Tuesday, February 14, 2006

Good work if you can get it

Mike Nichols has a nice piece in the MJS about class action litigation. Next time you get one of those notices of settlement in the mail saying you might have been shafted on your cell phone bill or paid a tad too much on your auto lease, check out what the lawyers are getting. It is generally quite a bit. Then check out what you might get (assuming that you can even tell). You will be reminded of the scene in The Jerk where Steve Martin's earthly possessions are hauled away while he writes thousands of checks for "one dollar and nine cents."

The theory behind class actions is that they are legitimate way to stop someone from stealing just a little bit from a lot of people. If your credit card company overcharges you a nickel each month, you may not notice it or, if you dispute their right to that extra five cents, its not worth it to take them to court. If, however, they have fifty million customers, thirty million dollars is at stake each year. Its worth it to the class of all customers to go after that money even if it isn't for any individual class member.

But the flip side is that if you can make a colorable argument for an overcharge and the number of people who were allegedly overcharged is large, the downside of losing is significant. Its safer to settle. But to settle, all you really need to do is satisfy the lawyers because there isn't a real person who is that lawyers' client, just a large group of people who don't even know they are in a law suit. (There are class representatives, but they get bought off too.)

In theory, the whole thing has to be scrutinized by a judge who is supposed to make sure that the lawyers don't get too much and that the class isn't being cheated, but most judges are powerfully inclined to approve settlements. It makes one more case on an overcrowded docket go away.

The Time-Warner settlement that Nichols writes about demonstrates the beauty part for the company. Often the settlement does not involve paying cash to the class members, but instead requires a discount or other credit toward continued use of the company's sevices. So you'll remain a customer. Which makes paying off the lawyers that much more palatable.

No comments: