Class Action: A Way to Beat the Bureaucracies Without Increasing Them

...I cannot yet conclude that the workload of federal trial judges has reached a level which can fairly be termed unreasonable or that cannot be dealt with by modest expansions of personnel...

...The critics of consumer class actions also claim that it will often be impossible to redistribute a class recovery to the affected consumers because most cash customers (unlike the credit purchasers in the Montgomery Ward case or the truck owners in the GM action) cannot be identified or located...

...They administer the distribution of huge estates to large numbers of people and have even supervised the operation of large corporations, such as the bankrupt Penn Central Railroad...

...The consequences of awarding damages to the public at large are such a serious threat to the stability of the national economy that most of these cases have been laughed out of court...

...either budgetary constraints or political pressure could prevent the government from starting its own case...

...The fact that use of this particular device, unlike so many others, is not dependent on agency appropriations or bureaucratic action has caused it to attract the fervent support of those who distrust big government as well as big business...

...In New York an appellate court recently held that Macy’s charge customers who had been cheated by the store’s computation methods could not sue as a class...

...During the campaign McGovern made class actions a cornerstone of his consumer platform...

...So far, the Nixon-business axis has squelched the bills...

...Class actions threaten to provide consumers with muscle...

...The Eckhardt bill, for example, permits federal court class actions for mass violations of any state law, provided that each class member has at least $10 in claimed damages...

...Only those few who know their rights and who sue as a matter of principle (even though it costs them money) or are willing and able to represent themselves in a small claims court, will bother...

...Yes, class actions might add to the burdens of the court,” concedes the Senate Commerce Committee, “but the answer, in a democracy, cannot lie in the denial of citizen access to the courts...

...In a class action, on the other hand, one person is permitted to sue for himself and as the representative of every member of a large group of injured persons...

...In a bureaucratized society most individual and corporate relationships are regulated by rules of some kind...

...Class action proponents concede that some unwarranted suits will be filed...

...Individuals can survive the frustration-not every personal grievance is worthy of legal protectionbut a society that systematically extends the promise of legal rights on the one hand while barring their assertion with the other is asking for trouble...

...Businessmen, too, have gotten into the act...

...Of course, it was impossible to know who had ridden in the taxicabs, or how much any particular rider had been overcharged, so the company agreed, in a settlement stipulation, to set aside $1.2 million...

...New class-action legislation is needed, particularly for consumer class actions, because consumer rights (unlike those of minority groups or most business competitors and stockholders) are usually based on state, rather than federal law, and suits to enforce them must be brought in state courts...

...In 1967, for example, the Montgomery Ward mail order company offered to sell life insurance to its charge customers...

...Philip Schragand Michael Meltsner teach law at Columbia University...

...But then Mrs...

...Nevertheless, aside from industry objection to giving consumers any really big stick, Burger identified the real problem with the class action and the source of much of the judicial hostility encountered by lawyers who use it: a fear that federal judges will be overwhelmed by the pressures of attempting to dispense justice to everyone who has a small monetary claim...

...In 1972, all of the Democratic senators who sought the party’s presidential nomination were co-sponsors of a strong consumer class-action bill...

...They claimed that GM was...

...In antitrust and stock-fraud class actions, for example, the courts have typically awarded large fees to attorneys who have successfully represented an entire class...

...When the voters who went to court prevailed, they won a complete statewide reapportionment that substantially equalized the weight of all votes throughout the state-not just a court order increasing the value of their individual votes...

...Class action advocates also maintain that court disciplinary panels and bar association grievance committees are adequate to deal with misconduct by lawyers...

...They reason that understaffed and underfunded government agencies will continue to be unable to handle the millions of consumer complaints that arise every year and, therefore, that passage of legislation granting new consumer rights will aid only those few consumers who can sue...

...As a result, conservationists have downgraded the importance of the class action for damages...

...Defendants, faced with massive class actions, will invariably choose to settle rather than litigate,” says Handler...

