It is a basic assumption of the posts on this site that any case before the Supreme Court can be made interesting, in some way, to non-lawyer readers. Sometimes, if the core issue is highly technical, it is harder to find that way.
That’s the premise of this report on the cases being heard by the Justices on Monday and Tuesday of this week: two exquisitely refined tests of how a major corporation can try to scuttle a “class action” lawsuit filed against it by a group of consumers. You are being spared most of the details of those cases, getting instead a basic primer on this legal phenomenon, which actually has existed for eight centuries.
To begin with, there is such a thing, online, as the Class Action Lawsuit Center. And it provides a readable, six-paragraph summary of a history of this type of lawsuit, available at https://classactionlawsuitcenter.com/history-of-class-action-lawsuits/
This type of court case, in its modern form, can be understood at two basic levels: from the consumer standpoint, it may be the best way to get something out of suing a big company for misbehavior without having to personally spend a lot on legal fees; from the lawyers’ standpoint, it is a handy way to generate millions in legal fees – paid by the company. The result of both is that the consumer gets some satisfaction, but often not much money individually, and lawyers are often grandly enriched.
From the origins of the “class action” (probably in the 13th Century), it has usually been understood that individuals band together to sue simply because their separate claims are small in value so combining them gets the wrongdoer’s attention – and attracts a lawyer’s interest and skills.
Put in both its modern and its ancient contexts, the “class action” may seem like a hard-nosed economic bargain, devoid of ethical principle.
But, in a society where the government could not enforce a general code of good conduct on corporations (probably, that’s beyond Congress’s constitutional powers; the fate in the Supreme Court of a lot of the New Deal demonstrated that), such behavior can be compelled by successful lawsuits. And, as often happens, corporations agree to settle those lawsuits rather than spend years and millions fighting them, and pay off the consumers it harmed and pay the lawyers.
Sometimes, though, whether a class was validly recognized is an issue that can linger throughout a case, and is tested anew when the trial is over and a verdict is reached against the company.
The Supreme Court in recent years has been somewhat unsympathetic to the phenomenon, as part of a general trend of favoring business interests. Increasingly, it seems, the Court suspects that such lawsuits are often put together by lawyers precisely to force companies into settlement, and lawyers in the end benefit much more than their clients. That is at least partly unfair: many of the complaints against business companies are entirely meritorious and those harmed by misconduct genuinely need a remedy they probably can’t afford to seek on their own.
One of the ways that businesses respond to the pressure of “class actions” is to require the consumers with whom they deal to sign agreements to send any dispute to arbitration, with each individual compelled to pursue his or her own claim in that out-of-court process. The Supreme Court has been sympathetic to such no-group-arbitration clauses in consumer contracts.
For business firms, though, a favored tactic is to try to prevent the recognition of a “class” at the very outset after being sued by a group of consumers. The rules governing such group lawsuits allow a court to “certify” the class, before any trial of the claim, if several threshold requirements have been met: such as, the claim of each member must be the same or closely related in fact and in law, the individual representing the class must be truly representative of the class, the size of the group must be too large to process claims individually, and the class approach must be the best way to get the dispute as a whole resolved.
More commonly, the adequacy of the class designation is decided before trial. But if a class has been accepted by a court, and a trial results in a verdict, the company can seek to undo it by pressing the class question afterward.
The two cases being heard by the Supreme Court on Monday and Tuesday are focused on two companies’ attempts to either shut down a “class action” case at the outset or to erase a big verdict after a trial based on an alleged lack of a proper class.
Monday’s case, Goldman Sachs Group v. Arkansas Teacher Retirement System, involves a claim of securities fraud against the investment firm Goldman and three of its executives. It is a huge case, seeking $13 billion in damages. The class is made up of owners of Goldman shares, claiming that the company put out misleading statements about “subprime mortgages” that the company sold before the financial crisis of 2008, with a negative impact on share prices. The issue in the case is whether Goldman can block the creation of a class by showing that the alleged misstatements did not actually cause a drop in market prices for the shares. (Without getting into it, the investors’ lawsuit is based on a so-called “inflation maintenance” theory of stock price impact.)
Tuesday’s case, Trans Union LLC v. Ramirez, involves a claim by a Dublin, California, consumer – Sergio L. Ramirez. He claimed that he was harmed when a credit report issued by Trans Union, after he had gone to a dealer to buy a car, wrongly said that he was on a government terrorist watch list. The report was based only on a similarity of his name to one on the list. He contended that this injured his credit, caused him embarrassment, and led him to cancel a vacation. He sued not only for himself, but also for thousands of others. The company claims that the nearly $60 million verdict that resulted, for Ramirez and thousands of other consumers, should be set aside because no one else in the class suffered any harm at all so no proper class existed legally.
Each case is scheduled for one-hour of hearing, starting at 10 a.m. each day. As usual, the audio portion (but not the video) will be broadcast on c-span.org/supremecourt
On Wednesday, the Court will hold a hearing on whether it is illegal for colleges and universities to refuse to pay or otherwise compensate student athletes as a way to make sure that they remain amateurs. An analysis of that case will appear here on Tuesday.