Business Ethos Blog

Ransacking Business

Dr. David Mielke, Retired Dean of the College of Business at EMU

Legislation that would severely limit the ability of citizens to join class action lawsuits has sparked debate, with supporters saying it would reduce lawyer driven litigation and opponents saying it would minimize consumer rights.  Another legislative initiative in California would limit cookie cutter lawsuits regarding the American Disabilities Act.  The regulations are seen as guaranteeing lifetime employment for building consultants and have spawned an industry of attorneys who jam federal courts with suits that require defendants to pay attorney fees while plaintiffs aren’t entitled to damages under federal law.  Should class action and ADA lawsuits be limited?  Are there abuses to the system with payouts to attorneys with little or no compensation for plaintiffs?  Does this type of legislation limit consumers’ rights?  Who benefits the most for these suits, the attorneys or the plaintiffs?  What is the “Right Thing to do?”  Let’s look at some issues:

  1. A bill introduced in the House, dubbed the Fairness in Class Action Litigation Act of 2017, is the second attempt by Congress in recent years to rein in class action lawsuits, which are used to challenge alleged securities fraud, employment discrimination, misleading advertising, defective products and other issues.
  2. Republican backers said the legislation is long overdue and would curtail lawyer driven litigation that does little for consumers but benefits attorneys financially.  The US Chamber of Commerce, has highlighted consumer cases in which attorneys take home millions while consumers get a few dollars each, or nothing at all.
  3. The Chamber’ Institute for Legal Reform points to examples like a deceptive advertising class action against Dell.  Of the nearly 400,000 purchases covered by the settlement, less than 3% of the consumers filed claims and received about $500,000, while the attorneys pocketed $7 million.
  4. Pension funds and other institutional investors would be affected by the bill , because they often form relationships with plaintiffs’ attorneys to pursue lawsuits when they perceive a company’s stock decline is a result of securities law violations.
  5. Under the proposed legislation, rather than paying attorneys based on how much money a company agrees to put up for consumers who sue, as currently done, lawyer fees would be tied to the amount consumers actually collect.  Attorneys wouldn’t be paid until after the money goes to plaintiffs and after they report details of how much money was collected to a federal oversight board.
  6. Congress passed the Americans with Disabilities Act in 1990 to ensure that handicapped people aren’t discriminated against or denied access to services.  Due to the proliferation of the regulations, the 275 page ADA building code now specifies everything from the height of bathroom mirrors to the size of toilet paper dispensers.
  7. Plaintiff attorneys know that it’s typically less expensive for businesses to settle claims than incur hefty legal expenses.  One lucrative line of business is “drive-by” lawsuits in which attorneys file complaints based on violations they spot from their cars, such as faded paint on a curb or a broken sign.  Some attorneys use Google Earth to troll business facades.
  8. ADA lawsuits in federal courts have more than doubled in 5 years and now account for about a quarter of civil rights cases, up from 12.3% in 2011.  Miami and Los Angeles accounted for nearly 40% of ADA lawsuits last year.
  9. The California Commission on Disability Access says 6 law firms accounted for 81% of federal and state complaints last year.  Although legislation in California last year granted small business a 15 day grace period to fix technical violations in the state courts, complaints in federal courts in California jumped 60% between 2015 and 2016.
  10. Minority business are seen as easy targets since immigrants may be less fluent with the law and are reluctant to fight claims.

Certainly some of the class action suits and ADA complaints have merit and plaintiffs should receive compensation.  But have some attorneys made this an industry of questionable suits forcing businesses to settle to avoid legal costs and at the same time collecting high fees with minor compensation to the consumers that have actually been hurt?  Should there be sensible reforms to limit class action suits and the attorney fees and also protect the disabled while reducing opportunities for what some may call ethically challenged attorneys?  Will the reforms potentially skew current standards decisively in favor of corporate defendants?  What is the “Right Thing to do?”  Class action suits need to be reformed. Over-sized settlements to law firms with minor compensation for the plaintiffs should be restricted.  Many ADA suits will have merit, but again the abuses by some law firms to in effect extort money from business and in many cases small business that don’t have the wherewithal to afford to fight the allegations should be stopped.  Congress should move forward to pass the Fairness in Class Action Litigation Act of 2017.  California and other states should pass legislation giving business a grace period to correct technical ADA violations and limit federal suits that jam the courts.  Drive-by lawsuits are unacceptable.  Unless we have the reforms, some law firms will continue to ransack businesses.