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Why Are Class-Action Lawsuits About Drugs So Common?

by AaronG on November 20, 2012

If you have watched more than two hours of nighttime television in the past three years you have undoubtedly seen the advertisements sponsored by some a law firm urging viewers to file a claim for  “compensation” under the terms of settlement in some class action lawsuit if they have used some prescription drug or other such medical product. Based on the number of such ads, one might conclude that the Food and Drug Administration has been lax in its duty to protect the public. Unfortunately, a simple review of the terms of settlement in the majority of class actions lawsuits will demonstrate that the purpose of such advertisements is to generate attorney’s fees that are to be paid out of the funds that are supposedly set aside for “victim’s compensation.”
In class action lawsuits, and regardless of the dollar amount of settlement, the attorney’s for the original plaintiff are paid first. This will immediately decrease the funds available for the individual victim’s compensation by anywhere from 20% to 33%. Only after those fees are paid is compensation awarded to the original, or “lead,” plaintiff.

As a part of the settlement agreement, the court must approve each later plaintiff’s claim to compensation.  Given the possibility that there could potentially be millions of such claims, the courts will allow a “general settlement” to be applied to such later claims. Such later claims are rarely paid in cash but rather in the form of “coupons” such as certificates for free or discounted purchases of the defendant company’s products. The dollar value of such coupons is always stated in “retail” cost, even though the cost to the defendant company is usually considerably lower.  So why, you might ask, are there so many lawyer ads on television?

These lawyers will offer to “advise” their advertisement-recruited clients on how to file a claim for compensation and even file the necessary paperwork with the court on their clients’ behalf, all without charge to the client. The law firm then bills the court and is paid from the remaining settlement funds rather than by their client in accordance with the original settlement order. The firm is paid at an hourly rate of, usually, at least $100 per hour. Multiply this hourly rate by, say, 20 hours and it is easy to see how filing such claims could become a major revenue source for the law firm that is paying for those late night commercials. But what happens if all the money set aside to settle the case is not used?

Any money that was to be used to settle claims is held in a trust fund that is administered by the court for a period of time specified in the settlement order. At the end of the settlement period, any unpaid funds remaining in that trust is simply returned to the defendant company.

In light of the facts that the actual later “payout” of class action claims is pitifully small, and the additional fact that most “plaintiffs” would not be aware that they are entitled to “compensation” if it were not brought to their attention via the electronic media, it must be concluded that the purpose of late-night client recruiting advertisements is to generate attorney’s fees for the sponsors of such ads. As such, the sponsors of such ads would appear to be motivated by the prospect of financial gain rather than by a sense of social and economic justice.

Byline:  Aaron G is a freelance writer specializing in law and social media sites such as badoo.

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