate it on the backs of hundreds of thousands of innocent participants, many of whom have no clue that they have even been involved.

I am speaking of the "class action" lawsuit. Originally, this device was inserted into the Federal Civil Procedure code as a way of reducing litigation costs by consolidating claims of multiple plaintiffs, who were damaged in similar fashion by one defendant. The idea was that, because all of the plaintiffs were attempting to prove the same set of facts, it would be more economical to select a few to present their case, and apply the result to all. The "class action", as it came to be known, was intended to be used in cases of product liability or mass injury accidents where hundreds or thousands of people had been grievously harmed. Usually, the result of the trial (or settlement) was that the defendant(s) in question set up a fund whereby individual plaintiffs could receive reimbursement for medical expenses and compensation for their lost income and/or pain and suffering, through a pre-determined formula. This worked well for cases involving such products as Thalydimide, the Dalkon Shield IUD, and Norplant, as well as for large scale incidents such as the collapse of the walkway at the MGM Grand Hotel in Las Vegas, back in the 1980s.

The problem is, through the activity of some clever yet unethical lawyers, the class action has been perverted into a pyramid scheme of the worst kind. Now, there are scores of Plaintiff's lawyers who make a living (and a lot more) by simply seeking out potential class plaintiffs and obtaining huge settlements on their behalf. This works because of another severely abused legal concept, the "contingent fee." This is the arrangement where a lawyer takes a plaintiff's case for a percentage of the money eventually awarded, usually 33%, but sometimes as high as 50%. If used properly, this kind of fee agreement can be a great help in allowing persons of limited means access to the courts. However, when the lawyers in question lose sight of this, and begin to see nothing but dollar signs and yachts in the Caribbean, they quickly defenestrate their ethical standards (if they had any to begin with) and accept whatever they are "due" based purely on the mathematics. One of the most basic concepts in the Rules of Professional Responsibility for attorneys is that fees must be reasonable, and based on the amount of work actually done in a given case.

In the class action, this almost never happens. Instead, what happens is this: the clever lawyers find a person who has done something dumb and lost a small amount of money from it. They used another bank's ATM and got charged a fee, they kept a video rental for an extra day and owed late fees, or whatever. Maybe the company in question did do something bad, like make a defective product or change the terms of a service agreement without telling the customer. In any case, the amount in controversy in the indivdual case is small, often several hundred dollars, but sometimes as little as a few dollars. But the person is pissed. The company must pay and pay dearly for that 5 bucks they're out. It's not right. It's not fair. It's unAmerican. The company is evil incarnate and they must be stopped.

The Clever Lawyer consoles the Pissed Plaintiff. "Don't worry, we'll get you your five bucks. And it won't cost you a dime. And you know what else? I'll bet there are a bunch of other people out there who had the same thing happen to them. It's not right. It's not fair. Now let's gather an army and sue the bastards!"

And so it begins. By the time the suit is filed and the class certified, potentially several hundred thousand people have been added. They are sent a notice telling them that, because they were a customer of ABC company between the years of 1990 and 2000, they are part of a class of plaintiffs. They might get some money eventually. If they don't want it, they can opt out (send in this form). Otherwise, do nothing. Now who in their right mind would opt out?

The end result is always that the lawyers get rich, because the contingent fee is spread out over *all* Plaintiffs, and is based on the total amount of the settlement (or judgment). Even given the average hourly rate of a big New York law firm (around $750 per hour), taking a case of this nature through trial, the attorneys would rack up in the neighborhood of $300,000 in fees. But the fee awards in class actions regularly number in the *millions*. A couple of recent examples:

--plaintiffs sued DirecTV for allegedly deceptive advertising relating to purchase of NFL games on pay-per-view. The settlement resulted in an award of $1000 each to the 2 named plaintiffs. Other class members got between $28 and $100. The lawyers got *$3.7 million.*

--23 class actions against Blockbuster Video, for overcharging on fees for late video rental returns, were settled recently. The plaintiffs will receive coupons for free rentals, and dollar-off coupons for purchases. The lawyers will receive *$9.25 million.*

What precisely is "American" about that? Absolutely nothing, except the legitimization of the public's view of lawyers and the judicial system. Another side effect is that these types of results bleed over into more legitimate lawsuits, such as the recent lawsuit against Iomega for producing defective zip drives which caused crashes and lost data. Damages from these situations can be significant. However, in that case, instead of being compensated for their monetary losses, the Plaintiffs received discounts on future purchases of Iomega products! The Plaintiffs, as their compensation, get to buy more of the same brand of product that caused the problem in the first place? Hands up, who thinks that is a good idea?

Of course, the lawyers still got their millions. These types of cases illustrate the pool of raw sewage into which our legal system has sunk. All it takes is one set of plaintiffs. Their lawyers pass on the details to their buddies in other jurisdictions, and they jump on the bandwagon and secure their own "class", just so they can share in the fee. What is most preposterous about this is that the public turns such a blind eye. Instead of an outcry, the response is usually that the "mean nasty big corporation" got what was coming to it. But that rarely happens either. In fact, in relation to the Blockbuster case, the company's general counsel assured its investors that most of the $460 million issued in coupons would never be redeemed. He estimated the company would lose only about $45 million, describing that amount as a "drop in the bucket."

So, the result is: a) the company gets away with fraud (providing that it actually did something wrong in the first place, which is not always the case); b) the individual plaintiffs, the ones who were ostensibly defrauded, get screwed again; c) the lawyers buy Porsches and summer homes in the Cayman Islands.

But hey, I suppose that's the American Way.


This rant solely reflects the opinion of the author, probably while he was half asleep, drunk, or otherwise incapacitated. It does not necessarily reflect the actual opinion of DEI, its associates, or possibly the author in a more conscious state. Hate mail will be prosecuted. Constructive criticism may be posted or ignored. Have a nice day.

Seth B. Noble - Rant - sbnoble DataExpedition.com - June 5, 2001