by Jeff Sovern
Last week, we reported on a Law360 article by Gary Mason finding benefits to class actions. Mayer Brown's Andrew Pincus has responded to the Law360 piece, also on Law360. Here's an excerpt (with footnotes omitted):
The critical question is whether class actions generally deliver relief to class members. The answer: They don’t.
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individual civil cases settle much more frequently than class actions — an average of 67 percent settle according to one study,or three times as frequently as class actions, based on Mason’s data. That dramatic disparity by itself indicates that there is something seriously amiss in the class action system, because so many more cases are being filed that yield no benefit for class members. The fact that these cases consume judicial resources and still cost a substantial amount to litigate, yet yield nothing for class members, is highly relevant to any cost/benefit analysis of class actions.
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[C]laims rates — to the extent they can be ascertained — are extremely low. (Not surprisingly, claims rates are rarely disclosed.) The typical claims rate in the Mayer Brown study was less than 10 percent. The CFPB study claims rate averaged 4 percent, meaning that 96 percent of the class did not file a claim and therefore received no compensation.
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Mason ends with the bald assertion that “class actions send a message to corporations and deter them from engaging in unfair and deceptive business practices.” But that unsupported claim makes no sense: because cases that survive dismissal and class certification virtually always settle, the class action system doesn’t punish wrongdoing and exonerate the innocent. It imposes burdens on both — and therefore deters both lawful and unlawful conduct or, probably, is just chalked up as a cost of doing business unrelated to the merits of a business decision.
Some quick comments: it is interesting that Pincus agrees that class actions deter unlawful conduct. There is some tension between first complaining that putative class actions settle less frequently than individual claims, and then complaining that class actions that are certified nearly always settle. In addition, I don't think the bare fact that class actions that get past the certification typically settle tells us anything about whether class actions punish wrongdoing. I agree that it is desirable to increase claims rates. I wonder what Pincus thinks of class actions in which the money is automatically deposited in consumers' accounts without them having to make a claim.