The single most scandalous thing about the American tort system is the low percentage of people who truly benefit from class actions. It's no mystery why this happens. Defendants want to keep redemption rates low -- and many plaintiffs' lawyers don't care. Their fees are set when deals are signed and pegged to a high theoretical number of claimants. And judges are way too busy to bird-dog settled disputes. This distorted set of incentives produces unintelligible award notices buried deep in newspapers, burdensome forms to fill out, and short claim periods.
Solution: Reverse the economics of class-action settlements. Plaintiffs' lawyers should be paid after victims collect their money -- not before. This would have two benefits. First, it would make lawyers more aggressive about getting the word out to class members. Second, and more important, it would filter out a high percentage of the system's silliest claims. One of the main reasons people don't bother to collect class-action benefits is that they don't perceive any injury in the first place.
An equally important move would target cases that require almost no work. Consider the dozens of suits filed against Christie's International and Sotheby's Holdings for price-fixing in 2000. Because the U.S. Justice Dept. dug out plentiful evidence of a joint conspiracy to prop up the sales commissions that the two premier auction houses charged clients, the private filings were slam dunks.
While the plaintiffs' lawyers helped distribute money to victims, they didn't deserve their typical 33% share of the take. So U.S. District Judge Lewis A. Kaplan of Manhattan came up with a creative plan: forcing plaintiffs' lawyers to bid for the job in a reverse auction. The firm that promised to give the biggest sum to the victims won. This is one of the best ways ever devised to ensure that the tort system effectively fulfills its compensation function.
Pay for Performance