...Although many improvements have been made, courts have never excelled at managing the administrative and housekeeping details of their own courthouses, much less crowded dockets...

...The Supreme Court’s 1954 school desegregation decision (Brown v. Board of Education) was a class action brought by a handful of black students and their parents on behalf of black public school children in Topeka, Kansas, and class actions remain an important civil rights weapon...

...They decide antitrust cases which take years to prepare, require sophisticated market analyses, and generate transcripts of tens of thousands of pages...

...One of the judges who ruled on the case described the class action as “an idea whose time may have come, but perhaps unfortunately, not in the courts of the state of New York...

...Class action supporters reply that it is better to enlarge the court system than to deny cheated consumers the right to recover millions or even billions of dollars...

...We should look more to state courts familiar with local conditions and local problems...

...But once the consumer protection movement began to use the device, class actions suddenly became highly controversial...

...Company .executives must have chuckled over that one: no truck owner was likely to sue the auto giant, because a lawsuit would cost more than the $500 required to put safe wheels on a truck...

...Shortly after the suit was brought, GM agreed to offer free wheel replacement to 40,000 of the truck owners...

...It would be impossible for LDF to hire the lawyers necessary to represent each of these employees individually.’’ Beating the Brokers The landmark 1962 voting decision that signalled the Supreme Court’s entry into the area of legislative reapportionment (Baker v. Caw) was also brought as a class action...

...Not so, consumer spokesmen...

...If the claims pressed by the consumers who sue are proved unfounded, no further lawsuit can be brought by any of the class members, but-and this is the heart of the matter-if the representatives win, every member of the class is entitled to recover from the losing party...

...GM urged prompt replacement -at the owner’s expense...

...It is at least arguable that a federal judiciary absorbed with the sorts of claims that arise between consumers, manufacturers, and dealers would be less sensitive to human rights...

...Based on personal experience and observation of federal judges...

...While every state has a law that theoretically allows the bringing of class actions, only California and Illinois have encouraged them, and in many states the courts have interpreted class-action statutes in so meager a way as to render them useless...

...The store stopped the practice and gave credits totalling $595,884.75 to 11 1,465 customers...

...Benjamin Kaplan, a law professor who is considered the leading authority on such suits, has long insisted that class actions have the potential to “enhance the...

...By permitting thousands or even millions of similarly harmed individuals to combine their claims in a single lawsuit, the class action turns the economics of litigation upside down...

...The class-action device, on the other hand, is a direct remedy...

...For four years, Representative Robert C. Eckhardt and Senator Warren Magnusen have been pressing for passage of a bill to liberalize the class-action procedure, and have provoked the combined opposition of the Nixon Administration and virtually every industrial organization in the country...

...If, as seems inevitable, nofault insurance becomes a reality, lawyers who now thrive on automobile accident cases will be looking for new lines of work, and some will probably be tempted by the prospects of substantial legal fees to work for consumers...

...1 arge amounts of money from swindlers to victims and forcing companies to scrutinize their own practices more carefully, class actions could potentially enlist a new army of lawyers in the cause of consumer protection...

...They argue that the threat of mu lti-million dollar lawsuits will induce industry to abandon shoddy production and merchandising techniques...

...As all states have laws that entitle consumers to refunds if they have been misled or have bought defective merchandise, multiple abuses of consumers would normally become the subject of federal class actions...

...While present taxi riders will not overlap precisely with those who were cheated in the mid1960s, the illegal profits will go to a fairly similar group of riders rather than be retained by the company...

...Virginia H. Knauer, the President’s Special Assistant for Consumer Affairs, testified that she “wholeheartedly support[edl the principle of consumer class actions set out in [ Congressman Eckhardt ’s I bill...

...According to veteran NAACP Legal Defense Fund (LDF) lawyer James M. Nabrit, 111, “Class actions are absolutely essential to civil rights enforcement for they enable us to assert the rights of an entire black community in a single lawsuit...

...The class action reverses the pattern...

...The trickle of appropriations to such agencies as the Federal Trade Commission ensured that few businesses had cause for concern...

