What We Know and What We Don't Know About Modern Class Actions: A Review of the Eisenberg-Miller Study

Publication Date: February 2005

Publisher: Manhattan Institute for Policy Research. Center for Legal Policy

Author(s): George L. Priest

Research Area: Law and ethics

Keywords: Eisenberg-Miller Study; class action recoveries; class action; class action reform

Type: Report

Coverage: United States

Abstract:

Last March, two law professors, Theodore Eisenberg and Geoffrey P. Miller, published a Study that examined the relationship between fees and class action recoveries. The Study also made the subsidiary finding that the magnitude of the average class action recovery had remained largely constant over the period of the Study, 1993-2002.

In response, The New York Times ran a story on the front of its business section entitled, "Study Disputes View of Costly Surge in Class-Action Suits." The president of the Association of Trial Lawyers of America proclaimed, "This empirical study comes out and says the system is working correctly." Senator Russell Feingold referenced the Study as he called the federal Class Action Fairness Act "a solution in search of a problem."

This paper analyzes in more depth the Eisenberg-Miller Study and concludes that, rather than undermining arguments for class action reform, Eisenberg and Miller's data strongly support the need for reform. Relevant findings include:

Eisenberg and Miller found that the average class action recovery over the ten-year period they studied was $138.6 million.
The Study shows that the average recovery of the top 20% of cases was $613 million, and the average for the top 10% equaled $1.08 billion.
Just looking at the cases in the Study's sample, aggregate class action recoveries averaged $5.13 billion per year.
The Eisenberg-Miller numbers - huge though they are - are significant underestimates of the magnitude of class action litigation overall.
Eisenberg and Miller only report data taken from published opinions.
Their data set is highly skewed toward securities class action litigation, which constitutes over half their sample.
Their data include only 9 civil rights class actions, 23 employment class actions, 22 ERISA class actions, and 7 mass tort class actions. It is simply implausible that, over the ten-year period, in state and federal courts together, these low numbers represent the full volume of class action litigation.
The Eisenberg-Miller Study does not address a central concern about the class action mechanism, that mere certification of a class will force defendants to settle rather than betting their company, regardless of the evidence. For example, the Eisenberg-Miller sample includes the silicon breast litigation, which settled for $4.2 billion despite strong scientific evidence showing that implants did not cause the ailments claimed by class plaintiffs.
Reform is more, not less necessary, when a problem has proved persistent over a long period of time. An average $138.6 million recovery for each class action over ten years is suggestive of a real problem. If, as is likely, the magnitude of total recoveries is five, ten, or twenty times the Eisenberg-Miller Study's showing of $5.13 billion per year from a very limited sample, class action litigation is imposing extraordinary costs on American society.

Such a finding buttresses the case for class action reform. The Class Action Fairness Act, if enacted, would constitute a helpful, but largely a modest reform. Moving class actions involving significant different-state parties from state to federal courts will help but is unlikely to solve the problems created by modern class action litigation. Real tort reform requires a fundamental rethinking and redesign of both our substantive and procedural rules of law.