Basic Strategic Considerations in Defending Consumer Class Actions Against Franchisors
This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
Most consumer transactions are for small amounts of money.1 Consumers who believe they have been deceived or defrauded during these transactions have little recourse because, as Judge Richard Posner once wrote, "only a lunatic or a fanatic sues for $30."2 And even if a consumer is a lunatic or a fanatic, he will likely be on his own in court: there are certainly few lawyers interested in taking those cases on contingency, and even a crazy person will rarely be willing to pay by the hour to recover what, in most cases, is no more than a few hundred dollars.
The class action procedural rules provide consumers with a plausible means of obtaining relief. These rules allow similarly situated individuals to aggregate their claims so that the potential damages are large enough to interest competent plaintiffs' lawyers in taking the case on contingency.3 The financial incentive is often strong enough to trump the disadvantages of class actions for plaintiffs, such as the additional responsibility of protecting the class's interests, the potential for prolonged litigation and delay in receiving relief, discovery into whether the class representative and the class counsel can adequately represent the class, and increased litigation expenses if the case is unsuccessful.4
[Full text is available in the PDF below.]
1. A recent study by the Federal Reserve found that the average value of debit card transactions is around $37. FED. RESERVE SYSTEM, THE 2010 FEDERAL RESERVE PAYMENTS STUDY: NONCASH PAYMENT TRENDS IN THE UNITED STATES: 2006–2009, at 16 (2010), ww.frbservices.org/files/communications/pdf/press/2010_payments_study.pdf.
2. Carnegie v. Household Int'l, Inc., 376 F.3d 656, 661 (7th Cir. 2004) (Posner, J.).
3. See 1 HERBERT NEWBERG ET AL., NEWBERG ON CLASS ACTIONS § 1:7 (5th ed.) (noting that "[t]he class action device is often the sole means by which individuals may receive compensation").
4. See John Dienelt & Margaret Middleton, Settling Franchise Class Action, 21 FRANCHISE L.J. 112 (2002).