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Class Action Suits and Punitive Damages: How They Will Affect Consumers and Businesses

In December, a government bill regarding the enactment of class action law and the revision of commercial law will be submitted to the National Assembly. Although there are positive expectations, there are some concerns. Therefore, the Sungkyun Times (SKT) will talk about the introduction of the enactment of class action law and the revision of commercial law, expectations and concerns in society, and possible ways to reduce those concerns.

Changes of Class Action Suits and Punitive Damages

The Purpose of Class Action Suits and Punitive Damages

A class action suit is a legal system where if one or several victims file a suit against the perpetrators, other victims who have not been accused could also be compensated. It is an effective legal system when the scale of individual damages is small, while the number of victims is huge. Punitive damages are systems whereby if the damage done by perpetrators is intentional and anti-social, they should compensate more than the actual amount of damages that are imposed. It is based on the perception that the perpetrators should pay not only the actual amounts of damage but also if damage to society is widely spread. Class action suits are first introduced in countries like the United Kingdom (UK) and the United States (US), where the authority and discretion of judges are relatively more powerful. In Korea, the law, rather than the judge’s discretion, has played a significant role in judgment, so the damages are compensated with the content prescribed by law. Therefore, class action suits were not developed well in Korea compared to the UK or the US. Then, there was one affair that brought calls of Korean customers for class action suits and punitive damages. In 2011, Hyundai Motor Company was ordered to pay 240 million dollars of punitive damages on a car accident in the US, but Volkswagen, the company that manipulated exhausted gas emissions, paid for damages to the US but not to Korea. Korean customers have not been compensated appropriately by global companies, but Korean companies have paid large amounts of money for damages in other countries. The reason for this problem is that there was no class action system in Korea.

Hyundai Motor Company, Volkswagen, the Motor Company (thedrive.co.kr, edaily.co.kr)

Proposals and Changes to Class Action Suits and Punitive Damages

Legislative proposals of class action suits suggest broadening the field for suing, shortening the suing time, and saving more victims. First, class action suits were limited to the fields of securities like stock price manipulation and accounting fraud previously, but now it is possible in all fields where the number of victims is more than 50. The victims that filed suits in the past but did not get compensated can also be compensated. Next, in terms of legal procedure, the victims would investigate evidence smoothly, and the progression of suits would speed up. While the victims should have proved that companies caused damage to them in the past, now companies will have to prove that they did not harm the victims. Also, companies could immediately appeal and object to the accusation in the past, thereby not attending the trial; now, their objection should be discussed at a trial. Furthermore, people can apply for a Korean jury trial at the first trial. Finally, the range of victims that can be compensated would be expanded to those who did not participate in the suits.

For the legislation proposal of punitive damages, laws were applied within limited cases like an infringement of personal information; from now on, they are applied to all areas and integrated into commercial law. Companies that violate laws maliciously can be judged to be responsible for compensating up to five times more than the actual amount of damage. According to the Kukmin Daily on September 27th, lawyer Kim Nam-geun, a policy committee member from People’s Solidarity for Participatory Democracy, said, “when companies practice law-abiding management and help customers to avoid punitive damages, the competitiveness of markets will rise.” Also, Park Sang-in, a professor in the Graduate School of Public Administration at Seoul National University, said, “The fact that Korea has a lot of examination regulations on companies was due to the weak punishment; however, through punitive damages, companies are required to perform better, and it can release examination regulations.”

Concerns over Class Action Suits and Punitive Damages

Interruption in Business Due to Excessive Lawsuits

Since class action suits can cause the parties of a suit to pay relatively less, and lawyers to receive higher pay, excessive lawsuits can occur as side effects. Lawyers who want large amounts of litigation value can instigate victims to file a class action against companies. Also, the elimination of a clause in the class action act that prevents excessive suits will further encourage class action. The clause proposed that people who participate in more than three cases of class action in the last three years cannot start a new class action. In the US, excessive lawsuit problems have occurred continuously. For instance, customers filed a class action against Starbucks in 2016 since there was too much ice in their coffee. Starbucks won the suit, but the fact that it has undergone a class action suit has made corporate values fall. As this shows, excessive suits can burden small businesses that are not able to afford the cost of suits. Furthermore, when the burden of the cost of suits that companies should handle gets bigger, the burden will shift to customers, including the price raising of products.

