Yahoo Settles Class Action Lawsuit; Attorneys Walk Away with $4.3 Million!

It’s a bit more complicated than “class actions are bad”. What do you do, for example, when 1,000,000 people suffer a $20 harm (or 10,000,000 people suffer a $2 harm)? There’s no efficient way to litigate those claims other than as a class action. If you eliminate class actions, you effectively immunize highly profitable “mistakes” by corporations that serve large numbers of customers. I use small numbers in my examples, but sometimes the numbers are big: If a claim is less than $5,000, it’s generally not cost-effective to litigate the claim with the help of a lawyer. If the defendant has endless money to tie up cases in litigation, a $50,000 case may be marginal for bringing in a lawyer.

That’s not to say that the compensation system for class action litigation isn’t in need of reform. Unfortunately the effort under G.W. went to the other side – making it more difficult and costly to bring and prosecute class actions as opposed to making the system more cost-effective and making potential rewards proportionate to the class lawyer’s investment of time, effort and money. Why? In my opinion because the defendants presently benefit from their ability to collude with the class lawyers, agreeing to high fee awards in exchange for settlement terms that minimize their compensation of class members or result in an award (e.g., coupons good toward future purchases) that class members are unlikely to use – and that, if used, will often return a profit for the defendant. The defendants wanted it harder to get class actions in the door, but didn’t want to eliminate their best tool for resolving them at minimal cost and maximum benefit to their clients.

In my opinion, coupons issued to class members should always be subject to being sold and aggregated. If an auto manufacturer gives out coupons for $1,000 toward a new car purchase (nice profit for them), no more feigned surprise when “only a small fraction of the number of people we expected to use the coupon actually used it” – instead let them sell the coupons for whatever the market will bear (let’s say, putting $500 cash into their pockets) and let the aggregator use multiple $1,000 coupons toward a single car purchase. But, oh my goodness, then those coupons will actually be used….

How about 90% of the entire claim (fees and all) goes to the claimants, not the attorneys?

Frankly, the claimants don’t usually care about the $20. They want a problem fixed. Often times they aren’t even aware of a problem. The attorneys have a motivation for starting these because they know they will probably win and make lots of $. Take out such a large incentive and in most cases, only cases with true merit would stand.

Whether 90% is the right number or not, I don’t know. But it is simply ridiculous.
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