The Case For Class Action Lawsuits

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The Case For Class Action Lawsuits

Unread postby webmaster » Thu May 17, 2007 6:34 am

When Government Fails;
The Case For Class Action Lawsuits and Less Government Regulation


Ambulance chasers don't do class action.

I've spent a lot of time considering this because I'm no fan of lawyers "taking advantage" of the law. But what it comes down to is that large multi-national corporations, especially insurance companies, base all of their policy decisions on profitability and return on investment. Because corporate decision making is driven by profitability, a system needs to be in place to protect consumers and make it more profitable for corporations to do what is reasonable to provide for public safety.

So, just how do you design a system that protects consumers and still allows corporations the ability to grow without undue regulation and government interference? How do you design a system that encourages a corporation to be profitable and competitive, but still protects consumers?

The difficulty arises because it is often more profitable for a company to harm a calculated percentage of consumers than to fix a problem. Just as water will always follow the path of least resistance, so too corporations will always choose the more profitable behavior. The collective compensatory damages in a class action - combined with the high legal expense - have a punitive effect on companies that damage consumers. And most importantly, class actions also serve as a deterrent against those considering crossing the line of ethical behavior.

Class Action Lawsuits are designed to make it more expensive for corporations to ignore defects in their products than to simply account for them by building-in the relatively small cost of damages claimed by individuals.

When the damages to an individual are comparatively small, the individual has no incentive to make a claim. It would cost more in time and resources than an award would be worth. Corporations know this, and take advantage of it. In some cases even planning their profitability around that very fact. That is why it is so very easy for a corporation to cheat consumers out of small amounts.

Those small amounts, multiplied by millions of consumers, multiple products and years of distribution add up to billions of dollars stolen from the public every year and create an environment of unfair competition in the free marketplace.

It is the punitive damage awards in class action litigation which tell an electronics manufacturer that a 3% failure rate on a cardiac pacemaker is not "acceptable"; that 1 in 600 space-heaters setting a home on fire and killing a family is not an acceptable loss; and an airplane manufacturer that the loss of hydraulic pressure on 1 in 1000 flights over 1200 hours between services is not an acceptable risk.

Class actions lawsuits aren't brought to bring large rewards to the litigants. They are brought to hold corporations responsible for their decisions and to force them to act in the interest of public safety. As such, it is clear that class action litigation plays a critically important role in a democracy and free market that desires smaller government and as little regulation as possible.

The alternative is to empower government to do that work which, of course, leads to nothing but influence peddling and K-Street lobbyists buying off public servants.

It has taken most of my adult life to come full circle on this issue. I'll put my money on the judicial system over the legislative system any day.

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Don Thompson
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