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Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepeneurial Lawyers

63 Pages Posted: 20 Jun 2007  

Myriam E. Gilles

Benjamin N. Cardozo School of Law

Gary B. Friedman

Friedman Law Group

Abstract

In this article, we challenge the traditional view that entrepreneurial plaintiffs' class action lawyers operating entirely according to their own economic self-interest serve no social utility, or worse yet, tremendous disutility. In seeking to counter this notion, we try to show that the agency costs problem long derided in class action practice is overblown: in the majority of small-claims class actions, there is no legitimate reason to care whether class members are being undercompensated (or compensated at all), nor any reason to worry that entrepreneurial lawyers are being overcompensated. Rather, we assert that the driving force behind class action practice ­and any effort to reform, reduce, redirect that practice ­should be deterrence. All that matters, we argue, is whether the defendant-wrongdoer is forced to internalize the social costs of its actions ­not to whom it pays those costs.

Keywords: class actions

Suggested Citation

Gilles, Myriam E. and Friedman, Gary B., Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepeneurial Lawyers. Cardozo Legal Studies Research Paper No. 195; University of Pennsylvania Law Review, Vol. 155, No. 103, 2006. Available at SSRN: https://ssrn.com/abstract=992852

Myriam Gilles (Contact Author)

Benjamin N. Cardozo School of Law ( email )

55 Fifth Ave.
New York, NY 10003
United States
212-790-0344 (Phone)
212-790-0205 (Fax)

Gary B. Friedman

Friedman Law Group ( email )

270 Lafayette Street
Suite 1410
New York, NY
United States
212-680-5150 (Phone)

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