"Class Action Lawsuits Shunned Even by the Originator, the US... Only Lawyers Benefit"

Seminar on Collective Litigation System by FKI on the 25th
Even the US, the pioneer of collective litigation law, faces lawsuit abuse side effects
Domestic law introduction requires careful consideration of economic, investment, and corporate impacts

[Asia Economy Reporter Su-yeon Woo] "Even in the United States, where the concept of class action lawsuits was first introduced, companies have faced many difficulties due to the excessive filing of lawsuits over the past several decades. We hope that Korea does not repeat the mistakes made by the U.S." (Harold Kim, Director of the Legal Reform Institute at the U.S. Chamber of Commerce)

The Federation of Korean Industries (FKI) raised opposition voices regarding the introduction of class action lawsuits and punitive damages in Korea, based on an analysis of the U.S. case, the origin country of the class action system. On the 25th, FKI held a seminar titled "Cases of Class Action Introduction and Implications for Korea" jointly with the U.S. Chamber of Commerce Legal Reform Institute and the Korea-France Chamber of Commerce and Industry.

Harold Kim, the unidentified representative of the Legal Reform Institute, is delivering a greeting via video at the "Seminar on Cases of Class Action Introduction and Implications for Korea" held at the Federation of Korean Industries Conference Center on the 25th. Photo by Federation of Korean Industries

At the seminar, John Beisner, a lawyer at Skadden who presented, introduced the operation cases of the U.S. class action system and pointed out the system’s flaws in detail. He is a legal expert who participated in drafting the U.S. class action legislation and is currently working to provide relief for companies.

First, Beisner pointed out that class action lawsuits do not actually provide compensation to consumers, but only benefit lawyers. According to a study by the U.S. Chamber of Commerce Legal Reform Institute, lawyers earned an average profit of $1 million from class action settlements in the U.S., while the actual benefit to consumers was only $32.

He said, "Lawyers can use the class action system to include consumers who did not consent as part of the lawsuit," adding, "This effectively grants lawyers unchecked power and means that legal fees can expand to astronomical levels."

On the other hand, he pointed out that the actual benefits or legal effectiveness for consumers or companies are minimal. Since compensation is based on the average scale of consumer damages, consumers with larger damages may actually suffer losses, and companies inevitably face increased pressure to settle lawsuits before trial due to the risk of financial loss.

Beisner added, "Companies will try to settle for a reasonable amount even before the lawsuit ends to reduce the risk of trial," and "There may be an increasing number of situations where companies feel pressured to settle even against unreasonable consumer claims."

Considering these side effects, since 2010, the U.S. has granted federal courts the authority to monitor the misuse of class actions by lower courts, and France restricts class action filings to only a few qualified NGOs representing consumers.

The punitive damages system and class action bill proposed by the Korean government in September predict much stronger regulations than the U.S. class action system. While representative plaintiffs can provide general explanations, companies and other defendants are required to provide specific answers and explanations. Even trade secrets must be submitted upon court request, and the law can be applied retroactively to cases that occurred before its enforcement. FKI estimates that the litigation costs for Korea’s top 30 conglomerates could increase up to 10 trillion won, more than six times the current amount, if the bill is enacted.

FKI is concerned that such regulatory strengthening and an unfavorable business environment may hinder Korean companies’ investment attraction. Kwon Tae-shin, Vice Chairman of FKI, said, "The class action system imposes astronomical litigation costs on companies and subjects them to public trials regardless of legal judgments, causing irreparable damage," adding, "The introduction of such a system that creates a hostile corporate environment raises concerns about avoidance of investment in Korea and the reality of Korean companies fleeing overseas."

This content was produced with the assistance of AI translation services.