Over the last few years, statutory penalty class actions have become the scourge of businesses of all stripes. Few of these “consumer protection” class actions redress any actual harm. Instead, their lucrative penalty schemes encourage lawsuits over hyper-technical statutory violations and promote “creative” interpretations of otherwise well-intentioned laws. See, e.g., In re Nissan Odometer Litigation (2009). Companies faced with such litigation often find themselves pressured into extortionate settlements.
These lawsuits are terribly unfair. If your child were to ask you why your company should win a statutory penalty class action, you would probably say, “We weren’t mean, we didn’t hurt anyone, and the people who file these lawsuits are selfish.” Happily, in this childlike response, you may find key elements of a successful defense. Statutory penalty class actions often present few “individual issues,” but you can—and should—focus on other dispositive considerations, particularly the “adequacy” of your adversaries. You may find a good—and fun—story to tell.
In this two-part article, we describe how you can turn the “adequacy” requirement of Rule 23(a)(4) to good purpose. First, we focus on the class representative and class counsel, looking at how the social and legal phenomenon of “gotcha” class actions lend themselves to circumstances that can undermine the adequacy of plaintiffs and their lawyer. In part two, we will focus on how the pursuit of these claims may put claimants and their counsel in conflict with the interests of the broader class they purport to represent.
The Problem
Statutes like the Fair and Accurate Credit Transactions Act (FACTA), the Telephone Consumer Protection Act (TCPA), the Video Privacy Protection Act (VPPA), and many others provide a uniform rule of decision for class treatment. Their liability schemes are strict and their penalties, when multiplied by the number of transactions, can reach staggering sums. It is truly a sad state of affairs when one of the defenses potentially available is that the damage award may “annihilate” your company.
Many plaintiffs’ counsel use these cases to make a quick buck. They file and settle claims quickly, often on an individual basis. Other lawyers, though, want to stuff their pockets. These lawyers do not care how many people they put out of work, or the harm they inflict on important and well-intentioned companies. What can you do? Follow your childish instincts!
