Business Costs & Regulation

Class-Action Lawsuit or Shakedown?

Too many of these lawsuits are based on nit-picking offenses, with negligible compensation for the "injured" consumers.

Q. Three years ago I purchased a brand-name gas grill for $350, and it’s been a dream to use ever since. But a class-action lawsuit was filed against the manufacturer, alleging that it defrauded me and other buyers with a “Made in U.S.A.” label.

The manufacturer says the grill was designed, engineered and fully assembled in the States but acknowledges that a small percentage of the parts were imported. It denies that its label was deceptive in any significant way, but to avoid expensive litigation, it agreed to settle.

SEE ALSO: The Money and Ethics Quiz

I’ve been notified that my share of the settlement will be $5. (Other buyers will get either $2 or $9, depending on which grill they bought.) The grill buyer who agreed to "represent" the rest of us as the lead plaintiff stands to get $5,000 for lending his name to the suit. The plaintiff's law firm is asking the court for about $1 million in fees and expenses.

I don’t feel defrauded, and I feel sorry for a respected American company that seems to have been shaken down by the law firm that put this "class" together. What do you think?

A. I agree. To me, there was no material deception here, and if I were the judge, I hope I would have had the courage to throw out the case before it got to this stage. I wish more corporations had the courage to fight suits like this, but they and their insurance companies understand all too well the costs and risks of a trial by jury.

Class-action suits have their place in our legal system. Some have advanced social justice by holding corporations accountable for egregious violations, such as employment discrimination, price fixing, selling dangerous products and fraudulent labeling.

But too many of these lawsuits are based on nit-picking offenses, with negligible compensation for the "injured" consumers and excessive enrichment of the lawyers. Sadly, they drive up the cost of doing business in America, and we all pay.

This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.

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