State Farm Settlement Shows Power, Importance of Class Actions

I have written on several previous occasions about corporate America’s systematic attacks on the class action system. A recent news item from the Associated Press offers a positive reason to revisit this topic. As the news agency writes, the huge insurance company State Farm reached a settlement earlier this month “in a federal class action lawsuit claiming the company funneled money to the campaign of an Illinois Supreme Court candidate.”

The preliminary $250 million settlement has its roots in a 1999 case that went against State Farm “for its use of aftermarket car parts in repairs.” Thousands of policyholders had sued the company alleging that its decision to pay for used (“aftermarket”) rather than new car parts when carrying out repairs on their vehicles violated the terms of the company’s contracts with customers. State Farm lost the original 1999 case and was facing the prospect of a $1.06 billion judgement against it. The company appealed, which is obviously it’s right and a reasonable thing for it to do. What was not right and proper was for the company to attempt to fix the final result of that appeal.

With the case making its way toward the Illinois Supreme Court, State Farm allegedly poured money into the campaign of a candidate for chief justice who, once elected, provided the key vote to reverse the trial court’s decision. In 2005 “the court ruled that the nationwide plaintiff class was improperly certified… It also contended using aftermarket car parts was not a breach of State Farm policyholders contracts.”

As AP reports, this prompted a new “class action lawsuit (seeking) nearly $10 billion from State Farm.” With a trial set to begin this month the two sides reached a $250 million settlement. One attorney for the plaintiffs called the agreement “a victory for the little guy against a national corporation with incredible power, influence and resources.”

As a Portland lawyer I would add that it is also a victory for the cause of class actions in general. State Farm (which, though it has settled this case, still admits no wrongdoing) clearly believed that putting a few million dollars into a political campaign could save it hundreds of millions in damages. This is an insult to the people the company is alleged to have cheated as well as an affront to our political and judicial systems. At a time when arbitration clauses are systematically whittling away Americans’ right to have their grievances heard by a court and judge this has to be counted as a major victory. This is especially true since the clauses themselves are often buried deep inside ‘terms of service’ contracts that few people read, but which all of us must ‘agree’ to as a condition of our everyday lives. Buying a cellphone, renting a car or signing up for an insurance policy should not also entail signing away one’s constitutional rights. State Farm may still refuse to admit it did anything wrong – but the use of a class action to enforce accountability for the company’s earlier attempt to manipulate the class action system itself is a result that is both just, and rich in irony.


AP via WTOP: State Farm reaches preliminary deal in conspiracy lawsuit

ORCP – Rule 32 (Class Actions)


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