Friday, February 12, 2016
Lawyers are the Big Winners in "No-Injury" Class Actions
In a no-injury class action case, the plaintiff class alleges that the defendant violated a legal requirement under a statute (typically a consumer protection statute), and sues for "statutory damages"-- provided as the penalty for violation, even though the violation doesn't cause any actual injury or loss to anyone. Law professor Joanna Shepherd studies 432 no-injury class action settlements and trial awards from 2005-2015. Her study showed that about 60% of the total monetary award paid by defendants in these cases was allocated to the plaintiff class, and 39.7% to attorneys fees. But, much of the money allocated to members of the plaintiff class is never claimed. Actual consumers typically receive less than 9% of the total. The unclaimed money goes to a "cy pres" fund which gets distributed to not for profit organizations. Lawyers for the plaintiff class recover over 4 times the amount actually distributed to the class. Professor Shepherd concludes: "A result in which plaintiffs recover less than 10 percent of the award, with the rest going to lawyers or unrelated groups, clearly does not achieve the compensatory goals of class actions. Instead, the costs of no-injury class actions are passed on to consumers in the form of higher prices, lower product quality, and reduced innovation."