Class Actions
Often, a defendant engages in unfair conduct that harms a large number of people. In those situations, it may be impractical for all of the people to individually sue the defendant. So to help address these matters, courts permit a small number of plaintiffs to litigate on behalf of many others in a combined lawsuit, called a class action.
Class actions allow the parties and the courts to more efficiently resolve issues that affect many people. But they also require the application of very technical rules and procedures.
Why should you read this post about class actions?
You are reading it not just for you, but for hundreds of other similarly situated readers of webpages.
You got a bunch of documents in the mail about a class action lawsuit and you don’t understand why.
You’re getting ready for a movie night where you and your friends are going to watch a bunch of movies about class action lawsuits.
Image credit: https://en.wikipedia.org/wiki/Erin_Brockovich#/media/File:Erin_brockovich_2016.jpg
Class Certification
An early step in a class action lawsuit is the request by the plaintiffs’ lawyer to “certify the class.” This requires the lawyer to explain that the case should be heard as a class action and that the lawyer is qualified, not just to represent the clients she has met before, but all of the victims.
Part of the application requires the lawyer to define the class, which means describing who the defendants’ victims are that she represents. This requires the lawyer to define the class broadly enough to capture all of the victims, but not so broadly that it appears that the victims do not share common stories, claims, and defenses. A typical class may be something like “All employees of Company X who worked in the Shipping Department from January 5, 2018 through October 30, 2020.”
When deciding whether to certify, courts consider many factors. Pursuant to Federal Rule of Civil Procedure 23(a), federal courts consider, among other things, whether there are so many victims that it would be too difficult to proceed without a class action and whether all of the victims suffered the same kind of injury. Other courts apply different rules: for example, New York applies CPLR 901 and Israel applies its 2006 Class Action law.
If the court denies class certification, that may be the end of the case, since it may be too difficult for the plaintiffs to proceed on their own.
Claims Administration
When the parties to a class action decide to settle a case, the court follows a complicated process to make sure that the settlement is fair for everyone, especially the victims who were not involved in the negotiation.
This process usually involves the plaintiffs’ lawyer submitting a proposed settlement agreement to the court, together with a memorandum of law explaining why it is fair. The plaintiffs’ lawyer will also submit a plan for notifying all of the class members about the settlement and how they can receive the proceeds. This part usually involves hiring a third party company (called a “claims administrator”) whose job it is to send notices to class members, process their responses, disburse funds, and handle the associated paperwork.
After the judge approves the plan, the administrator notifies all of the class members to give them a chance to object to the settlement as unfair or to say they don’t want to participate in the settlement (which means they don’t get any money, but also means that they retain their right to sue on their own). This is the paperwork that many people may mysteriously receive, notifying them of a class action. Once all of the objections are received and heard, the plaintiffs’ lawyer may ask again for the judge to finalize the settlement.
The Business of Class Action Lawsuits
Like a lot of litigation, class action lawsuits are a business. Whereas many lawyers charge clients by the hour, class action plaintiffs normally cannot pay their lawyers before the case concludes. Instead, class action plaintiff lawyers will often work for free for months or years on cases, waiting for a big victory. Then, once the victory comes, they keep a portion of the total earnings to pay their fees. As a result, the law firms that handle class actions take on financial risk when they work on cases.
Many class action settlements are very low. Sometimes the class members get fewer than a hundred dollars, or even no money at all, but a free product instead. This is because the damages to individual plaintiffs may be low, and because settlements generally do not fully compensate plaintiffs as they reflect a compromise between the parties. But even when the payments to class members is low, the plaintiffs’ attorney may receive a substantial payment from the defendant for their fees working on the case.
Another issue in the business of class actions is that they are usually prosecuted by firms that specialize in them. This is because firms that represent plaintiffs in class actions often sue large companies, which means that it would be a conflict of interest to represent the same large companies at the same time. As a result class action plaintiffs’ attorneys often work at different firms than the ones that regularly defend large companies.
The Benefits of Class Action Lawsuits
The major benefit of class action lawsuits is that it deters companies from engaging in bad behavior that would be too difficult for any one victim to address. For example, if a company stole a few hundred dollars from a lot of people, it may believe that most victims, if not all, would decide that it’s not worth suing for a few hundred dollars. But because of class actions, companies run the risk of a major lawsuit, even if their misconduct only affects people in a small way or if it would be difficult for any one individual to address it.
Another benefit is that it spreads the cost of litigation across all of the beneficiaries. Without class actions, only the plaintiffs who actively recruit a lawyer to address their concerns would pay the full cost of the lawyer’s help. Anyone who benefits, such as future litigants who use a previous judgment against the defendant as proof that they should get a judgment, too, could be “free loaders” and benefit without paying.
Class action lawsuits benefit defendants, too. They prevent companies from having to litigate the same claims over and over, by allowing one lawsuit, settlement, or judgment to decide a whole category of claims. Then, once the case is over, future claims brought by entirely new plaintiffs may be prohibited.