Spend any amount of time following the news -- whether online, in print, or on TV -- and you're very likely to come across information about a class action lawsuit. You may have even received something in the mail called a "Notice of Class Action Lawsuit" or "Legal Notice of Class Action Settlement." So, what is a class action lawsuit, and how do these kinds of cases work from a procedural standpoint? What's in it for people who are deemed members of the "class," and what happens to someone who decides to "opt-out"? In this article we'll answer these questions and more.
What is a Class Action Lawsuit?
You may have a legal claim connected to a company you've dealt with, but righting the wrong through a lawsuit just isn't practical for you. Maybe your losses were limited -- the company's misconduct cost you only a little bit of money, for example -- and the time and effort of pursuing legal action just isn't a good investment. But in some situations, other people (sometimes hundreds or even thousands of them) have had the same negative experience with the same company or entity. And if certain procedural requirements are met (we'll dive into these requirements below), these people can form a "class" of plaintiffs in one big lawsuit against the defendant -- a class action.
Common Types of Class Actions
A class action lawsuit can arise based on a variety of different disputes and problems that affect a large number of individuals, including:
- defective or unreasonably dangerous products (including consumer products, vehicles, prescription drugs, etc.)
- unfair or fraudulent business practices related to services (including phone, banking, cable television, etc.)
- stockholder claims (including securities fraud), and
- employment-related claims (including discrimination and wage/hour law disputes).
Class Action Certification Requirements
In order for a group of claims to proceed as a class action, the class must be "certified" by the court. Depending on the underlying subject matter, a class action can be governed by federal or state law. The procedure for certifying a class differs slightly among the federal system and the different states' rules, but many states mirror what is set out in the Federal Rules of Civil Procedure (FRCP), so let's look at the certification requirements as laid out in Rule 23(a) of the FRCP:
- There must be so many possible claimants that it is "impracticable" to join them all as named plaintiffs into one traditional lawsuit.
- There must be common "questions of law or fact" across all claims, meaning the claims are based on the same flaw or wrongdoing. Thousands of claims against a manufacturer for a faulty dishwasher switch is a good example.
- The named plaintiffs, or class representatives, have the same claims as others in the class, and any arguments the defendant might raise would be the same or similar. In the dishwasher example, the named plaintiff's claim can't be connected to a defective pump.
- The class representatives will provide fair and adequate protection for the class. (Here, the lawyer(s) representing the class will also be scrutinized, especially as to the fee agreement. Learn more about How Class Action Lawyers are Paid.)
Notice and the "Opt Out" Option
After certification, all potential members of the class must be notified of the class action lawsuit. For many kinds of class actions, that notice will include information about the right to "opt out" of the class.
You’ll almost always be given the choice to opt out of a class action where what's at stake can entirely (or mostly) be defined as "monetary" damages. In contrast, you’re not usually allowed to opt out of a class action and pursue an individual claim on your own:
- if your making an individual claim would be unfair to -- or somehow unreasonably harm the positions or interests of -- other parties, including class members and the defendant, or
- if the class action primarily seeks some kind of "declaratory" or "injunctive" relief (meaning the whole point of the class action is to force the defendant to take a certain action, or stop certain conduct).
More of a legal gray area is presented by so-called "hybrid" class actions in which what's being sought is a combination of both money damages and some kind of declaratory or injunctive relief. Whether or not you can opt out in these kinds of cases will depend on the law in your state and the circumstances of the specific lawsuit.
Assuming you're able to do so, if you opt out of the class, you won't be a part of the class action, meaning you won't get a portion of any settlement that's agreed upon. You also won't be tied to any other resolution of the larger case -- if it's dismissed, for example -- and you'll be free to file your own lawsuit against the defendant.
Settlement and Court Approval
The court needs to approve any settlement that is agreed upon by the class representatives (and class counsel) and the defendant. Just as the potential members of the class need to be notified of the class action lawsuit, they again need to be notified that a settlement has been reached. So a compliant notice must be mailed out, containing, among other information, details of the settlement, and each class member's right to raise an objection to the proposed settlement. Learn more about Objecting to a Class Action Settlement.
Can a Class Action Help You?
If you've experienced a problem with a consumer product or service, of if you've got a legal issue that you suspect may affect a number of other people, your best first step might be to research whether there's already a class action related to the matter. Check online by searching the product or company name alongside the phrase "class action." But whether or not a class action already exists -- and especially if you've experienced significant or unique losses in connection with the issue -- it may make sense to discuss your situation with an experienced attorney, to make sure you understand your rights and your options. Those options include everything from acting as Lead Plaintiff in a Class Action to filing your own Personal Injury Lawsuit.