December 28, 2010

If you’ve lived in the USA for long enough you surely have gotten mails about you being members of some “Class Action” suite.  These are amazing.   The email just landed in my mailbox about Dell doing something wrong with their home warranty service.  They deny they did anything wrong but agree to settle because this is cheaper than going to the court.   So what is the deal ? As a member of the suite I can submit the claim for $4 to $10 “cash benefit”, yet there is $5,368,000  for “lawyers fees and cost”.

I find there are few things wrong here.  First  the whole case is made up by lawyers as a revenue opportunity – I do not believe many people would find it worth the hassle to pursue some litigation  for $4 compensation.   I believe instead of “opt out”   it would be much better to have opt in process so  only people who really feel they are suffered and need to be represented.  I’m happy with my Dell equipment and their services are good enough and I would rather them spend money on developing new cool stuff, improving their service or even rewarding their shareholders than this kind of stuff but now the hassle is put on me to opt out of the suite. I’m all for having a system where businesses are responsible for their wrongdoing but we should not create a motivation for lawyers to litigate just for sake of enrichment.

Second I really do not like this “admit no wrong doing but decide to settle”.  I do not know what is the chance of Dell actually found guilty in this case and so if it was indirect admission of the guilt or rather just desire to manager risks of uncertainty which can cost a lot of market cap for public company among with other negative consequences.  If this is second type  – settling just to save the hassle, it is a moral hazard of very bad type – meaning  you can “racket”  businesses which have not done anything wrong with a high likehood of getting something out of it.

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