The “Case of the Moldy Washing Machines” is imperiling the future of American business. That’s been the message from conservative commentators, who have made a pair of lawsuits by a large group of Whirlpool customers this year’s pro-business cause at the Supreme Court. The cases “threaten to destroy the fair, effective way businesses handle consumer complaints,” according to an op-ed in the Wall Street Journal by John Engler, former governor of Michigan and current president of an association of CEOs of large corporations. The WSJ editorial page has also taken multiple shots. “Reining in Crazy Class-Action Lawsuits,” is the headline for a plea to do so by Tiger Joyce, president of the American Tort Reform Association, in the National Review.
But today, the Supreme Court decided not to heed these thunderous calls of doom, declining to hear the moldy washing machine appeals. This is surprising and good news. The business lobby hoped the justices would use these cases to shove another knife into the class action, the process by which people band together to sue. In a series of 5–4 rulings over the past three years, the court’s conservatives have been making it harder and harder for class actions to get to court. The court’s five conservatives are all among the top-10 most pro-business justices of the past 65 years, according to a recent study in the Minnesota Law Review, and demolishing the class action is a major goal of America’s big business.
But the moldy washing machine cases won’t be the next front in the class action war—maybe because the conservative justices realized the facts posed problems for the pro-business side. Starting in 2003, people with front-loading Whirlpools (sold as Kenmores, many of them by Sears) called the company’s customer service line to complain about odor and mold. The company got about 23,400 calls through 2008. Whirlpool tinkered with the washing machine’s design in different models, some of which reduced the mold but didn’t kill it. In 2007, Whirlpool introduced a special soap product, called Affresh. That didn’t entirely work either—though the company hoped to make $195 million selling it. (Excellent sideline.) What Whirlpool didn’t do was stop selling the machines, which people continued to buy at a rate of 200,000 a year. (So much for the power of online reviews.)
The damages each customer could win for buying a moldy smelly washing machine are admittedly small. It wouldn’t be worth the time and cost for most of these customers to sue on their own. That’s the classic scenario for a consumer class action. The question in these cases is whether to certify the class—which just means letting the case go forward, not that anyone wins any damages at this stage—to include all the customers who bought these machines, as opposed to only the ones who have already experienced the mold and the smell. A favorite talking point of the conservative attack is that the customers who called to complain represent less than 3 percent of the total. In other words, this isn’t about defective washing machines, or companies continuing to market the machines knowing about the problem. It’s about greedy lawyers trolling for plaintiffs. As the WSJ claims, “Every trial lawyer in America knows that certifying a class nearly always compels a company to settle rather than to face the barrage of bad PR and litigation costs.”
Why not limit the class only to those who complained? The rule for allowing a group of litigants to proceed together, at the early stage of certifying a class action, is whether the questions of law and fact common to all the people who are suing “predominate over any questions affecting only individual members.” The plaintiffs’ basic contention is that all the affected Whirlpool models don’t self-clean effectively. That’s a design defect that would be common to all the machines, if it exists. So the case isn’t about the injury of the mold. It’s about whether the alleged design defect is a breach of warranty under state law.
And so two federal appeals courts, the 6th and 7th Circuits, let the class be certified to include all the washing machine owners. “Sears argues that most members of the plaintiff class did not experience a mold problem,” Judge Richard Posner (who occasionally contributes to Slate) wrote for the 7th Circuit. “But if so that is an argument not for refusing to certify the class but for certifying it and then entering a judgment that will largely exonerate Sears—a course it should welcome.” Posner also said that if the mold problem turns out to vary a lot among the different models of machine, the district court judge can break the class into sub-groups later. And he made it clear that “every class member who claims an odor problem will have to prove odor to obtain damages.”
Last spring, the Supreme Court vacated that ruling, as well as a similar one in the 6th Circuit, and sent the cases back to the appeals courts to reconsider in light of its decision last term in Comcast v. Behrend, one of the 5–4 rulings that has narrowed the grounds for certifying a class. In this second round, the 7th and 6th Circuits stuck with their original positions, again giving the cases a green light to proceed as class actions including all machine owners. “The basic question presented by the mold claim—are the machines defective in permitting mold to accumulate and generate noxious odors?—is common to the entire mold class, although damages are likely to vary across class members (the owners of the washing machines),” Posner wrote in his second decision. “A class action is the efficient procedure for litigation of a case such as this, a case involving a defect that may have imposed costs on tens of thousands of consumers, yet not a cost to any one of them large enough to justify the expense of an individual suit.”
This pair of rulings has infuriated the pro-business groups and the defense bar because they believe the Comcast decision warrants more curtailing of class actions than the 6th and 7th circuit allowed. To sweepingly discredit the class action, they’re pushing an analysis paid for by the U.S. Chamber of Commerce—the pro-business juggernaut. The law firm Mayer Brown looked at 148 class actions filed in federal court in 2009. Most were dismissed voluntarily by the lead plaintiffs, which could mean the class as a whole received nothing, or thrown out by the judge, or are still pending. A third settled for the whole class, but Mayer Brown claims in those settlements “there is often little or no benefit for class members,” because only a small percentage of them received awards. That sounds bad. As the trusty Wall Street Journal editorial page put it, “The only beneficiaries of expanding the potential pool of class-action lawsuits are the plaintiffs attorneys—and their yacht builders.”
But wait a second: Mayer Brown’s claim about the lack of benefit turns out to be based on only six cases. In the rest, the settlement terms weren’t disclosed. Also, if only one-third of the cases settled on behalf of the whole class, doesn’t that undercut the argument that businesses are constantly being forced to cave to meritless class actions?
Other studies show plenty of benefit for class action litigants. Studying 60 class actions in antitrust cases, University of San Francisco law professor Joshua Davis and University of Baltimore law professor Robert Lande found total awards of at least $33.8 billion and “an extremely strong deterrent effect” for anti-competitive practices. In a study it put out last month, the Consumer Financial Protection Bureau looked at eight class-action settlements since 2009, in cases involving financial transactions, and found payments of more than $350 million, not including attorneys’ fees or injunctive relief (promises to stop a particular practice). A couple of examples: A company accused of violating Missouri’s laws on payday loans paid $520,000, as well as allowing between $3.8 million and $9 million in debt forgiveness, to 10,400 people. In another case, in which Citibank was accused of illegally increasing interest rates on outstanding credit card balances retroactively, 12,500 people got more than $225,000.
The class actions that fight back against sharp loaning practices are truly in jeopardy, because of another Supreme Court ruling, AT&T v. Concepcion, which in 2011 found that when customers sign contracts, for everything from a payday loan to a phone plan, companies can bar them from bringing class actions in the fine print, even if state law says otherwise for purposes of consumer protection. One lawyer who brings class actions on behalf of consumers, Paul Bland of Public Justice, says that he’s never had a case settle quickly because of the size of the class “unless we had a company dead to rights.”* He estimates that most of his cases take at least five years. And his concern that the end game, for the companies, is “no class actions at all, forever, in any type of case.” Today, though, the Supreme Court calmed that fear. For how long, we’ll have to see.
Correction, Feb. 24, 2014: This article originally misidentified the organization Paul Bland works for. He is a lawyer at Public Justice, not Public Citizen. (Return.)