The Conservative Case for Class Actions

In the wake of the recent U.S. presidential election, The Conservative Case for Class Actions by Professor Brian T. Fitzpatrick of Vanderbilt Law School is more relevant than ever for anyone who is interested in class actions. A member of the Federalist Society since his first semester of law school, Professor Fitzpatrick reminds us that conservatism is not about advancing corporate interests, but about underlying conservative principles, such as the conservative theory of privatization.

In his book, Professor Fitzpatrick masterfully explores the history and current state of class actions in the United States and explains that in the world of class actions there are only two choices: government lawyers and private lawyers. Fitzpatrick prefers private lawyers because the idea that much of what the government does should be done by the private sector has been a staple of Republican politics and conservative and libertarian thought in the United States since Ronald Reagan.

Fitzpatrick identifies several reasons why conservatives prefer to privatize, including:

Smaller government – if we do not rely on the private bar to enforce the law, we would have to hire thousands of government lawyers to replace them.

Better incentives – the private bar is paid only when their clients recover.

Better resources – the SEC, one of the federal government’s best funded and most active civil enforcers, is underfunded and does not have the resources to investigate every instance of securities fraud.

Agency capture – the public sector is unduly influenced by campaign contributions and lobbying. Moreover, there is empirical evidence that government enforcers are captured by special interests. For example, the Department of Justice is more likely to aid lawsuits filed by former government colleagues than the lawsuits filed by other private lawyers. 

Innovation – scholars on the left and the right agree that the private bar is more innovative than the government. In recent years, the private bar’s recoveries exceeded the SEC’s recoveries by tenfold. Despite all the criticism of how little of class action recoveries is delivered to class members – the government often does not even try to distribute its recoveries to class members: the law often requires “all civil penalties must be paid to the U.S. Treasury.”

Fitzpatrick notes that even the government prefers private lawyers because it allows the private bar to bring actions on the government’s behalf in False Claims Act cases.

With a refreshing reverence for class actions, Fitzpatrick explains that no class members are made worse off by a class action: people are either made better off or left in the same position. According to Fitzpatrick, “much of the conservative opposition to class action lawsuits is opposition to the underlying laws that class actions are seeking to enforce.” Fitzpatrick writes that “we need class actions if we want to enforce the market rules that even we conservatives want,” such as breach of contract, fraud, and price fixing. Dismissal rates for securities fraud class actions are around 20-30 percent, which means that only a small minority of these cases could be described as meritless. Fitzpatrick also argues that far from there being too many class action lawsuits in the United States, there are too few. According to one study, 15% of major, publicly traded companies commit securities fraud every year, yet the percentage of class actions filed is only 4%. Fitzpatrick also analyzed several studies which showed that because of securities fraud class actions, companies disclose more information to shareholders, update their disclosures more often, and render those disclosures in more accessible language.