Checks or coupons worth less than a stamp have become signs of the times in the vapid world of the class action lawsuit.
By STEPHEN NOHLGREN
Published February 9, 2004
What a month December was!
Saddam popped out of his hidey hole. The Dow soared through 10,000. And thousands of Tampa Bay area residents out-dueled a corporate giant.
In a legal showdown over credit card late fees, Citibank was trounced by everyday people, including your neighbors and, quite possibly, you.
The payoff for this triumph arrived in the form of credits on monthly credit card bills or, for some, checks. Each might have totaled a dime or 24 cents. Some lucky victors got payoffs worth a little more than the postage required to deliver them. But only some.
Such are the modern ways of class action litigation.
Historically, class actions have involved weighty social issues, suspect products or damaging events. School integration was a class action suit. Breast implants come to mind, as does Exxon Valdez.
Individual plaintiffs each claim substantial damages. But their cases are lumped together to save everyone time and money. Dozens of Alaskan fishermen can take on a multinational conglomerate without hiring personal attorneys.
But these days, class action lawsuits frequently assume more prosaic dimensions. They are vast, in the sense that they involve thousands, if not millions, of plaintiffs. But they are also puny, because no single person's damages amounts to much.
Often, a person doesn't even know he or she is a party to a lawsuit until a settlement notice hits the doorsteps in the form of a check or sometimes a handful of discount coupons.
That's what happened in December, when payments blanketed the country as part of the "Schwartz Settlement" against Citibank.
The case, filed in the name of California resident Elliott Schwartz, involved fees charged on Citibank and AT&T Universal cards. Citibank had made it a policy that late fees would be assessed on payments that arrived after 10 a.m. the day the bill was due. Even those credit card holders who were given a 24-hour grace period on the late fee still were charged an extra day's interest, as if the payment arrived the day after it was due.
Schwartz prevailed, and Citibank extended the late-fee cutoff to 1 p.m., and plaintiffs' attorneys were awarded $7.2-million in fees and costs.
As the case concluded, it was decided that identifying fees charged to individual victims would be hopelessly complex. So the settlement simply distributed $18-million to more than 20-million card holders, according to usage.
"I received 26 cents. Woo hoo! Party on!" wrote "Dawn"
"I just received check number 1651789860 for $0.10, which I will display on my wall," "Matt" wrote on a Web log discussion on www.overlawyered.com
"I'm going to invest my whopping $1.01 in application fees for law school," "John" wrote. "Someday it will pay off in real money."
Such cynicism is understandable, said Theodore Eisenberg, a law professor at Cornell University. But these cases can be helpful in preventing huge companies from deliberately scamming consumers.
If a company cheats 10-million customers out of a dollar each, Eisenberg said, the loss to any one victim might be minimal, but the swindle perpetrated by the company is enormous.
"The social question is whether the cheating company should keep the $10-million or should somehow be accountable for the cheating," Eisenberg said. "Without these lawsuits, you are saying, "Just cheat a little bit and you'll get away with it, because no one will ever sue over a dollar."'
Credit card holders might have received only pennies for their troubles, but Citibank had to cough up $36-million to settle the suit.
What's harder to measure is how many suits are being filed. According to various estimates, class action lawsuits filed in federal courts have at least doubled since 1997. Few state courts track filings by category, but trial lawyers suggest that class action lawsuits are not on the wane.
Along with New York University professor Jeffrey Miller, Eisenberg studied 400 class action lawsuits filed between 1993 and 2002. After accounting for inflation, they concluded that the size of settlements and legal fees did not rise during those 10 years.
While individual plaintiffs are collecting mere pennies, defendants are shelling out millions.
Many of the suits are nothing more than shakedowns, said Walter Olson, a fellow at the business-oriented Manhattan Institute for Policy Research. The cost of defending a suit often exceeds the cost of settling, so companies sometimes roll over.
The peril to companies can be particularly great because the nature of class action lawsuits, which have plaintiffs spread across the country, allows lawyers to shop for sympathetic courts.
Over the years, courts in Alabama, Texas and Miami have gained reputations among defendants as "class-action hell."
Today, that distinction belongs to Madison County, Ill., a blue-collar area near St. Louis where a jury returned a $10-billion verdict against Philip Morris because the cigarette manufacturer implied that its "Lite" cigarettes were healthier than regulars.
Madison "has a bunch of judges that really like plaintiffs," Olson said. "Their jury pool is so favorable that lawyers from Cook County (home to Chicago) come down to file their cases."
Last year, 106 class action lawsuits were filed in Madison County, compared with 16 four years earlier.
The Bush administration and Republican lawmakers are pushing a bill that would shift many nationwide class action lawsuits into federal court. The bill is opposed by consumer, environmental and civil rights advocates who say the federal system already is clogged with numbing delays.
"It's easier to see the justice of a class action suit when you have a Love Canal, when people's lives are threatened," said Carlton Carl, spokesman for the American Trial Lawyers Association. "But the same principles are at stake in other cases. It's whether injured people can hold wrongdoers accountable, no matter how small the injury might be."
And then, of course, there are the attorneys' fees. The reason they run so high, experts say, is because class action lawsuits are expensive to bring to court and are risky for attorneys, who pay much of that cost up front themselves.
Pinellas-Pasco Circuit Judge Douglas Baird became a national hero among opponents of class action lawsuits when he compared some out-of-town lawyers to "Squeegee boys" who descend on stopped cars in an urban intersection and "splash soapy water on its perfectly clean windshield and expect payment for the uninvited service of wiping it off."
The lawyers had sued Florida Progress Corp., saying they represented 44,000 shareholders who got a bum deal when the company merged with Carolina Power & Light. A proposed settlement would have paid the lawyers $350,000 and have given Florida Progress immunity from further merger suits. The shareholders got a nebulous offer of possible compensation in the future, if the company wished to give it to them.
If the www.overlawyered.com Web log can be believed, class action lawsuits can make plaintiffs worse off than before.
"I TRIED TO DEPOSIT MY (profanity) .23 CENT CHECK AND IT WAS RETURNED TO ME!," "Heather" wrote. "NO SUCH ACCOUNT THE BANK TELLS ME AND THEN CHARGES ME $7.50. ... THIS IS A SCAM AND I WILL SUE!!!!!"