...The courts, they say, keep close watch over class actions...

...I can do no more than emphasize that the Federal court system is for a limited purpose...

...He merely finds a lawyer willing to accept his case for a share of the aggregate recovery (contingent on success, as in an automobile accident case) and marches off to court...

...Business opposition hardened further when environmentalists sought billion-dollar recoveries to compensate the public for damages suffered because of industrial pollution...

...In the usual lawsuit, individuals or corporations assert their own legal claims...

...The law proposed by Eckhardt and Magnuson would enable consumers to sue in the federal courts, which have traditionally been much more hospitable to class suits than have their state counterparts...

...opportunities of hitherto powerless groups...

...Victimized buyers and the public in general, rather than erring businessmen, pay the penalty for poor workmanship and deceptive selling...

...it tells [the consumer] to spend thousands of dollars on a lawsuit to recover hundreds of dollars which he lost in a swindle...

...Everyone suffers from dirty air and foul water...

...Because the legal system does not provide an economical remedy for the little man, manufacturers and retailers have no financial incentive to abandon illegal practices...

...As long as class actions were brought by small companies, investors, or civil rights groups, the business community grudgingly accepted them...

...Judges resist the class action because they fear increased numbers of suits from persons who would not ordinarily sue, and they fear the complex management problems of deciding whether thousands of persons will or will not recover enormous aggregate sums-claims so large that an adverse decision may destroy the profit margin of a large corporation...

...One well-known suit, which the courts have ruled a proper class action, was brought by Morton Eisen, a small investor, against the two brokerage firms that handled 99 per cent of all sales and purchases of “odd lots” (fewer than 100 shares) on the New York and American stock exchanges...

...Even if the government wanted to bring its own suit, it might be years before it won a legal victory...

...But supporters of the class action say that frivolous class suits will be exceptional, and point to their rarity in securities and antitrust law, where class suits have long been used, and to the good record of consumer class actions in California and Illinois...

...Chief Justice Warren Burger raised the issue in a rare commentary on pending legislation made in a speech before the American Bar Association: “Not a week passes without speeches in Congress and elsewhere and editorials demanding new laws-to control pollution, for example, and new laws allowing class actions by consumers to protect the public from greedy and unscrupulous producers and sellers...

...The court rejected the company’s argument that those who paid the extra charges must have wanted the insurance even though they did not check the box and ruled that the billings were illegal...

...we still find time to prepare and deliver speeches, to attend conferences, and, as evidenced by the proliferating volumes of reports rapidly overwhelming the few remaining shelves in our libraries, to lend the weight of published opinion to our decisions...

...But it is rare-perhaps unprecedented-for a private right to sue to be conditioned upon a successful government lawsuit...

...Class actions have also been used to define the rights of large groups of welfare clients, ghetto residents threatened by illegal police searches, and convicts challenging harsh prison regulations...

...People speak glibly of putting all the problems of pollution, of crowded cities, of consumer class actions and others in the Federal courts...

...Federal District Court Judge Jack B. Weinstein, who has written extensively about class actions as well as decided his share of them, views the “strike suit” problem as minor: “The trial judge may use his discretion to reduce the effect to a limit which, when balanced against the social advantages of class actions, is tolerable...

...Only large business organizations that can spread the costs of collection over a large number of cases, and then pass these costs on to their customers, can afford to sue for small amounts of money...

...But GM was in for a surprise...

...As a Columbia law student put it recently, “In this society you almost have to become a lawyer yourself to be treated fairly, and that isn’t right...

...not only obliged to make their trucks safe, but to replace the wheels on all affected vehicles, at an estimated cost of $97 million...

...One of the over-ambitious cases brought by environmentalists purported to be a class action on behalf of 125 million residents of the United States, claiming $375 trillion in damages resulting from General Motors’ alleged suppression of pollution control devices...

...Mass violations can be corrected by a mass remedy...

