Class action lawsuits — legalized extortion

The Sunday Parade magazine usually contains a large class action “legal notice.” I look them over just to get my blood boiling, because most such cases are veritable scams cooked up by lawyers to shake down businesses. Corporations usually are forced to settle, because it’s so costly to defend even the most baseless claims, and juries are very unsympathetic to any corporation. It’s an extortion racket.

Some of the smarmiest cases are ostensibly brought on behalf of stockholders, often suing a company because its stock price fell. Of course, it’s the shareholders who own the company – so effectively they’re suing themselves. Why would they do that? To create fees for the lawyers who manufacture these lawsuits.

In most class action cases, the supposedly injured parties get very little. Often nothing more than a coupon to buy something else from the same company that allegedly screwed them. It’s the lawyers who get the real bucks. That’s what these lawsuits are actually for. Since I’ve owned stock in a lot of companies, I’m often in the “affected class” of stockholder suits. After laboriously filling out the paperwork – the slightest mistake will disqualify you – I get a check for a derisory amount. One time, I got a form letter from the lawyers saying that since my payout was below some minimum value, they weren’t required to send me a check at all!

Anyway, the latest class action in Parade (Sept. 11) really takes the cake – or, rather, the chicken meal. It seems that Oprah announced that KFC would offer downloadable coupons for a free $3.99 chicken meal, good between May 5 and May 19, 2009. The suit alleges KFC did not honor the coupons during those dates. KFC denies wrongdoing but – guess what — settled, providing a $1.575 million fund to compensate “victims” – at $3.99 each – but with $515,000 set aside for the lawyers. (See www.couponmarketinglitigation.com)

In law school, a fundamental principle of contract law was “consideration.” Suppose you agree with Joe that he’ll fix your driveway for $200. He does it. You owe him $200. But suppose you change your mind before he’s done anything. Do you still owe him $200? Of course not. He can’t enforce the contract because there’s been no “consideration” yet on his side.

In the KFC case, KFC agreed to give you a free meal. If KFC changed its mind, does it still owe you the free meal (or its value)? Where’s the consideration on your side?

If you feel KFC gypped you on a $3.99 coupon, what’s the proper response? Don’t eat there. But a million-dollar class action lawsuit??

Another principle I learned in law school was “de minimis non curat lex.” Loosely translated: the law doesn’t deal with trifles. Any self-respecting judge should have thrown out this ridiculous $3.99 lawsuit immediately, as a waste of the court’s time and an outright abuse of legal processes. In fact, the lawyers should have been sanctioned for even filing the case. But there are certain jurisdictions where the class action sharks know the judges will allow this kind of crap. The KFC case (like many) was filed in Minnesota.

Consider: to submit a claim to collect your $3.99, you have to enclose the coupon. How many people will still have a $3.99 coupon that was no good more than two years ago? Very few, I daresay. Maybe almost none. I’ll bet the $3.99 payouts will total – what? – couple hundred bucks? But, for “getting justice” for those few coupon “victims,” the lawyers will still pocket $515,000 of KFC’s money.

That’s a chicken meal that gives me indigestion.

 Class action lawsuits originated to provide effective and efficient justice where a group of people all suffered the same injury. But lawyers have perverted this into a way of parlaying trivial or even nonexistent “injuries” into big payoffs for themselves from deep-pocketed businesses. It’s a recurring national disgrace.

(Note: Just while I was typing this up, an e-mail came in notifying me of a class action settlement concerning “classmates.com.” (www.cmemailsettlement.com) This innocuous little outfit has apparently been screwed over by lawyers into ponying up $2.5 million because it allegedly sent out some e-mails it wasn’t supposed to. (Classmates denies it, but – guess what — settled.) I can get an estimated five to ten bucks by filing a claim form. The lawyers are seeking $1.05 million in attorney fees for their efforts in pursuing justice in this matter.)

UPDATE 9/18 — The latest one, in Parade — “If You Received an Unsolicited Text Message Advertisement . . . ” Yes,  an alleged unsolicited text message — an outrage that — to use another law school phrase — “shocks the conscience of civilized men.” In a world where children are being tortured to death in Syria, we have lawyers filing cases about unsolicited text messages. TWELVE MILLION bucks. Three million for the lawyers. (http://www.TextAdClass.com)

Well, come to think of it, maybe we do have here something that shocks the conscience of civilized men.

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3 Responses to “Class action lawsuits — legalized extortion”

  1. Scott Semans Says:

    Clearly some reform is needed here. The KFC thing is ridiculous and you’re spot on with consideration. But not with de minimis. When a large class of individuals suffers the same small wrong, they are cumulated for effective treatment under the law; this is pragmatic. However, justice is not really served unless each individual who suffered is made whole, not pennies on the dollar. And the lawyers need to make enough to motivate their bringing the suit; the alternative is endless regulation, which brings corrupting political motives into play. Perhaps the system could be reformed with two measures: 1) Forbid settlements, all must be made whole, 2) Lawyers to receive a reasonable hourly rate, not based on the value of the award.

    As for Classmates.com, I couldn’t be happier to hear that they got kicked in the teeth – they were the archetype of the aggressive spammer, with popups and strategies to go around email accounts that had clearly “marked as spam” their messaging. Advertising is the death of a thousand cuts – it steals our time, insults us, dulls our senses, seeks to subvert our wills, and never informs. I can’t blame most advertisers for trying, huckstering has become accepted in our culture, but when someone goes to the lengths Classmates did, they deserve to be shot down, and I hope lesser offenders learn from their example.

    [FSR comment: Scott, since I know you are in business yourself, I find your bile about advertising in genera hard to fathom. As to Classmates in particular, ironically I signed up with them as an “alum” of a high school I didn’t go to — trying to locate a former college classmate who did. I didn’t find him. But ever since, I’ve gotten messages relating to that high school. A very trifling annoyance — takes a half second to hit “delete” — there must be a way to unsubscribe, but I never thought it worth my time to do it! I continue to think a multimillion dollar class action lawsuit dealing with such stuff is completely disproportionate and far more of a scandal than anything Classmates.com may ever have done.]

  2. Lee Says:

    We all know of lawsuits, class action or otherwise, that we think were settled inappropriately, but that’s not the same as saying that we all would want to throw out the system that permits lawsuits. Are class actions worse than other actions? I guess I’d need to see a comprehensive survey to make that judgment.

    [FSR comment: De minimis non curat lex is not a joke, it’s a principle, which if applied would solve this problem. If you got cancer from asbestos, that’s a reasonable class action lawsuit. If you got rooked on a $3.99 coupon, it’s not, and it should be thrown out of court. But there are some courts which allow lawyers to abuse the system in this manner.]

  3. Jeffrey Wilens Scam Class Action Lawsuits | Jeffrey Wilens Lawsuit Scams Exposed Says:

    […] https://rationaloptimist.wordpress.com/2011/09/15/class-action-lawsuits-legalized-extortion/ “Class action lawsuits — legalized extortion” […]

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