Class action lawsuit claims against American businesses spiraled 1,000 percent in state courts and 300 percent in federal courts just between 1997 and 2000, according to the Manhattan Institute’s Center for Legal Policy.

The pace of filings has slowed slightly in the years since, but studies by NERA Economic Consultants and the Stanford Law School Securities Class Action Clearinghouse make clear that fewer briefs doesn’t mean things are getting better. The flip side of the coin is that the cost to settle abusive class action lawsuits continues to go up.

In 2006, NERA reported, “shareholder class action filings were down dramatically.” But at the same time, the economic consulting group found, the “average class action settlements paid by corporations to shareholder plaintiffs rose by 37 percent.”

This story continues below
Advertisement

Moreover, NERA continued, “seven of the 10 largest settlements occurred between 2005 and 2006,” while the average dollar figure for shareholder class action settlements has risen from nearly $74 million in 2005 to almost $87 million through early 2007.

It’s too soon to tell whether the downward trend in the number of filings of securities’ class action suits will be permanent, suggested the joint Stanford-Cornerstone Research 2007 mid-year assessment.

And trial lawyers are constantly looking for new fields of profitable litigation to compliment existing issue areas offering serious possibilities for headline-grabbing, big-buck settlements.

“Greed and self-interest” on the part of some trial lawyers to pursue high-dollar settlements are still very much part of the picture, said Victor Schwartz, general counsel for the American Tort Reform Association. “I want to be very clear here. I’m not saying all. I think most of the trial lawyers act very responsibly. It’s a few that I’m talking about.”

Schwartz condemns class action practitioners, for example, who he says create a media stir by drumming up class action clients against a pharmaceutical company and in so doing create a needless and sometimes harmful atmosphere of fear for people facing serious medical conditions.

“The result is somebody chooses not to use a drug because they read a trial lawyer’s inflammatory story and the best thing they could do is see their doctor, but they drop off using the drug instead,” Schwartz said.

Or, he continued, it’s people who seek redress for afflictions yet to appear, as with lead paint cases that begin with the attorney initiating medical monitoring of potential clients. This backward practice of sue-first-prove-damages-later goes against decades-old law ethics that touted this one simple and logical standard: “The big rule was you had to be hurt before you could get any money,” Schwartz said.

"Lawyers Gone Wild" is a series of special reports by The Examiner looking at the cost and consequences of class action lawsuit abuse in the United States. Read the latest articles in the series.