Consumer class actions often generate billion-dollar verdicts or settlements, even when the plaintiffs’ class is composed entirely of individuals whose harms are purely hypothetical. Typically, these cases proceed under broadly worded state laws against fraud, misrepresentation, unfair business dealing, and the like. The plaintiffs are not required to show that they actually relied, to their detriment, on the defendant’s alleged misrepresentation. Consumers who were injured are explicitly excluded from the class and may obtain separate redress for their harms.
Such “harm-less lawsuits” are supported not only by trial lawyers and ideologically motivated consumer advocacy groups but also, and somewhat perplexingly, by a substantial body of law and economics scholarship. Class actions that encompass all possible claimants, the theory runs, will provide finality and efficient deterrence of wrongful corporate conduct. That view, however, is almost certainly mistaken. When added to existing legal protections and recovery for injured consumers, additional actions on behalf of unharmed consumers will generate double recoveries and excessive deterrence.
Harm-Less Lawsuits? describes the origins of consumer class actions and analyzes their theoretical and practical problems. It concludes that a viable reform agenda must focus not solely on courts and common law tort but rather on the statutory laws that give rise to those actions. To protect against the massive risk of excessive enforcement and deterrence, the private enforcement of consumer protection laws should be closely tied to traditional common law requirements of detrimental reliance and loss causation.
The AEI Liability Studies examine aspects of the U.S. civil liability system central to the political debates over liability reform. The goal of the series is to contribute new empirical evidence and promising reform ideas that are commensurate to the seriousness of America’s liability problems.
Michael S. Greve is the John G. Searle Scholar at AEI, where he directs the AEI Federalism Project and founded the AEI Liability Project in 2003.