Comments on: Class Actions as Instruments of Corporate Punishment http://businessconflictmanagement.com/blog/2010/09/class-actions-as-instruments-of-corporate-punishment/ Conflict Management Expertise from F. Peter Phillips Fri, 18 May 2012 07:51:05 +0000 http://wordpress.org/?v=2.7.1 hourly 1 By: Business Conflict Blog » Seeking a Day in Court: When Litigants Reject Tenders of Damages http://businessconflictmanagement.com/blog/2010/09/class-actions-as-instruments-of-corporate-punishment/comment-page-1/#comment-3132 Business Conflict Blog » Seeking a Day in Court: When Litigants Reject Tenders of Damages Thu, 28 Apr 2011 18:23:40 +0000 http://businessconflictmanagement.com/blog/?p=681#comment-3132 [...] previously noted on this Blog, the claimant in the AT&T case had also been offered his damages.  In his dissent in the [...] [...] previously noted on this Blog, the claimant in the AT&T case had also been offered his damages.  In his dissent in the [...]

]]> By: Joe Markowitz http://businessconflictmanagement.com/blog/2010/09/class-actions-as-instruments-of-corporate-punishment/comment-page-1/#comment-1937 Joe Markowitz Tue, 07 Sep 2010 02:00:42 +0000 http://businessconflictmanagement.com/blog/?p=681#comment-1937 I've been thinking some more about this case, and I think you could go so far as to argue that the people who had to pay $18 in taxes for their free phone were not injured at all, even if they were surprised that they owed those taxes. Most people know that when you win a prize or receive something else of value, you still have to pay taxes on that. We are not injured in any way by paying those taxes. Maybe it is even a mistake to think of the $18 these free phone purchasers had to pay as damages. How are you injured by having to pay taxes like everyone else? And why do you need compensation if you are not injured? The proof that it is not compensation is that even someone who fully understood and expected to have to pay taxes on a "free" phone would still be entitled to the settlement payment, even though those people clearly were not deceived in any way. All of this leads me to think that the Ninth Circuit was right in some sense that offering consumers free arbitration to gain compensation for their "injury" really doesn't solve the underlying problem of enforcing the statutes prohibiting false advertising. The people who are actually injured by false advertising are all of the people who see the false or misleading advertising. False or misleading advertising harms everyone who is exposed to it, by cheapening our commercial discourse and making us distrustful of anyone trying to sell us anything. And the settlement that the company had to pay for engaging in false advertising is really just a penalty that is meant to deter everyone from engaging in false advertising. It is not compensation at all. But in a lot of consumer class action cases, we have to pretend there is a group of injured people so as to justify making the company pay for its violation of the law. So the only problem is that we have designed a system that requires defendants to pay a lot of money to lawyers to enforce false advertising laws, but as I mentioned in my first comment, that kind of highly inefficient and expensive enforcement mechanism represents a choice that politicians have made because raising taxes to pay for a more sensible enforcement mechanism seems to be a harder choice. In some cases, it might make more sense if we just paid the lawyers for the cost of bringing these enforcement actions, and forgot about trying to find and compensate all of the "victims." I’ve been thinking some more about this case, and I think you could go so far as to argue that the people who had to pay $18 in taxes for their free phone were not injured at all, even if they were surprised that they owed those taxes. Most people know that when you win a prize or receive something else of value, you still have to pay taxes on that. We are not injured in any way by paying those taxes. Maybe it is even a mistake to think of the $18 these free phone purchasers had to pay as damages. How are you injured by having to pay taxes like everyone else? And why do you need compensation if you are not injured? The proof that it is not compensation is that even someone who fully understood and expected to have to pay taxes on a “free” phone would still be entitled to the settlement payment, even though those people clearly were not deceived in any way. All of this leads me to think that the Ninth Circuit was right in some sense that offering consumers free arbitration to gain compensation for their “injury” really doesn’t solve the underlying problem of enforcing the statutes prohibiting false advertising.

