Class action

From Free net encyclopedia

This article is about the legal term. For names of various art works, see Class Action.

In law, a class action is an equitable procedural device used in litigation for determining the rights of and remedies, if any, for large numbers of people whose cases involve common questions of law and fact. Traditionally class actions have been used to litigate antitrust and securities lawsuits, but more recently have been used for a wide range of legal disputes that involve a large number of injured parties.

1 Class actions in the United States
- 1.1 Federal class actions
- 1.2 State class actions
2 Pros and cons of class actions
- 2.1 Advantages of class actions
- 2.2 Criticisms of class actions
3 Defendant class action
4 Availability
5 See also
6 External links

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Class actions in the United States

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Federal class actions

In the United States federal courts, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure.

Class action lawsuits may be brought in Federal court if the case involves issues that affect potential class members in different states or has a nexus with federal law. However, such class action suits must have a commonality of issues across state lines. This may be difficult as the civil law in the various states has significant differences and thus each state's set of claims may have to be handled separately or through the device of multi-district litigation (MDL). It is also possible to bring class action lawsuits under state law, and in some cases the court may extend its jurisdiction to all the members of the class both within the state and without (even internationally) as the key element is the jurisdiction that the court has over the defendant. The Class Action Fairness Act of 2005 permits defendants to remove cases to federal court if plaintiffs ask state courts to decide new class actions across state lines.

The procedure for filing a class action is to file suit with one or several named plaintiffs on behalf of a putative class. The putative class must consist of a group of individuals or business entities that have suffered a common wrong. Usually, these kinds of cases are connected to some standard action on the part of a business, or some particular product defect or policy that was applied to all potential class members in a uniform manner. After the summons and complaint is filed, the plaintiff usually has to bring a motion (sometimes at the same time as filing the summons and complaint) to have the class certified. In some jurisdictions class certification may require additional discovery in order to determine if the proposed class is sufficiently cohesive.

Upon the motion to certify the class, the defendants may object to whether the issues are appropriately handled as class litigation, the named plaintiffs as insufficiently representative of the class, and their relationship with the law firm or firms handling the case. The court will also examine the ability of the firm to prosecute the claim for the plaintiffs, and their resources for dealing with class actions; the court may, as due process requires, have complex notices be sent, published, or broadcast to the public, in any place where the class members can be found.

As part of this notice procedure, there may have to be several notices, first a notice giving class members the opportunity to opt out of the class, i.e. if individuals wish to proceed with their own litigation they are entitled to do so, only to the extent that they give timely notice to the class counsel or the court that they are opting out. Second, if there is a settlement proposal, the court will usually direct the class counsel to send a settlement notice to all the members of the certified class and all the members of any subclasses (that might have slightly different but uniform claims), informing them of the settlement offer being made by the defendants, and the fact that the named plaintiffs have agreed to accept the settlement. Usually, the court will also state the legal fees being paid to the class counsel as part of the settlement, which may be considerable, making class actions appealing to many plaintiff law firms.

In federal civil procedure law, which has generally been accepted by most states (through adoption of rules paralleling the FRCP), the class action must have certain definite characteristics: (1) the class must be so large as to make individual suits impractical, (2) there must be legal or factual claims in common (3) the claims or defences must be typical of the plaintiffs or defendants, and (4) the representative parties must adequately protect the interests of the class.

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State class actions

Since 1938, many states have adopted rules similar to the FRCP. However, some states like California have homegrown civil procedure codes which they have been reluctant to abandon. The law of class actions in California developed in a rather chaotic fashion through judicial glosses on vaguely worded statutes (there are four key ones), and has never been cleaned up (in the way that the FRCP cleaned up the thicket of federal procedural law). As a result, there are entire treatises dedicated to the topic.

