America really hates lawsuits. It shouldn't.

In defense of the class-action lawsuit

Lawsuits have their benefits.
(Image credit: Wouter Tulp/Ikon Images/Corbis)

Are Americans too lawsuit happy? If you were to consult reams of commentary, pop culture, and political speeches, the response would no doubt be a resounding "yes." And if recent developments are any indication, you'd also get the same answer from some members of Congress and the Supreme Court.

There's the "Fairness in Class Action Litigation Act of 2015," which requires that class-action suits show "that each proposed class member suffered the same type and scope of injury as the named class representative or representatives." Vague language, which in practice would give defendants in class-action suits a wedge to break up large groups of claimants up into much smaller groups based on any vast number of distinctions the defendant's lawyers can come up with. Meanwhile, the Supreme Court will soon rule on a case, Campbell-Ewald Company v. Gomez, that could allow defendants to derail class-action suits by paying off the original "named plaintiff" and no one else.

Class-actions are a particular form of lawsuit where a very large number of claimants come together to make one case against one offender. Let's say, for example, that a car company installed software in millions of its cars to cheat emissions testing. Hundreds of thousands of car customers would have been defrauded. Yet for any one customer, redressing the harm may not be worth the cost of the litigation. But if lots of customers come together to form a very large group of claimants, (a process usually kicked off by one original "named plaintiff") then all their little claims add up to one big claim that skilled (and expensive) lawyers are willing to represent. And this provides possible defendants incentives to not misbehave in the first place.

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This sort of thing comes about because of the collective action problem, where misbehavior is difficult to punish because its costs are highly diffuse (the thousands of car customers) but its benefits are concentrated (the one car company). Class-action lawsuits are aimed at solving that problem. Both the Fairness in Class Action Litigation Act and the Gomez case attack that logic in pretty fundamental ways.

The hypothetical emissions-test-cheating car company, of course, isn't actually hypothetical at all. Volkswagen got busted back in September for cheating emissions tests on a staggering 11 million of its vehicles. The company now faces a potentially enormous class-action lawsuit over its behavior. The Fairness in Class Action Litigation Act, however, could very well torpedo the litigation. That's why observers have taken to calling it the "VW Bailout Bill."

When it comes to standard individual lawsuits, Americans' outsized litigiousness is a myth. But Americans do have a lot of class action lawsuits. A 2010 analysis from Harvard researchers found that Americans are unusual in the number of class action lawsuits they file and the scale of the awards that are paid out. Australia has had them since 1992, and some Canadian provinces have had them since 1978, but that's about it outside of America.

So maybe it's time to make changes to class-action lawsuits. But then how could we address that collective action problem?

During the latter part of the 20th century there were many class-action lawsuits by workers who were exposed to asbestos on the job. There's a reason for this: Even if the workers knew the job posed a risk of asbestos exposure when they were hired, they may well have not had any real choice in the matter. It was often the only industry in town and people need to pay their bills, feed the kids, and put a roof over their heads. And unless the economy is running at full employment, with lots of job opportunities for everyone — a situation the American economy has barely seen in decades — they're not going to be able to just quit and look for other work. Nor will they have any leverage to bargain their employer into improving working conditions. Individually, those workers had no other recourse. Their problem can only be addressed collectively.

Or just take parents trying to decide if they should let their children swim in a river. They have no idea what chemicals or pollutants have or have not been dumped into it, and gathering that information would be an impossible task for one individual, and wouldn't incentivizing polluters to stop or clean up what they polluted in the past. Imagine a world where we're all on our own to determine the safety of the food we buy, the vehicles we ride in, the emissions from nearby industries, the safety of drinking water, the chemicals in our soil, lead paint in houses, and on and on.

But then, isn't protecting workers from dangerous conditions and swimming children from chemicals what laws and regulation are for?

Yes, precisely. As Kevin Drum once observed, there are a lot of historical quirks unique to the development of American law that probably explain the rise of class-action suits. But maybe the biggest factor is this broad choice every society has to make about how to deal with collective action problems. In Europe "they have more rules and tighter enforcement of those rules, which means that private litigation is less necessary," Drum wrote. But in America, we went with "a litigation culture rather than an enforcement culture." We have a lot of class action lawsuits because we don't do a very good job protecting people from harm through actual laws.

In the end, there are risks where it makes sense to call for individual responsibility; where people can reasonably manage and assess the risk for themselves. Like whether it's smart to swim across a lake or to dive into river when there are lots of boats around. But there are also risks people can't reasonably assess for themselves: like how much pollution is in the river, or whether a drug marketed to cure insomnia and depression also causes birth defects in pregnant women.

Individual responsibility doesn't work then, because of the classic collective action problem of misbehavior that has diffuse costs but localized benefits. And if we don't do a very good job meeting that problem with regulation and laws, civil litigation has stepped in to fill the breach.

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