We've been discussing for years just how broken
the "class action" lawsuit system is in the US. The idea
behind it sounds like it makes sense: if a company wrongs a bunch of people, the ability to bundle them all into a class, and get recompense via a single lawsuit seems like a good idea. But, in practice, class action lawsuits have basically just become a feeding trough for lawyers to become rich, with very little done to help those wronged. In some cases, the end results of class action lawsuits are completely laughable. Years ago, for example, we highlighted how Netflix "settled"
a class action lawsuit by giving everyone a free one-month "upgrade," but if you failed to downgrade by the end of the month, you were kept on the higher plan and charged for it. As I said at the time, that wasn't a "settlement" so much as a marketing program. And, oh yeah, the lawyers who brought the lawsuit against Netflix got $2.5 million.
Law professor Eric Goldman, who's spoken out about the broken class action system in the past, has another ridiculous example, this time involving Heartland Payment Systems
. You may recall Heartland as being the company that had the largest security breach
ever (at the time), losing data on over 100 million credit cards. A class action lawsuit (of course) followed, and Heartland agreed to pay up to anyone who could show that they were a victim of fraud from the loss. The company didn't have cardholder addresses, so it spent $1.5 million to advertise the settlement, and estimated that over 80% of the potential class saw an ad at least 2.5 times. Either way, not too many claims came in. A total of 290 claims were made, but only 11
were found to be valid.
Heartland had to pay a maximum
of $175 to those individuals. Assuming it did pay the maximum, that means the "victims" of the breach got a grand total of $1925 (perhaps less). According to the settlement agreement, Heartland was supposed to pay out at least $1 million to victims (and up to $2.4 million). If less than $1 million worth of victims were found, the rest would go to non-profit organizations focused on protecting consumer privacy rights. That leaves $998,075 for those non-profits.
So, let's summarize:
- Actual victims got: $1925
- Heartland spent $1.5 million to find the people to give out that $1925.
- Somewhere around $998,075 goes to non-profits
- The lawyers who brought the lawsuit? They got $606,192.50. For helping 11 people get less than $200 each. Nice work if you can get it.
That $600k is actually a "discount." The court recognizes the absurdity of using the full $1 million in calculating the "settlement," so it knocks down the "value" (but not the payment) of the money going to the nonprofits, and then uses a bunch of random magic to award the attorneys that $600+k. And, of course, Heartland also ended up paying its own lawyers a ton. In the end, this system involved Heartland paying many millions of dollars... to benefit a "class" of 11 people and giving them less than $2,000.
As Goldman notes, the whole thing seems bizarre:
Thus, it appears they spent over $130,000 to generate each legitimate claim. Surprisingly, the court blithely treats the $1.5M expenditure as a cost of doing business, but I can't wrap my head around it. What an obscene waste of money! Add in the $270k spent on claims administration, and it appears that the parties spent $160k per legitimate claimant. The court isn't bothered by the $270k expenses either, even though that cost about $1k per tendered claim (remember, there were 290 total claims).
Something is broken with the system.