Starbucks Sued for Too Much Ice (segye.com)

Doubts Regarding the Necessity of Juries at First Trials

There are many concerns regarding enforcing Korean jury trials, which have only been allowed in criminal trials, in class action suits. Legal brokers and bad consumers can abuse Korean jury trials. Also, companies can be swayed by public opinion and emotions without apparent evidence through Korean jury trials, so unfair judgments can be made. According to Kukmin Daily, Joo Jinyeol, a professor of law at Pusan National University (PNU), pointed out, “the problems of jury systems are being reported in the US since there are many cases decided by emotions, so it seems unnecessary to expand this system.”

Bad Customers (munhwa.com)

Unconstitutional Characteristics of Punitive Damages

The perspective that punitive damages violate the principle of proportionality is on the rise since it can burden up to five times more than the actual amount of damage. Although the government confined the amount of damage to five times the actual amount, it can be inconsistent depending on the cases since civil law does not have guidelines on sentencing. Furthermore, punitive damages violate the prohibition of double jeopardy. According to the constitution, a person shall not be repeatedly punished for the same crime. Companies, however, can be responsible for not only criminal punishment like a breach of trust but also punitive damages for the same mistake.

The Way for Lessening Side Effects

Preventing Excessive Lawsuits and Lessening Time of Permissions

The key to class action suits is establishing institutions to protect property rights or the right to life of customers who have suffered from companies. The proposed legislation, however, can cause excessive suits; therefore, they might delay the time for suits permissions of victims who have really been affected. Germany and France, where class action suits have been enforced, implement a strict procedure for filing a suit, such as making the qualifications of suits more strict. Germany revised the law to accept only qualified consumer groups, not all organizations. Korea should also establish a system to prevent excessive suits such as hearing lots of public opinions for about 40 days before submitting.

Adjustment of Punishment Intensity: The Solution for Preventing Excessive Punishment

Criminal punishment and civil indemnification are apparently distinct in Korea. When entrepreneurs commit a fault, they receive criminal punishment like a breach of trust crime and administrative punishment including fines and business suspensions. Under the Korean legal system mixed with the class action of the US, companies are burdened with criminal punishment, administrative punishment, and are even responsible for civil liability through a class action for one-fault. Even in the US, where class actions are prevalent, the cases frequently end with only civil indemnification as punishment. Therefore, it is necessary to adjust some of the intensity of these punishments and make the amount of damage obvious. Lessening the compensation limit of punitive damages and introducing opt-in, which is a system to compensate only the people who participate in the suits, can be one way of solving the issue. According to Financial Economy News, Yoon Seok-chan, a professor of PNU law school, said that even in the US, the government does not admit excessive punitive damages, and some of the states do not approve it at all. On the contrary, it might be better to release the responsibility of criminal punishment like breaching the crime of trust if civil punishment is reinforced.

According to Joongboo Daily, Wi Chul-hwan, the previous chairman of the Korean Bar Association mentioned that Korea should establish a rational suit system not to make the weak suffer from the illegal behaviors from the strong due to an incomplete legal system. The way that the victims can be compensated has broadened. Class action suits, however, can lead to the result of excessive suits contrary to its intended purpose, and this can make no return of share to the victims. Therefore, it is necessary to supplement and examine the policy in many different fields to reduce the side effects.

백지은  ji0618love@g.skku.edu

<저작권자 © THE SUNGKYUN TIMES, 무단 전재 및 재배포 금지>

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