The people who are actually injured by false advertising are all of the people who see the false or misleading advertising. False or misleading advertising harms everyone who is exposed to it, by cheapening our commercial discourse and making us distrustful of anyone trying to sell us anything. And the settlement that the company had to pay for engaging in false advertising is really just a penalty that is meant to deter everyone from engaging in false advertising. It is not compensation at all. But in a lot of consumer class action cases, we have to pretend there is a group of injured people so as to justify making the company pay for its violation of the law. So the only problem is that we have designed a system that requires defendants to pay a lot of money to lawyers to enforce false advertising laws, but as I mentioned in my first comment, that kind of highly inefficient and expensive enforcement mechanism represents a choice that politicians have made because raising taxes to pay for a more sensible enforcement mechanism seems to be a harder choice. In some cases, it might make more sense if we just paid the lawyers for the cost of bringing these enforcement actions, and forgot about trying to find and compensate all of the “victims.”

]]> By: Joe Markowitz http://businessconflictmanagement.com/blog/2010/09/class-actions-as-instruments-of-corporate-punishment/comment-page-1/#comment-1932 Joe Markowitz Fri, 03 Sep 2010 19:48:08 +0000 http://businessconflictmanagement.com/blog/?p=681#comment-1932 Well, is the underlying purpose of the whole exercise to provide consumers with redress for damages? Or is there some other purpose? That is the question. I think you can make an argument that the real underlying purpose of all kinds of consumer litigation has nothing much at all to do with providing people with effective redress, but is instead a means of enforcing compliance with government regulations. Let me give some examples. We have statutes requiring businesses to make accommodations for the handicapped. Putting aside the question of whether these regulations are reasonable or not, once they are enacted, the legislature has two choices in enforcing them. Either establish a bureaucracy with inspectors and fines, etc. to police businesses' compliance with the regulations, or draft a statute that gives private attorneys sufficient incentive to pursue claims against the businesses that do not comply with the law. Guess which method the legislature usually chooses? That's right, the one that is much more expensive for businesses and vastly wasteful and expensive for the litigants. And of course those costs are passed down to all of us by every business. And the reason for that is that it is cheaper for the taxpayers to leave enforcement up to private attorneys instead of hiring state employees to enforce the law with fines and inspectors. We do the same thing with wage and hour laws. And with enforcement of the corporations code. And with enforcement of consumer protection laws as in the example you are citing. So I would argue that the real villain is the mentality that is so against raising taxes to pay for the government employees who are needed to enforce the law, that we would rather subsidize an army of private attorneys to enforce those laws. But that is good for the business of trial lawyers and probably mediators as well, so I should probably just shut up. Well, is the underlying purpose of the whole exercise to provide consumers with redress for damages? Or is there some other purpose? That is the question. I think you can make an argument that the real underlying purpose of all kinds of consumer litigation has nothing much at all to do with providing people with effective redress, but is instead a means of enforcing compliance with government regulations. Let me give some examples. We have statutes requiring businesses to make accommodations for the handicapped. Putting aside the question of whether these regulations are reasonable or not, once they are enacted, the legislature has two choices in enforcing them. Either establish a bureaucracy with inspectors and fines, etc. to police businesses’ compliance with the regulations, or draft a statute that gives private attorneys sufficient incentive to pursue claims against the businesses that do not comply with the law. Guess which method the legislature usually chooses? That’s right, the one that is much more expensive for businesses and vastly wasteful and expensive for the litigants. And of course those costs are passed down to all of us by every business. And the reason for that is that it is cheaper for the taxpayers to leave enforcement up to private attorneys instead of hiring state employees to enforce the law with fines and inspectors. We do the same thing with wage and hour laws. And with enforcement of the corporations code. And with enforcement of consumer protection laws as in the example you are citing.

So I would argue that the real villain is the mentality that is so against raising taxes to pay for the government employees who are needed to enforce the law, that we would rather subsidize an army of private attorneys to enforce those laws. But that is good for the business of trial lawyers and probably mediators as well, so I should probably just shut up.

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