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Pros and cons of class actions

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Advantages of class actions

Depending on the case, a class action may offer a number of advantages. Each of these advantages essentially stems from the fact that a class action aggregates a large number of individualized claims into one representational lawsuit. Although aggregation creates the potential for harm, it also creates potential benefits.

First, aggregation may increase the efficiency of the legal process. In cases with common questions of law and fact, aggregation of claims into a class action may avoid the necessity of repeating "days of the same witnesses, exhibits and issues from trial to trial." Jenkins v. Raymark Indus., Inc., 782 F.2d 468, 473 (5th Cir. 1986) (granting certification of a class action involving asbestos).

Second, a class action overcomes "the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru Credit Corp., 109 F.3d 388, 344 (7th Cir. 1997)). "A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor." Amchem Prods., Inc., 521 U.S. at 617 (quoting Mace, 109 F.3d at 344). In other words, a class action ensures that a defendant who engages in widespread harm -- but does so minimally against each individual plaintiff -- must compensate those individuals for their injuries. For example, thousands of shareholders of a public company may have losses too small to justify separate lawsuits, but a class action can be brought efficiently on behalf of all shareholders.

Third, in "limited fund" cases, a class action ensures that all plaintiffs receive relief and that early-filing plaintiffs do not raid the fund (i.e., the defendant) of all its assets before other plaintiffs may be compensated. See Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999). A class action in such a situation centralizes all claims into one venue where a court can equitably divide the assets amongst all the plaintiffs if they win the case.

Finally, a class action avoids the situation where different court rulings could create "incompatible standards" of conduct for the defendant to follow. For example, a court might certify a case for class treatment where a number of individual bond-holders sue to determine whether they may convert their bonds to common stock. Refusing to litigate the case in one trial could result in different outcomes and inconsistent standards of conduct for the defendant corporation. Thus, courts will generally allow a class action in such a situation. See, e.g., Van Gemert v. Boeing Co., 259 F. Supp. 125 (S.D.N.Y. 1966).

Whether a class action is superior to individual litigation depends on the case. The Advisory Committee Note to Rule 23, for example, states that mass torts are ordinarily "not appropriate" for class treatment. Class treatment generally does little to improve the efficiency of a mass tort because the claims almost always involve individualized issues of law and fact that will have to be re-tried on an individual basis. See Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996) (rejecting nationwide class action against tobacco companies). Mass torts also involve high individual damage awards; thus, the absence of class treatment will not impede the ability of individual claimants to seek justice. See id. Other cases, however, may be more conducive to class treatment.

The preamble to the Class Action Fairness Act of 2005, passed by the United States Congress, found:

Class-action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.

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Criticisms of class actions

There are several criticisms of class action lawsuits. One criticism is that it encourages attorneys to bring a class actions on behalf of everyone injured by a wrongful act and then bind everyone with an unreasonably low settlement just to quickly obtain large attorney fees. These are sometimes referred to as coupon settlements. These coupon settlements (which usually allow the plaintiffs to receive minimal benefit such as a small check or a coupon for future services or products with the defendant company) are also a way for a defendant to forestall major liability by precluding a large number of people from litigating their claims separately, to recover reasonable compensation for the damages. Others argue that the status quo's requirements of judicial approval of settlement and the ability of class members to opt out of settlements provide sufficient protections.

Class actions are also criticized because a mistaken certification of a class action can force a defendant to settle rather than risk bankruptcy from huge damages. For example, Philip Morris was almost bankrupted when a Madison County, Illinois, judge awarded $10.1 billion in a consumer-fraud class action that the Illinois Supreme Court later ruled was inappropriate and should have been dismissed.

Richard Epstein has criticized class actions for their potential violations of due process rights of parties.

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Defendant class action

Although normally plaintiffs are the class, defendant class actions are also possible. For example, in 2005, the Archidiocese of Portland was sued as part of the Catholic priest sex-abuse scandal. All parishioners of the Archdiocese's churches were cited as a defendant class. This was done to include their assets (local churches) in any settlement.

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