Harm-Less Lawsuits?
What's Wrong with Consumer Class Actions

FOR IMMEDIATE RELEASE: May 10, 2005

Harm-Less Lawsuits?


Download file This press release is also available here as an Adobe Acrobat PDF.

What’s the latest way to get a share of $10.1 billion? Participate in a class action suit against a large group of companies and claim that their products could—hypothetically—have harmed you.

American tort law had always operated on the principle of “no harm, no foul.” No longer. Without claiming any smoking-related harm, past, present, and future plantiffs in one class action suit against tobacco companies were awarded $10.1 billion. Their injury? They claimed to be the victims of deceptive advertising of “light” and “low-tar” cigarettes, despite the companies’ warnings and compliance with strict federal guidelines.

Should a plaintiff have to prove that he or she was harmed by the defendant’s product when suing for damages? While the answer may seem obvious, recent consumer class action suits have effectively dispensed with the injury requirement. Lawsuits against pharmaceutical, electronic, tobacco, and fast-food companies have been allowed to proceed under broadly worded state laws against fraud, misleading advertising, and general unfair business dealing, and have eliminated the need to prove injury, causation, or the consumer’s reliance on the company’s alleged misrepresentation. The result is billion-dollar verdicts and settlements for consumer classes whose harms are purely hypothetical.

In Harm-Less Lawsuits? What’s Wrong with Consumer Class Actions (AEI Press, April 2005), AEI scholar Michael Greve describes the origins of consumer class actions and analyzes their theoretical and practical problems. Greve traces the birth of these “harmless lawsuits” to consumer advocacy groups attempting to protect allegedly irrational consumers against corporate exploitation. Common law has traditionally presumed that consumers are, by and large, sufficiently rational to bargain for contractual protections. Consumer law theorists deny that assumption and proceed to argue that the public policy objective of deterring wrongful corporate conduct requires broad-based private enforcement, regardless of whether the particular plaintiffs suffered actual harm.

Greve points out that, somewhat perplexingly, consumer class actions are receiving support from a substantial new body of legal and economic scholarship. The theory behind these papers embodies the belief that class action suits that encompass all possible claimants and that fully compensate for every possible injury will efficiently deter wrongful actions by companies. This view is mistaken according to Greve, who believes that actions on behalf of unharmed consumers, when added to existing legal protections and recovery of damages for injured claimants, will generate excessive awards and unnecessary deterrence.

Harm-Less Lawsuits? concludes with the notion that a viable reform agenda must focus not only on the courts and their rulings, but also on the laws and regulations that give rise to these rulings. To protect against the massive risk of excessive enforcement and deterrence, the application of consumer protection laws should be closely tied to traditional common-law requirements. Otherwise, the costs of these lawsuits in terms of forgone production and innovations are substantial and likely to increase over time.

###

Key Points

  • Billion-dollar verdicts and settlements are being awarded to groups of people who have suffered no injuries. These consumer class actions are sanctioned by broadly worded state laws that claim to protect consumers—who are assumed to be irrational—from corporations.
  • By awarding damages to unharmed plaintiffs, consumer class actions are at odds with traditional, common-law notions of justice and fairness.
  • Consumer advocates claim that the threat of debilitating awards deters corporate misconduct. However, large penalties for purely hypothetical injuries deter legitimate and beneficial corporate activity.
  • Law and economics scholarship generally endorses broad-based class action suits as an efficient means of deterring wrongful corporate conduct. However, outside the common-law context of actual injuries and what caused them, the calculation of “efficient” deterrence penalties becomes pure guesswork.
  • Until now, tort-reform efforts have largely ignored the problem of consumer protection statutes and their enforcement by private litigants rather than by public agencies. A plausible reform agenda will have to target the role of state statutes and legislatures, as well as tort law and courts.
Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

We still don't know how many people Obamacare enrolled
image The war on invisible poverty
image Cutting fat from the budget
image Speaker of the House John Boehner on resetting America’s economic foundation
AEI on Facebook
Events Calendar
  • 15
    MON
  • 16
    TUE
  • 17
    WED
  • 18
    THU
  • 19
    FRI
Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.