The End of the Class-Action Carnival

Mass litigation took off in the U.S. in the 1960s. Plaintiffs’ attorneys seized on loosened court rules and expanding liability theories to hold corporations legally responsible for injuries that previously had been written off as the inevitable hazards of life. In the 1970s and ’80s, huge cases were launched on behalf of laborers exposed to asbestos and patients who suffered harmful side effects from drugs and medical devices. In the name of rough justice, judges suspended traditional requirements, such as quantifying the precise harm to each plaintiff.

As a result of hostile Supreme Court rulings over the last several years, scores of mass consumer and employment suits that would have been viable a decade ago have been dismissed, says Bland, a senior attorney with Public Justice, a nonprofit in Washington.

… as the Supreme Court reconvened on Oct. 7 for its 2013-14 term, trial lawyers are bracing for more setbacks.

… the first six months of 2013, 74 securities class actions were filed in U.S. district courts. That’s down 22 percent from the 16-year average from 1997 to 2012 and off 42 percent from the peak in the second half of 1998. “Securities filings have definitely fallen off,” Fitzpatrick says, “and anecdotally we’re starting to see other kinds of cases decline as well.”

Not everyone is shedding tears. Walter Olson, a legal expert at the libertarian Cato Institute in Washington, attributes the decline of mass lawsuits to a predictable—and welcome—backlash against “a wild carnival” of frivolous damage claims and outrageous conduct by plaintiffs’ lawyers.

To consumer advocates, however, the increasingly high barriers to mounting mass lawsuits could give companies the wrong incentives. “We’re in danger of losing an important deterrent to corporate misconduct,” says Brian Fitzpatrick, a professor at Vanderbilt Law School. As is usually the case in legal arguments, there are elements of truth in what both sides say.

Business interests complain that class actions discourage innovation, drive up insurance premiums, and unjustly enrich a trial lawyer elite.

What’s really turned the legal tide against class actions in recent years has been the excesses of plaintiffs’ attorneys. “Coupon cases” typify one pervasive problem: lawyers making out like bandits while putative victims get little or nothing. Exhibit A: In 2007 a group of lawyers in California took home $25 million in fees for what they advertised as a $500 million settlement on behalf of owners of allegedly defective Ford (F) Explorer SUVs. The fine print revealed, however, that each consumer became eligible for nothing more than a $500 coupon toward the purchase of—wait for it—a new Ford. Relatively few people sought the dubious benefit.

Other episodes have revealed class-action titans up to their necks in sleaze.

If the justices agree to hear the case, the odds are they’ll take another swipe at class actions. Celebration will follow in boardrooms around the nation. Absent new legislative oversight, consumers should wonder who’s got their interests in mind. And overreaching plaintiffs’ attorneys will have themselves to blame.

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