Policy: Law

Will Supreme Court open the 'lawsuit laundromat'?

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Opinion,Op-Eds,Supreme Court,Class-action lawsuits,Law

For the American plaintiffs’ bar, which we at the Manhattan Institute like to call "Trial Lawyers Inc.," the preferred weapon of choice is the class-action lawsuit.

By stringing together thousands or even millions of legal claims together in a single action, lawyers generate more fees for less work and place enormous pressure on corporate defendants to settle claims rather than risk the lawsuit lottery.

This Friday, the Supreme Court will decide whether to take up two companion class-action cases, Sears v. Butler and Whirlpool v. Glazer, which threaten to open up a new “lawsuit laundromat” for attorneys hoping to wring more money out of manufacturers.

Both cases involve 21 varieties of energy- and water-efficient “front-load” washing machines manufactured by Whirlpool.

In 2001, Whirlpool released the first of this diverse group of washers that reduced water and energy use by more than two-thirds (cutting $120 from the average family’s annual water and power bills).

Whirlpool's washers have been ranked among the best in their class by Consumer Reports and helped the company win multiple “sustainable excellence” awards from the federal Environmental Protection Agency.

Class-action attorneys have pounced on the fact that a small percentage of these washers, like all washing machines, can (if improperly maintained) emit “musty odors” from leftover laundry residues.

Such odors may be marginally more likely in these newer machines than in traditional, less water- and energy-efficient washers.

A decade of call center data from Whirlpool and Sears place the percentage of consumers facing such odors at two to three percent, and a more recent February 2010 examination by the Consumers Union estimates the problem rate at less than one percent.

Still, the class-action lawsuits in Butler and Glazer — and in 20 more almost identical lawsuits nationwide — seek to sue and recover damages on behalf of all purchasers of Whirlpool’s various washers, whether or not the purchaser has faced any odor problem whatsoever.

Under the constitution, a plaintiff can only avail himself of the federal courts if he has genuinely been injured (a doctrine the Supreme Court calls “standing” to sue).

In essence, then, the lawsuits against Whirlpool are trying to bootstrap in millions of plaintiffs who could never sue in federal court alongside much smaller number who may have some legitimate grievance.

The lower federal courts that have permitted these cases to proceed have theorized that even if the uninjured plaintiffs haven’t had any problems with their washers, they have been injured because they overpaid for washers that might possibly become musty someday.

Although this type of theory is commonplace in federal securities law (after all, one only buys a stock with the hopes of making money), it makes little sense for a consumer claim, in which the purchaser generally juggles a variety of goals (in the case of washing machines, principally to wash clothes).

Moreover, even as Consumer Reports named Whirlpool’s eco-friendly washer its “best all around” machine in February 2005, it observed the potential for musty odors.

At least from that point forward, any reasonably informed consumer would have known what he was getting. (If, like me, he houses his washing machine in his basement, he’s unlikely to have cared.)

By permitting a class-action claim of this nature to proceed, the courts wouldn’t be helping consumers, who already have recourse to pursue warranty claims with Whirlpool or Sears, nor creating effective deterrence for manufacturers, who already must worry about the next Consumer Reports review.

Rather, the courts would be imposing an effective tax on all consumers — forcing them to insure the small percentage who may ultimately face musty smells — most of which will flow to the pockets of the lawyers involved.

Make no mistake: The legal rules at play in the washing machine cases will have impact on a much broader array of businesses, which is why industry and technology groups have flooded the Supreme Court with briefs expressing their concern.

Defect rates in computers, cellphones and cars are much higher than in washing machines, so increasing the tort tax on manufacturing by lowering class action standards will have a broad impact — particularly on the most innovative sectors of our economy.

The Supreme Court has taken significant interest of late in limiting the use of class-action remedies. In its 2011 decision in Walmart v. Dukes (involving a gender discrimination claim) and last year’s decision in Comcast v. Behrend (involving an antitrust claim), the court has emphasized that for a class of plaintiffs to be approved, the facts have to show a common and specific cause of harm that “predominates.”

The washing machine cases certainly fail the Supreme Court’s predominance test for class-action litigation.

Let's hope that the Supreme Court decides to step in yet again, because the legal theory underlying these cases is worse than musty -- it stinks.

James R. Copland is director of the Center for Legal Policy at the Manhattan Institute.
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