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New Study Finds That Class Members Rarely Benefit From Class Actions

Posted in Class Action Settlements

Proponents of class actions often contend that these lawsuits deliver substantial benefits to class members. But while media coverage of class actions often suggests that class members are receiving millions of dollars in relief, most practitioners in the class action arena know that the reality is quite different. That said, to date there has been little empirical information on the practical results of class actions.

My colleagues and I have sought to change that. At the request of the U.S. Chamber’s Institute for Legal Reform, a team of Mayer Brown lawyers (including Andy Pincus and me) have produced a study detailing how consumer and employee class actions filed in 2009 actually fared in practice. The bottom line: of the class actions we studied, only a few cases delivered tangible benefits to more than a small fraction of class members.

A copy of the study is available here. It has already received press coverage in Forbes and Reuters’ On the Case blog.

What did the study entail? We undertook an empirical analysis of a neutrally-selected sample set of 148 consumer and employee class action lawsuits filed in or removed to federal court in 2009. (The study explains our methodology in detail.)

Here are our key findings:

  • In our entire data set, not one of the class actions ended in a final judgment on the merits for the plaintiffs. And none of the class actions went to trial, either before a judge or a jury. 
  • The vast majority of cases produced no benefits to most members of the putative class—even though in a number of those cases the lawyers who sought to represent the class often enriched themselves in the process (and the lawyers representing the defendants always did).
    • Approximately 14 percent of all class action cases remained pending four years after they were filed, without resolution or even a determination of whether the case could go forward on a class-wide basis. In these cases, class members have not yet received any benefits—and likely will never receive any, based on the disposition of the other cases we studied.
    • Over one-third (35%) of the class actions that have been resolved were dismissed voluntarily by the plaintiff. Many of these cases settled on an individual basis, meaning a payout to the individual named plaintiff and the lawyers who brought the suit—even though the class members receive nothing. Information about who receives what in such settlements typically isn’t publicly available. 
    • Just under one-third (31%) of the class actions that have been resolved were dismissed by a court on the merits—again, meaning that class members received nothing.
  • One-third (33%) of resolved cases were settled on a class basis. 
    • This settlement rate is half the average for federal court litigation, meaning that a class member is far less likely to have even a chance of obtaining relief than the average party suing individually. 
    • For those cases that do settle, there is often little or no benefit for class members. 
    • What is more, few class members ever even see those paltry benefits—particularly in consumer class actions. Unfortunately, because information regarding the distribution of class action settlements is rarely available, the public almost never learns what percentage of a settlement is actually paid to class members. But of the six cases in our data set for which settlement distribution data was public, five delivered funds to only miniscule percentages of the class: 0.000006%, 0.33%, 1.5%, 9.66%, and 12%. Those results are consistent with other available information about settlement distribution in consumer class actions. 
    • Although some cases provide for automatic distribution of benefits to class members, automatic distribution almost never is used in consumer class actions—only one of the 40 settled cases fell into this category.
    • Some class actions are settled without even the potential for a monetary payment to class members, with the settlement agreement providing for payment to a charity or injunctive relief that, in virtually every case, provides no real benefit to class members.

In short, our study reveals that class actions do not provide class members with anything close to the benefits claimed by their proponents. The only real winners are the lawyers (both on the plaintiffs’ and the defense side, to be sure.) Thus, while courts, policymakers, and members of the public often assume that class actions do a great job delivering benefits to class members, our study reveals that such class actions are the exception, not the rule.