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|Sued without proof: What to know about First American Financial v. Edwards|
Ever received one of those postcards in the mail informing you about some class-action lawsuit? It might have asked you whether you wished to opt-in to the suit. In 2002, I was part of a class-action against Columbia House. Remember those guys? They were the once popular mail-order music club. If you forgot to send back the proper notification rejecting their monthly selection, you’d receive a very expensive (read “overpriced”) CD in the mail. The litigation I was part of involved their “shipping and processing” fees. The result of my participation in the class-action? A coupon for a free CD—from Columbia House!
In order to participate in a class-action lawsuit, one must have what we lawyers call “standing to sue.” That means one has to have been injured (monetarily or otherwise) in some way first in order to file a lawsuit. If there are other similarly situated injured parties, they can band together and have their disputes handled all at once in the form of a class-action lawsuit. If plaintiffs come together in this way, it is thought, they are in a better bargaining position than if they were individual litigants.
There’s an interesting case before the Supreme Court this term that threatens to change this “standing to sue” class-action requirement, and it has more than a few business owners on edge. On its surface, First American Financial Corp. v. Edwards appears to be a simple dispute over real-estate title insurance. But the case has become a much larger discussion about who can sue and when. At issue is whether a class of plaintiffs have standing to sue a company simply because that company violated a statute or whether those plaintiffs must show some type of economic injury that directly resulted from that statute violation. In other words, can a plaintiff sue a business for, say, money damages without having actually suffered any economic harm?
Parties as diverse as the State of Missouri, National Association of Home Builders, and even Facebook have weighed in on the case. We’ll find out later this year if the Supreme Court upholds the Ninth Circuit decision and expands plaintiffs’ rights to sue. In the meantime, business owners, you should consider minimizing your risks and liabilities by incorporating, drafting good contracts, and getting some good insurance. With the right preparation, perhaps all you’ll need to do to settle a lawsuit is give plaintiffs some coupons.
Donald Simon is an educator, author, business consultant and president of Simon Business Consulting Inc., a firm dedicated to helping small-business entrepreneurs with their startups. He is an adjunct staff member at Avila University, Kaplan University, the Art Institutes International-Kansas City and Kansas City, Kansas Community College. He received his J.D. and LL.M. at The John Marshall Law School. He'll be providing a business perspective on the latest news stories exclusively for KC Business online.