Class Action Lawsuits Are Broken
Class actions were supposed to hold companies accountable for misconduct. Instead, they’re piggy banks for lawyers.
On September 7, 2017, Equifax Inc. announced that customer data for more than 140 million people had been stolen. Despite having established my first credit line only a year earlier when I signed for my student loans, I was one of the victims. Thanks to Equifax, my Social Security number, birthday, and address will be available on the dark corners of the internet forever.
The level of incompetence displayed by Equifax upon discovering the data breach is hard to put into words. Equifax waited nearly five months to disclose the hack. When announcing a database where you could check if your information was compromised, the company linked to an imposter site on eight different occasions. It attempted to charge people to freeze their credit reports, only backing down due to significant public pressure. Understandably irate, consumers quickly filed what became one of the largest class action lawsuits in United States history.
In the five years since Equifax set my information free to the world, I have had my credit card information stolen three times. I am so paranoid about the potential for continued attempts at stealing my identity that I receive a text or push notification (or both, when possible!) every time I make a purchase or payment.
These troubles and anxieties are, according to the United States District Court of Northern Georgia, worth $6.97, as this was the total I ultimately received in my PayPal a few days before last Christmas.
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Class action lawsuits in the United States date back to at least 1842 , but the rules governing the class action as we know it was put into place about 60 years ago.
Throughout the 1960s, consumers, labor activists, and the nascent environmental movement pushed for a legal mechanism with which they could hold massive corporations accountable for their transgressions. Federal courts and politicians hammered out updates to the Federal Rules of Civil Procedure, the regulations that govern most non-criminal court cases, and these new rules were published in 1966. The modern class action was born.
In theory, class action lawsuits function similarly to a labor union. A large group of individuals, often consumers of a product or service, band together to file a consolidated lawsuit outlining the harms they have suffered. By cooperating the plaintiffs can somewhat level the playing field between themselves and the defendant, who is often a large and powerful corporation.
With their objective of collective empowerment similar that of organized labor, it should come as little surprise that Republicans and corporate Democrats hate class action lawsuits. Conservative judges frequently lean on laws written before the Great Depression to make class action lawsuits harder, imposing onerous restrictions designed to prevent class certification in the first place. Deep pocketed companies often appeal at each step of the class action process, with the ultimate goal being a hearing before the Supreme Court
Our nation’s highest court has spent much of the last decade curtailing the power of class actions. Since 2011, the Supreme Court made it significantly harder to file class actions against wholly owned subsidiaries or foreign companies operating in the United States. Not happy content with their erosion of our civil rights, in 2017 the court ruled 8-1 in favor of pharmaceutical giant Bristol-Myers Squibb in a decision that may make nationwide class action lawsuits functionally impossible.1
But the justices were still not satisfied. In 2018, in Epic Systems v. Lewis, the Supreme Court upheld the practice of mandatory arbitration agreements for employees. Arbitration often prevents collective action and is generally seen as more businesses-friendly than civil procedure.
However, a year before launching their campaign against class actions, the Supreme Court awarded plaintiffs a rare win when it ruled against the practice of state limits on class action payouts. If it’s not the fault of the Supreme Court or state regulation, then who can I blame for the pittance I received from Equifax?
Much of this blame falls on the law firms that specialize in class actions. You’ve likely seen commercials decrying the contaminated water at Camp Lejune or asbestos-linked mesothelioma diagnoses. These ads are sponsored by law firms whose entire practice revolves around filing class action lawsuits. While limits vary by state, attorneys are typically awarded between 25% and 33% of the settlement in a class action. For the Equifax settlement, that amounted to $77 million, roughly 11 million times the amount I received as an actual victim of a data leak.
Thanks to years of digital hoarding, I found notices for 11 additional class actions that I have been a member of since 2017. For four of the lawsuits, I simply never received my payout. The settlement websites ask for your address when you file a claim, but settlements take years to finalize, and the checks likely were lost in the shuffle of my many moves. More recently, courts have allowed class members to accept electronic payouts through ACH, PayPal, or even Venmo, but I found just one such settlement —$35.97 from a company called Plaid that I had never heard of but which also misused my financial info — in my PayPal history.
Two of the settlements were useless. As punishment for charging hidden delivery fees to users, Chipotle was ordered to email each class member a coupon for a free entrée, essentially rewarding the company for their deceit with more business. Even if I wanted to cash in on my mediocre burrito, I have again not received any further updates on the settlement, which was approved on September 16, 2022.
