The Real Beneficiaries of Class-Action Settlements

Many of us have found ourselves part of a class-action lawsuit at one time or another. The last class-action lawsuit I found myself a part of was a suit against Epson alleging their printers did not use the entirety of the ink cartridges and so therefore consumers were cheated. The lawsuit was settled and what I got was a $50 credit to use in the Epson.com online store.

OK, I thought, this is nice. But what the credit doesn't cover is shipping charges. Being a person without a credit card to pay shipping, the credit is useless to me. I recently read about another settled lawsuit, this one against Netflix. According to www.boingboing.net, the customers involved in that suit will get a one month, one disc upgrade on their account, which they must be sure to cancel if they do not wish to be charged after the first month. That doesn't sound like a great deal either. So I wondered, who exactly is making money on these class action lawsuits?

If you are thinking the person or persons who initiated the lawsuits, you would be wrong. In the Netflix case, the person who initiated the lawsuit was awarded $2000. There was a large dollar amount earned with this lawsuit, to the tune of $2,528,000. The attorneys who filed the lawsuit are holding the money bag. I thought this must be an aberration, so I did some more checking around. I found that it is common for members of a class action lawsuit to receive a coupon for a free item, nominal amount of money (under ten dollars), or some kind of brief extension of services. Often there are strings attached as with the Netflix settlement. In the lawsuit of Mey v. Herbalife, class representatives (those who initiated the lawsuit) were awarded a total of $20,000 to split between themselves. The maximum amount the class members were able to receive is $75. though the actual amount received by each was likely much less. The attorneys, however, were awarded more than $2,331,000. This amount was awarded along with the actual costs of trying this case.

Since it appears the only ones actually making any money as a result of class action lawsuits are attorneys, I wonder if there is actually a purpose to the lawsuit besides lining the pockets of the attorneys involved. Some say that the lawsuits force companies to change their faulty business practices. I disagree. It is true that sometimes these lawsuits encourage a company to change, but this is often not the case. For instance, a lawsuit against Airborne, a company that markets an over the counter medication purported to "boost your immune system" and "ward off colds" has not caused the company to stop advertising their product as they always have. I have seen recent advertisements where Airborne is trying to convince the consumer that their product will help them not get a cold even though this is the reason for the lawsuit.

Class-action lawsuits make attorneys a lot of money, class-action representatives a little money, and the average consumer very little of anything. Individual lawsuits narrow the gap between what the attorneys and the claimants receive. Individual lawsuits also provide an option for forcing (or at least encouraging) the offending company to change the business practices that caused the lawsuit. Given this information, it seems most logical for the courts to stop accepting class action lawsuits that will accomplish nothing but increasing the wealth of the attorneys involved.

For more information about some of the lawsuits mentioned in this article, see the links below:

Airborne Settlement

Epson Settlement

Herbalife Settlement

Netflix Settlement