Editors' pick: Originally published May 3, 2016.
You may have recently received an email that sounds similar to this one:
Dear Class Member,
You are receiving this email because you are a Class Member in the Schlesinger v. Ticketmaster Class Action Settlement.
The settlement has been fully approved and all appeals have been resolved. To the extent you are eligible to receive them, your Discount, UPS Discount, and Ticket Codes will be placed in your Ticketmaster.com account…
If so, congratulations. Ticketmaster is a wealthy target, and a much maligned company, and you're probably entitled to some winnings.
The bad news is that you will probably never see a dime of that money. Also, you very likely were actually ripped off somewhere along the way, a bunch of lawyers have profited by using your name and you can probably treat that email as just another bit of spam. Welcome to the grotesque free-for-all known as the American class action system
The class action lawsuit at its heart is a solid idea. Originally it was created as a rule of judicial efficiency. If one common act harmed an entire group, there's no need for them to each individually prove the same case. Indeed, doing so risks a confusion of justice if the quirks of one judge and jury lead to awards for some and not others on the same set of facts.
It also allows restitution when harms are too small for individual lawsuits. Without a disincentive, companies would be free to outsource moderate risks onto their customers, taking advantage of them one nickel and dime at a time. Ticketmaster's alleged behavior is a perfect example of this.
The plaintiffs in Schlesinger claim that Ticketmaster has been deceiving customers by charging excessive processing and delivery fees, which were in reality profit centers for the company rather than actual costs. If true, these claims would make for a perfect example of the class system in action. The company would, indeed, have committed fraud and should pay for it, but who's going to sue over a $10 surcharge to see Chumbawumba? (This is a very old lawsuit.)
Instead a plaintiffs' attorney can find just a few representative cases and then sue in the name of everyone that the company allegedly harmed. Whether or not that's a good thing depends almost entirely on which side of the bar you sit on, but when a company has allegedly bilked its customers for vast amounts of money it's important to have some check on
Nothing that Ticketmaster did, or any other defendant in a class action, will ever actually be proven however, because very few of these cases ever go to trial. In fact, virtually none will.
This is where the wheels start to come off the wagon. Schlesinger is in fact a highly representative class action lawsuit, just not in ways that should make any member of the bar proud.
The modern class action lawsuit has come under increasing criticism for serving the interests of plaintiffs lawyers and, to an increasing degree, defendants at the expense of the claimants it purports to serve. The link above references a study conducted by the law firm Mayer Brown, which finds, among other things, that "the vast majority of cases [produce] no benefits to most members of the putative class."
Setting aside securities cases, in which lawsuits are filed on behalf of shareholders who already have a network of oversight designed to represent their interests, in the case of consumer class actions this is generally true.
Of the cases that don't get dismissed, always a risk in civil litigation, a substantial number are settled on an "individual basis," which means that the class members get nothing while the lawyers and named plaintiffs receive a payment. In cases where the settlement did involve money for the class members, very few people ever can or do collect their compensation. In the cases studied by Mayer for which data was available, roughly 4.7% of class members actually saw a dime.
While it's easy to write this off as small lottery tickets that never pay out, it's also important to remember that these cases exist because the customers were wronged in the first place. When class members can't collect their restitution, it's like they're losing out twice.
The lawyers, however, always get paid, typically handsomely. Working as a class action plaintiff's attorney is one of the most lucrative practices in the law with practitioners collecting an average 25% of the final settlement's on-paper value, typically hundreds of millions of dollars.
Thanks to clauses known as "clear sailing provisions" written into the settlement terms, defendants usually agree not to object to these fees. They're often happy to sign as long as it means the case is over, since the percentage of the other side's cut is of relatively little interest to them. Judges, supposedly the final arbiter of whether the lawyers have hijacked the process, very rarely challenge these fees sought by class counsel.
Many collection issues arise from what are known as "coupon settlements," the practice of distributing a class payout in the form of coupons or credits towards a future purchase. Coupon settlements have received an increasing amount of scrutiny over the past several years, with much of the criticism focusing on the backwards architecture of this deal: the plaintiff's lawyers allege that a company harmed its customers, then arrange restitution in the form of repeat business.
From an article published by law firm Duane Morris on the subject:
In one example of a problematic case noted by the committee, a defendant toy store held a 30% off sale for a week in order to settle a deceptive pricing class action. All of the cash in the settlement went into attorneys' fees. Another case concerning deceptively sized beer mugs was settled for 50,000 $1 coupons, while all of the cash went to attorneys' fees. In another example, consumers received $1 off rentals from a video store, while plaintiff class attorneys received a fee award of over $9 million. A study predicted that only 20% of the class members who received coupons would actually use them.
Coupon settlements create the best of both worlds for a defendant. Anyone who takes their share of a settlement brings business in the door. For each class member who doesn't, there's no net loss. It's a deal that many are more than happy to make.
Fortunately, these are becoming increasingly rare thanks to a 2005 law called the Class Action Fairness Act, which both calls for judges to examine coupon settlements more closely and limits attorney's fees to the value of coupons actually redeemed. However, as the recent Ticketmaster case demonstrates, they're not entirely dead.
In fact settlement in this moribund case, which has been pending since 2003, was delayed when the defendants tried to slip through reparations based entirely on discount credits. The judge rejected that in favor of a final settlement which is... based entirely on discount credits, but if class members don't use at least 9% of the coupons, Ticketmaster will make some free tickets available "on a first come, first served basis."
The class action plays an important role in civil litigation. As many plaintiff's lawyers will point out, the fact that major corporations hate and fear this format is a sign that it's working precisely as intended. As long as companies are afraid of class actions, they're incentivized to work hard to make sure their products are safe and effective, preventing negligence by making it cheaper to anticipate a mistake than to pay later.
From A Civil Action to Erin Brokovich, popular culture lionizes the image of the individual who takes on major corporate wrongdoing, and the mechanics behind those principled stands are the class system. When hundreds or thousands of people have been hurt, whether its through small, fraudulent charges or the systematic poisoning of their drinking water, the class system lets them pool together and have a fighting chance at restitution.
Brown vs. Board of Education was a class action lawsuit.
Which is why it's such a big deal that the system has become so riddled with problems.
The class action system suffers from the appearance of collusion and impropriety at almost every level. Countless articles have been written about whether lawyers actually have the class members' best interests at heart, or if they're just looking to churn a high value settlement and cash out. The fact that very few of the alleged victims ever actually get their money back speaks volumes on this point.
John Grisham has made the greedy class action lawyer a popular figure in his novels, and the character sells because it rings true to something that many people feel in their gut: there's something wrong with a system where the lawyers can make $100 million, the defendant never has to admit wrongdoing and the alleged victims rarely ever see a penny.
But if you've shopped from Ticketmaster in the last few years, you may be entitled to $2.25 off your next purchase. That'll show 'em.