A lawsuit against Epic Games, makers of Fortnite and Rocket League, awarded 1,000 V-Bucks (Fornite’s in-game currency) to class members. 1,000 V-Bucks can be purchased for $7.99. I haven’t played Fortnite since college.
The remaining four class actions are still going through the judicial process, including a case brought against Apple over the batteries on their iPhone 6 and 7 models. I switched from iPhone to Android precise because of the company’s repeated instances of planned obsolescence. That was five years ago, and I look forward to the $25 settlement I will receive from this case when it settles in 2055.
There are ways to secure a better outcome for yourself from a class action lawsuit. If you have the time, resources, and awareness, you can opt out of being included in the class and bring a suit of your own, often in small claims court. This approach is borderline impossible for most people, but it can be particularly lucrative if you draw a friendly judge.
More meaningful improvements to the plaintiff experience must come from the federal government. The Federal Trade Commission should make employee and consumer arbitration agreements its next target after noncompete agreements. State legislatures and Congress should pass damage minimums for common class action torts like data privacy violations. When fines or settlements are too low, as with Equifax, then the company views the penalty as the cost of doing business and has no incentive to change their practice.
Imagine briefly if we implemented a national law fining companies a minimum of $125 per person for mishandling sensitive user data. Instead of a waiting out a five-year court process, everyone whose information was leaked by Equifax could collect their $125 as part of their tax return. Making it part of the tax return process would also allow people to submit documentation if needed, such as if the individual was requesting more than the minimum payout.
And if we really wanted to repair the class action experience, the Democrats could end the filibuster and threaten to pack the Supreme Court, but that will never happen.
There are instances in which class actions are still beneficial. Public interest law firms, the sort that protect the environment or consumer privacy or civil rights, leverage class action lawsuits to bring attention to potentially illegal business practices. The threat of a lengthy, complicated suit can sometimes be enough to move a company to settle with the aggrieved party. Anecdotally, I know two people who received decent payouts thanks to class actions brought against their former employers.
The Equifax lawsuit was not one of these instances.
As part of the settlement, Equifax was ordered by the courts to set aside $505.5 million in settlement funds. At first glance, that seems like a great outcome, as it is currently the largest data privacy payout in history.
The shortcomings of this settlement become readily apparent after quick scrutiny. If you read the details of the case, the lawsuit determined that claimants were owed at least $125 for having their data leaked, with the potential for increased settlements for those who suffered extra harm. Equifax publicly stated that 147 million people had their data leaked.
Doing some quick math, that means the total amount of money set aside for claims comes out to a mere $3.43 per person — and that is before $77 million was set aside for attorneys’ fees. More than half of all US adults had their credit reports stolen, yet a coterie of highly paid attorneys and a federal judge were perfectly comfortable declaring your most sensitive financial information to be near-worthless.
The day the hack was announced, shares of Equifax fell 13% as investors panicked. However, if you bought shares of Equifax sometime in the six months following the news as the price hovered around $100, your investment would have more than doubled by today. In the past 12 months, Equifax brought in $5.1 billion in revenue, netting themselves a profit of more than $3 billion, an amount roughly six times what the firm had to pay to consumers in damages.
My settlement fee of $6.97 is less than the postage paid by my credit card companies to mail me my different replacement cards after each of my identity thefts.
Things I Enjoyed This Week
Terrorism and Counterterrorism in Cop City | Forever Wars [an excellent read as we once again confront the tragic consequences of deacdes of police brutality]
Stop Talking to Each Other and Start Buying Things | Welcome to Garbagetown
Elon Musk’s Appetite for Destruction | The New York Times
SF Bay Bridge lights installation to come down, unless $11 million is donated | The San Francisco Chronicle
She was the PTA mom everyone knew. Who would want to harm her? | The Los Angeles Times
As always, thank you for reading. I know this week’s topic was a bit dry, but I feel strongly about holding companies accountable for their misdeeds, something that fundamentally did not happen in the Equifax saga.
This frustration is compounded that, unlike with the other class actions I joined against companies like Apple and Chipotle, I never willingly participated in Equifax’s business practices. Their information on all of us is vacuumed up from thousands of sources, from our banks to our employers to our government, and packaged and sold without our knowledge or consent.
I hope you have a relaxing Sunday, one with far less angst than this blog post. Until next time!
I am not an attorney, and nothing in this post constitutes legal advice
Shout-out Sonia Sotomayor one time