Professor Russell Gold’s article, ‘Compensation’s Role in Deterrence,’ published in Notre Dame Law Review
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Notre Dame Law Review
October 10, 2016
In the article, Professor Gold argues that compensating victims hinders more wrongdoing than other forms of relief, particularly in terms of damages in class actions. According to Professor Gold, scholars have largely overlooked that firms anticipating harm to their reputations as a result of litigation provides a source of deterrence, and because the American public values victim compensation in civil litigation, compensation enhances the legitimacy of the class device and then bolsters this reputational deterrence.
The abstract of the article follows. To view the full article, click here.
There are plenty of noneconomic reasons to care whether victims are compensated in class actions. The traditional law-and-economics view, however, is that when individual claim values are small, there is no reason to care whether victims are compensated. Rather than compensation deterring wrongdoing is tort law’s primary economic objective. And on this score, law-and-eco- nomics scholars contend that only the aggregate amount of money that a defendant expects to pay affects deterrence. They say that it does not matter for deterrence purposes how that money is split between victims, lawyers, and charities. This Article challenges that claim about achieving tort law’s primary objective and argues that there is an economic reason to care whether victims are compensated in class actions. It offers reason to think that compensating victims deters more wrongdoing than the same amount of relief in other forms, at least in damages class actions.
Put a different way, this Article contends that the primary objectives of class actions— compensation and deterrence—are intertwined in ways that scholars have not previously recog- nized. Compensation affects the amount of reputational harm that class actions inflict on defendants, and anticipating that reputational harm provides a source of deterrence. Because the public cares whether victims are compensated in civil litigation, if class actions were frequently to slight compensation that would undermine public perception of the class device; class actions would come to seem more like plaintiffs’ lawyers’ extortion mechanisms than legitimate means of redressing harm. Diminished procedural legitimacy makes the class action a less power- ful signal about the validity of the underlying claims, which undermines reputational deterrence.