Class Action Rent Extraction: Theory and Evidence of Legal Extortion

The tort system strikes a necessarily imperfect balance between deterrence and opportunism. Few doubt that a “jackpot” mentality underpins many of the sensational cases reported by the media. The costs of the tort system are high,1 and the legal system may be overtaxed and unable to quickly provide justice in nonfrivolous cases. Nevertheless, while many cases appear to be frivolous, access to legal redress is an important freedom. For every critic of ambitious lawsuits, there is a defender who claims to seek only justice; for every legal action that one can criticize, there is always some public interest rationale that defenders are quick to highlight. This rationale is almost always in the form of “David vs. Goliath,” in that the legal process supports plaintiffs with less power (political or economic) seeking justice against defendants with greater power.