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

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 27
    MON
  • 28
    TUE
  • 29
    WED
  • 30
    THU
  • 31
    FRI
Monday, October 27, 2014 | 10:00 a.m. – 11:30 a.m.
State income taxes and the Supreme Court: Maryland Comptroller v. Wynne

Please join AEI for a panel discussion exploring these and other questions about this crucial case.

Tuesday, October 28, 2014 | 9:30 a.m. – 12:15 p.m.
For richer, for poorer: How family structures economic success in America

Join Lerman, Wilcox, and a group of distinguished scholars and commentators for the release of Lerman and Wilcox’s report, which examines the relationships among and policy implications of marriage, family structure, and economic success in America.

Tuesday, October 28, 2014 | 5:30 p.m. – 7:00 p.m.
The 7 deadly virtues: 18 conservative writers on why the virtuous life is funny as hell

Please join AEI for a book forum moderated by Last and featuring five of these leading conservative voices. By the time the forum is over, attendees may be on their way to discovering an entirely different — and better — moral universe.

Thursday, October 30, 2014 | 2:00 p.m. – 3:00 p.m.
A nuclear deal with Iran? Weighing the possibilities

Join us, as experts discuss their predictions for whether the United States will strike a nuclear deal with Iran ahead of the November 24 deadline, and the repercussions of the possible outcomes.

Thursday, October 30, 2014 | 5:00 p.m. – 6:15 p.m.
The forgotten depression — 1921: The crash that cured itself

Please join Author James Grant and AEI senior economists for a discussion about Grant's book, "The Forgotten Depression: 1921: The Crash That Cured Itself" (Simon & Schuster, 2014).

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled today.
No events scheduled this day.