Who Benefits From Class Actions?

Lawyers.

But you probably already knew the answer to that one. No offense to my many legitimate attorney friends.

It seems that almost every week we receive a notice of a class action, of which someone in my family is fortunate enough to be in the "class." It seems that the lawyers are working overtime to find something to sue big corporations for. Whether it be cell phone service, automobile defects, insurance, homeowners' associations, computer companies, etc.--they've all been sued and we have become proud owners of the $.19 check when all is said and done. Once we were pleasantly surprised with a 10% discount for merchandise at a store that was sued.

Last week, I received a letter in my third grade son's name. The return address was the familiar "Class Action Litigation". This time it was against our health insurance company for not covering specific services. I found this odd since A) 99% of the services were for the baby and me, not my son, and B) they were covered according to the terms of my insurance (I'm particular about these things).

However, some law office found lackeys who agreed to be the ever important "Class Representatives." Therefore, I now have an opportunity to get reimbursed for services that I paid for out of pocket. OK. If my insurance company wants to settle and pay me in the process, that's fine with me, as long as they know that I didn't ask for it.

So, how much will the attorneys be awarded if this settlement is approved at the next hearing? Let me quote the pertinent clauses of the material that was sent to me. You won't need a magnifying glass to read my type:

"The Settlement has an estimated value of between $249 and $264 million . . . Class Counsel will apply to the Court for an award of attorneys' fees based on a percentage of the Settlement not to exceed 2.5 times their unreimbursed fees based on hourly rates, known as the 'lodestar' . . . Excluding fees and expenses that were previously paid to Class Counsel . . . total lodestar in the case is approximately $30,700,000 and the total expenses and costs are approximately $1,715,000."

Then it goes on to explain that it's the least they should get considering that they worked really hard for seven years at a risk due to the contingency basis. Let's see, $30M divided by 7. Hmmm. That would be over $4M a year. Yeah, I'd work for free for seven years, if I thought I may get that much at the end.

So, what do the Class Representatives receive for being used for a total of seven years? "Class Counsel also intend (emphasis added) to apply to the Court for an incentive award for the Class Representatives" (because if they paid them directly, they'd go to jail, like this guy--but that's just a small detail). It appears that there are three representatives, each will be requested to receive an amount not to exceed . . . . $1,000,000? No. $500,000? Um, no. $100,000? Not quite. Try $60,000. Let's see, $60K divided by 7. That would be a little more than $8,000 per year.

Doesn't seem fair, considering that without these folks the lawyers would have received nothing. Nada. Zero. Zilch.