...As a result, the costs of consulting lawyers and engaging in litigation have operated in the past to deter suits and to subsidize businessmen who sell defective goods, overcharge, or misdescribe their products...

...Echoing this view, Milton Handler, a prominent New York antitrust lawyer, views the class action as “legalized blackmail...

...Senator McGovern also co-authored the McGovern-Hart bill to permit class actions against polluters...

...After watching the copious flow of paper and lobbyists in and out of the Senate office building, the legislative assistant of one senior senator was led to comment that he had not experienced such concerted opposition to any bill in half a decade...

...The Administration defends its requirement of a governmental filter as needed “to prevent large numbers of harassing, ‘strike’ suits, initiated more for their settlement potential than for their merit...

...People who are swindled by fast-talking salesmen or who buy shoddy merchandise usually have legal claims for amounts ranging from a few cents to a few hundred dollars...

...it is a parody of that device, perhaps designed to obtain public attention...

...Judge Weinstein, among others, discounts the fears of the Chief Justice...

...Enlightened Self-Interest The reason for the intense opposition of these groups is perfectly understandable...

...it relieves the citizen of the arduous burden of persuading or forcing a harried and underfunded bureaucracy to act on his complaint...

...the class must be notified under court supervision of the case and given a chance to “opt out” of it and sue alone...

...But the law is often hypocritical...

...Daar claimed that the company had set its meters to register fares at unlawfully high rates...

...We use them to collect damages for thousands of black workers who were kept from advancement by discriminatory seniority arrangements and job tests...

...Class Action: A Way to Beat the Bureaucracies Without Increasing Them by Philip Schrag and Michael Meltsner In May, 1969, after Geheral Motors had received more than 200 complaints of wheel failure on 3/4-ton Chevrolet and GMC truck models sold between 1960 and 1965, the company sent an “advisory” to 200,000 truck owners warning that the defective wheels constituted a “serious safety risk...

...Most individuals never seek to enforce their rights, because the costs of employing a lawyer, paying court fees, and hiring stenographers or investigators swallow up, or even exceed, the eventual recovery...

...In addition, class members are notified of any settlement...

...The court quickly threw out the case, saying that “this is not a lawsuit...

...The private bar has remained largely aloof from the consumer movement, its involvement unencouraged by any financial incentive...

...The lawsuit against GM, which is now going forward on behalf of the remaining 160,000 truck owners, is a class action, a type of super-lawsuit that consumer groups see as their ultimate weapon against business...

...Tired Burger The increased litigation of consumer claims that attracts Myerson and Nader has also provided class action foes with their most effective argument...

...They rule on equally complicated patent cases involving records just as long and requiring intimate understanding of scientific and engineering concepts...

...To date, the environmental cases have provided more bark than bite...

...Sophistication Still, modern courts have been used successfully to resolve enormously complex cases in other fields of law...

...Unscrupulous attorneys, the Justice Department argues, will bring unjustified class suits against big companies in the hope that even the threat of recovery will force some corporations to agree to a partial settlement for the consumers and a fat counsel fee for the lawyers, rather than facing the risk or the expense of fighting the case in court...

...Business never opposed consumer protection legislation as long as there was no chance that the legislation would get more than token *enforcement...

...With her vocal concurrence, the Administration sponsored its own class-action bill, one that would bar consumers from federal courts until the government had sued the offender and had won its case...

...The list of those working to prevent expansion of the class-action remedy reads like a “Who’s Who of Big Business,” including, among others, the United States Chamber of Commerce, the American Retail Federation, the National Retail Merchants Association, the Grocery Manufacturers of America, the National Canners Association, the Association of National Advertisers, the Gas Appliance Manufacturers Association, the Association of Home Appliance Manufacturers, and the Electronic Industries Association...

...Although the solicitation asked customers to check a box on their bills if they wanted the insurance, the company also billed insurance charges to customers who did not check the box...

...These are real problems...

...Nader argues that the use of class actions to enforce consumer rights will deter this crime and stimulate companies to comply with the law...

...If we need more judges, we should have more judges...

