Access to Justice

OP-ED: A Threat to Class Actions Looms in High Court

Personal experience in a home refinancing case underscores the public policy of suing en masse.

A very important case being heard by the U.S. Supreme Court in the upcoming term is Campbell-Ewald Co. v. Gomez, one that could further diminish the ability of individuals to bring class actions against corporate wrongdoers.

The pending case brings to mind my own experience in a class action. Although I never thought that I would one day be a named plaintiff in such a lawsuit — as the litigant, not the lawyer — in the mid-1980s, that’s exactly what I was. Along with thousands of others, my spouse and I had taken advantage of falling interest rates to refinance our home mortgage, using a major lender.

Shortly before the refinance closing, we learned that the lender was going to charge us a fee of $95 for what it called a “lender’s inspection.” When I asked the loan officer about this, he told me it was a fee for them to “drive by the house” and “see if it’s there.” This sounded suspicious. Not only were we living in the house, but we had just paid the lender hundreds of dollars for its appraiser to inspect our house and render an appraisal. Clearly, the lender knew that our house was there.

Indeed, the loan officer also told me that he was not aware of any “lender’s inspections” being done. When I insisted that we not be charged the $95, I was told by another representative that they would do the inspection within 90 days after the closing. This was preposterous, and I again protested the $95 fee. Nonetheless, the lender required that we pay the fee at closing.

When we later asked the lender for the report of their “inspection” of our home, our request was ignored — not surprisingly, since no such inspection had been done. Having researched the relevant law, I concluded that, by charging us for something it had not done, the lender had violated federal law governing real estate closing practices. Obviously, no one would bring an individual federal lawsuit to recover $95, but a lawsuit was necessary to get this corporation to cease its wrongdoing. That’s where class actions come in.

TOO SMALL TO PURSUE

Rule 23 of the Federal Rules of Civil Procedure allows someone with a claim too small to pursue on its own to sue on behalf of a “class” of all others who have been victimized by the same wrongdoer in the same way. And so my spouse and I, represented by counsel, brought a federal class action lawsuit against this lender.

Although the lender denied any wrongdoing, it agreed to settle, paying back about a half-million dollars to thousands of members of the class and ending its practice of charging for “lender’s inspections.” Had it not been for a class action, this could not have been accomplished.

Over the years, consumer class actions have helped achieve similar vindication of Americans’ legal rights in many different contexts. But now, class actions are under attack by corporate America, which recognizes that such lawsuits help level the playing field between individuals and businesses.

In recent years, pushed by big business, the Supreme Court has made it easier for corporations to use mandatory-arbitration clauses in standard contracts to prohibit consumers and others from bringing class claims against them. The court has also made it harder for employees victimized by discrimination to pursue class actions.

In this term’s case, Campbell-Ewald Co. is arguing that if a class action defendant makes an offer of judgment to individual named plaintiffs to give them complete relief on their individual claims before the class is certified, they can no longer pursue their own claims or the claims of the class, even when they have rejected that offer.

As my organization, Constitutional Accountability Center, has explained in a friend-of-the-court brief, that argument fundamentally misunderstands the role of the federal courts in our constitutional system in protecting the rights of individuals. It also ignores the critical part that class actions play in facilitating that role by enabling similarly situated individuals to seek relief in federal court even when their injuries are too small to make individual lawsuits feasible.

Consider what would have happened in my case, if Campbell-Ewald’s argument had been the rule. If our lender had been able to do away with the class action by making an offer of judgment to my spouse and me of complete relief on our individual claim (a few hundred dollars in statutory and actual damages), it would very likely have been able to continue its lucrative scheme with impunity, and it certainly would not have had to provide financial relief to the thousands of others who had also been victimized.

Even if another borrower had the tenacity to bring another lawsuit, the lender could have picked that person off with the same stratagem. In fact, the mere existence of the “pick-off” strategy being pushed in Campbell-Ewald would likely deter the bringing of many class actions in the first place, which is why this case has the potential to cause such great damage.

AGGREGATE FINANCIAL WINDFALL

Numerous federal laws protect the rights and pocketbooks of individual Americans as we go about our daily lives. When a corporation violates one of these laws, the harm to a single person may be relatively small, but the aggregate financial windfall to the corporation may be quite large, as my own case shows. Without the benefit of class actions, it would be difficult, if not impossible, for individual Americans to vindicate many of our rights and bring an end to corporate wrongdoing.

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