Class Actions are becoming unsustainable not from a legal point of view or an economic point of view or a justice point of view but from a moral point of view. That is the implication from the current batch of vocal critics.

Is it a good vibe when a law firm or litigation funder becomes the largest stakeholder in a class action lawsuit? 

Class actions have a mathematical problem. The more members there are in a class, the larger will be the share going to the professionals compared to the individual class members. This is not a miscalculation of morality. It is how the numbers work out as a result of the calculation of a class action distribution.

It is mathematics not morality. When hundreds or thousands of class members receive a share of a settlement there is a good chance that their individual share will be less than the share going to the law firm and funder. 

From an article in The Australian:

The people of Oakey, whose lawyers had once predicted would win a $200 million payoff, would get only $16.4 million shared among about 450 people – $36,000 each on average. The Williamtown payout totalled $54 million shared between a similar number of people, but to Rob Roseworne and others it was hard to see how that would get them out of the trap they were in.

Then came another revelation: lawyers for the three communities had reaped $30 million in fees from the case, and the litigation funder estimated its profit would be $51.5 million. More than 40 per cent of the settlement would be swallowed up in fees and commissions, while people such as ­Roseworne faced the prospect of either selling their devalued homes and businesses at a big loss or staying put on contaminated land. “We’re looking at a pittance,” he says bitterly. “But the funder has made a fortune.”

It’s a bad vibe. Victims collect $36K each, the lawyers get $30 million and the funders make a profit of $51.5 million. The article is a morality ‘hit piece’. 

Big business has been complaining about class actions for a long time but they don’t have the moral persuasiveness. When their big law firms advocate for them, well, ho hum, who cares.

The shaming of law firms and funders is rising to a new level, exacerbated by the competitiveness of law firms to get class action cases.

Law firms have to act quickly or else risk losing out to another firm. In the midst of the trauma of the Covid crisis, plaintiff firms and funders can easily be portrayed as greedy and predatory, taking on the suffering travel and cruise companies, nursing homes and the ‘beneficent’ governments of Australia etc, etc.

More from the The Australian:

Attorney-General Christian Porter has vowed to widen a planned inquiry into the booming class actions industry to look at the potential for “profit-motivated litigation funders” to exploit the pandemic. [more]

Liberal MP Jason Falinski describes litigation funders as a “plague of locusts” that had “turned our justice system into a casino”. [more]

It is up to the law firms and funders to take control of the vibe. It is not going to be easy to explain that $36K for a victim versus millions of dollars to a law firm and its funder is not a moral miscalculation but the natural  calculation of a class action settlement.