...A group of Tennessee voters asked the federal courts to order a fair allocation of state legislative seats on the basis of population...

...If Congress, however, authorizes consumer class actions, many lawyers will welcome the business of even poor clients, for legal fees in such cases will be allocated to attorneys from the total damages won on the basis of the lawyer’s service to the entire class...

...Before one can be maintained in federal court, a judge must find that the representative parties will fairly protect the interests of the class and that the case fits into a complex formula which, in practice, gives the judge great discretion to throw out unfounded complaints...

...At least 95 per cent of illegal consumer abuses are never judged to be such by our legal system,” claims Ralph Nader...

...Consumers have a wide variety of rights which they cannot really exercise,” complains New York City’s Consumer Affairs Commissioner, Bess Myerson...

...The arm of the law never reaches these abuses, thereby permitting an overworld of corporate crime which reaps billions yearly from the defenseless consumer...

...No one customer misled by Montgomery Ward could have economically sued the store for a refund of the few dollars involved, but Robert Holstein of Chicago filed a class action on behalf of himself and all other Ward charge account customers, most of whom did not even know that they had been tricked...

...Retailers suing their suppliers for price-fixing and small investors claiming damages for securities manipulation or stock fraud have routinely brought class-action suits...

...At first, however, the Administration was divided on the legislation...

...The average contested case brought by the Federal Trade Commission, for instance, takes over four years from the agency investigation until the hearing examiner’s decision, and much longer if the company exercises its right to numerous appeals...

...Because it opens the courthouse door to people with small claims, the class action can be thought of as judicial populism, a device which, in the words of publicinterest lawyers Edgar and Jean Cahn, is capable of “democratizing- the rule of To keep the little man with the little claim-out of court may make life easier for federal judges, but only at the cost of closing off what many will think of as their only opportunity for justice...

...Most disputes between merchants and individual consumers involve less than $300...

...lawyers who procured $17 million in refunds from the Illinois Bell Telephone Company received a $1-million fee for their efforts...

...While class actions by consumers for huge amounts of money damages were rare until the consumer protection movement burst into bloom in the mid-l960s, the technique of resolving many legal claims in a single lawsuit has a long history and many uses...

...The hundreds or thousands of members of...

...I A Long Wait Unfortunately for consumers victimized by a company, this governmental “trigger” might never be activated...

...the rights of consumers should not be denied because an occasional attorney acts unethically...

...The coming battle over class actions is well worth fighting...

...The “get-your-money-back” appeal of class actions, however, is not the most significant advantage to the public claimed by class action proponents...

...Two California truck owners did sue to force the automaker to pay for the new wheels...

...Avoiding the Bureaucracy Despite such problems, consumer spokesmen and groups such as the Consumer Federation of America regard federal class-action legislation as their most important goal in the 1970s...

...Eisen claimed that the firms conspired to set unreasonably high fees for this type of transaction, and he sued not only for the $70 he estimated as his own damages, but for refunds to approximately four million other “odd-lot” buyers...

...each customer would have to bring a separate suit for a refund...

...Knauer was instructed to report to Peter Flanigan, who emerged during the ITT controversy as big business’ man in the White House, and she quickly changed her mind...

...When a group of buyers sues together, court costs and attorneys’ fees are paid from the gross recovery due to the class...

...The Supreme Court of California recently approved a creative solution to this problem when it allowed David Daar, a Los Angeles lawyer, to sue the Yellow Cab Company there on behalf of all riders...

...The only significant issue becomes the size of the ransom to be paid for total peace...

...fares for current passengers will be reduced by a percentage for approximately nine years until this fund is exhausted...

...If the consumers lose, the attorneys will have worked for nothing, but often the stakes are high enough to make the gamble worthwhile...

...Richard McLaren, the Assistant Attorney General who settled the ITT case, defended the proposal as “an essential filter” to prevent trivial suits...

...In view of the broad Democratic support for liberalized class-action legislation, eventual passage of a reform bill is likely, but far from inevitable...