In recent years, consumer fraud class actions challenging food
and beverage labeling, focusing on claims such as
"natural," and "healthy," have flooded courts
nationwide. Plaintiffs' lawyers have leveraged ambiguous or
non-existent federal labeling standards to claim that consumers
were misled and paid a premium for products, which, for example,
contained processed ingredients that were not
"natural."
Unfortunately, the only real winners in these legal battles have
been the plaintiffs' lawyers who collected millions of dollars
in legal fees. Consumers who take the time to make a claim against
a settlement fund have received payments that are a fraction of the
overall amount in the potential fund.
Recently, plaintiffs' lawyers have become even more creative
and are now challenging manufacturers' label claims about how
products are actually made. Alcoholic beverage companies, including
beer, whiskey and vodka manufacturers, are facing lawsuits for
claiming that mass-produced products were "craft,"
"handmade" or "small-batch." Also,
plaintiffs' lawyers have challenged major food chains for
selling "artisanal" products that are made in alleged
assembly line processes.
Any large company that uses this type of terminology exposes itself
to legal challenges that it is deceiving the public by suggesting
that there is something unique and higher quality about how the
company manufactures its goods. In the absence of a formalized
legal standard, the use of terminology that "puffs" the
quality of a product using debatable adjectives -- even where there
are good reasons to differentiate the products -- can expose the
company to potential lawsuits. Any lawyer, working with a willing
consumer to serve as the "class representative," can drop
a costly class action on the doorstep of almost any company.
Every citizen in the United States has benefited from class
actions. The class action procedure makes the prosecution of the
claims possible by enabling an attorney to pool them together into
one large case. Class actions have improved working conditions,
cleaned up toxic wastes, and enforced civil rights.
Unlike the usual civil settlements that lawyers negotiate every day
behind closed doors, judges must approve a class action settlement
to make sure its terms are fair to the entire class. However, after
the judge signs off on a class settlement agreement, little
information is available about how many class members actually
receive compensation and to what extent.
An analysis of the scarce information available on class settlement
payouts does not paint a pretty picture. We find cases in which
small cash amounts are rewarded to a consumer class that is largely
unidentified. In many instances, only a small percentage of
settlement awards actually go to consumer class members. While the
plaintiffs' lawyers can receive millions of dollars in
compensation, only a fraction of the class may take home any
compensation.
The class take rate typically depends on several key factors:
whether the addresses of consumer class members are known or
unknown; the amount of money that can be recovered by a class
member filing a claim (that is, is it worth taking the time to fill
out the form?); the ease of submitting a claim; and the amount of
time allocated for filing claims.
Food cases, in which there are no records of the names and
addresses of the consumers, and the individual payments are
relatively low, will have the lowest take rates. It is difficult to
advise a consumer public who did not register their purchases that
a settlement has been reached. Even if the consumer sees the notice
in a published advertisement, it is still questionable whether a
consumer will make the effort of filling out the claims forms, no
matter how convenient the system may be for filing a claim.
So what should be done?
Congress and regulatory agencies should develop clear and precise
regulations that spell out the adjectives that companies can use in
labeling and advertising, and under what circumstances. Ambiguous
or non-existent standards are an invitation for litigation.
In cases involving settlements with monetary benefits, the courts
should insist on actual information on claims filed to determine
the benefit to class members and should use that information both
to place a value on the settlement and to award attorney fees. The
courts should be active gate keepers in discouraging legal actions
that wind up with millions of dollars for the lawyers, and little
or nothing for consumers.
"Crafty" plaintiffs' lawyers should be restrained
from their push to declare open season on the food industry by
playing off typical promotional claims that may appear on a
package.
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