Class Action - Criticisms

Criticisms

There are several criticisms of class actions. The preamble to the Class Action Fairness Act stated that some abusive class actions harmed class members with legitimate claims and defendants that have acted responsibly; adversely affected interstate commerce; and undermined public respect for the country's judicial system.

Class members often receive little or no benefit from class actions. Examples cited for this include large fees for the attorneys, while leaving class members with coupons or other awards of little or no value; unjustified awards are made to certain plaintiffs at the expense of other class members; and confusing notices are published that prevent class members from being able to fully understand and effectively exercise their rights.

For example, in the United States, class lawsuits sometimes bind all class members with a low settlement. These "coupon settlements" (which usually allow the plaintiffs to receive a small benefit such as a small check or a coupon for future services or products with the defendant company) are a way for a defendant to forestall major liability by precluding a large number of people from litigating their claims separately, to recover reasonable compensation for the damages. However, existing law requires judicial approval of all class action settlements, and in most cases class members are given a chance to opt out of class settlement, though class members, despite opt-out notices, may be unaware of their right to opt out because they did not receive the notice, did not read it, or did not understand it.

The Class Action Fairness Act of 2005 addresses these concerns. Coupon settlements may be scrutinized by an independent expert before judicial approval in order to ensure that the settlement will be of value to the class members (28 U.S.C.A. 1712(d)). Further, if the action provides for settlement in coupons, the attorney must take a corresponding part of his fee in coupons. 28 U.S.C.A. 1712(a).