Why Does Class-Action Defense Spending Continue to Rise?

Posted: May 10, 2018

It’s almost inevitable; once a company grows its market to a certain size, its stakeholders are likely to face class-action litigation. Despite a downward trend in class-action defense expenditures from 2011 to 2014, spending has now reached its highest level since 2010.

The payout for consumers is marginal; most of those who participate in a class-action lawsuit only see checks for no more than ten dollars, and the amount is usually much less. Attorneys, however, collect fees based on the scope of work they perform, which incentivizes them to seek consumer-protection cases of a class-action size.

The $2.24 billion class-action market has been the driving force behind some of today’s most helpful consumer-side changes. As the momentum of positive change accelerates, so too will the total cost of class-action defense.

At the outset of mass litigation, particularly in the 1970s, 80s, and 90s, cases helped curb such widespread issues as asbestos, lead, addictive drugs, and tobacco use. Once legal counsel and consumers learned of the power of class-action lawsuits, and after those initial cases were settled, suits started to move toward such areas as securities fraud, mass employment litigation, and consumer-fraud class-action litigation.

Spending has been on the rise ever since. But the story goes deeper; recently, consumers and lawyers are filing fewer labor & employment and consumer fraud cases (though the two still account for over 40% of spending in class-action matters) and are increasing legal action in product liability and antitrust cases. The root of the sudden shift may lie in our now highly-connected communication infrastructure.

Consumers Are More Aware

Easy access to public information concerning best practices for nearly any industry has given consumers the chance to seize more opportunities to protect themselves. 2017 class-action trends show increases in such cases as marketing claims disputes, suits against opioid manufacturers, and data breach litigation, which hints that consumers are looking to protect their consumable products, medicines, and personal security information.

Though legal professionals now have access to more technologies that allow them to handle cases on a larger scale, the number and complexity of mass litigation cases keep too close a pace to allow those technologies to help decrease defense spending.

Consumers Are More Conscious of Health and Safety

2018 class-action suits so far are addressing consumer-side issues such as cancer allegedly caused by household products (such as baby powder and weed killer), dangerous medications, defective airbags, and harmful business practices.

patient with doctor smilingThe possibility of the inclusion of carcinogenic ingredients in daily-use products has raised concerns in such cases as the Johnson & Johnson talcum powder suit in which multiple consumers have claimed that repeated use of the product caused the onset of cancer. Though evidence of a link between the powder and cancer is well-disputed, consumers and their legal counsel are likely to continue to explore what kinds of products may be causing cancer and how they can work to remedy the issue.

But carcinogens aren’t the only concern – a 300% increase in opioid prescriptions since 1999 may also bring about legal action on behalf of patients who believe that opioid drug formulations are responsible for their addictions. Those who have received opioid prescriptions, claim addiction, and seek legal counsel are identifying quotas for representatives, aggressive marketing tactics, and financial kickbacks for doctors who prescribed opioids as channels for over-prescription of opioid medications.

Class Action Suits Are Low-Cost and Fast to File

Despite the heavy cost of class-action defense, filing a suit for the plaintiff is relatively fast and low-cost. Public information and online search tools such as forums allow consumers to quickly find like-minded individuals who are dissatisfied with products and services. Some companies even seek potential plaintiffs actively through advertisement and cold correspondence.

Additionally, the The 9th Circuit Court of Appeals has recently lowered standards for evidence required for plaintiffs to file a class-action suit. Courts can now certify class actions based on evidence that is not even admissible at trial.

The May 3 ruling will make it easier for class claimants to advance their claims against employers, and should spur employers and their defense counsel to adjust their litigation strategy accordingly.

It’s a win-win for consumers and their lawyers. Though the plaintiff gets very little or no payout in the event of a successful case, he or she helps to solve a problem of widespread concern, and the plaintiff’s counsel receives his or her fees.

However, measures to decrease the burden on class-action defense are already moving forward. Some states have passed tort-reform laws capping damages paid out to individuals, which will weaken the incentive for the lawyers of the plaintiffs to file frivolous cases. New laws on junk science and pleading standards are on their way to the forefront that may prevent insignificant or poorly-backed cases from making their way to court.

For now, businesses must monitor trends and cover bases. Decreases in class-action defense spending may be just ahead, but the changes are likely to come slowly.