- What is a class action?
- How will a class action settlement or judgment affect me?
- How do I become part of a class action?
- What types of cases are suitable for class actions?
- How do I decide whether to remain in the class or opt out and file my own lawsuit?
- How do I know if a settlement is unfair, or the representation improper?
- What kinds of relief are possible in a class action?
- How are lawyers for the class paid?
Q: What is a class action?
A: A class action is a unique kind of lawsuit that is filed on behalf of a class of people who all have similar claims against the same defendant (or sometimes, against multiple defendants). The case is filed by one or a few class representatives or lead plaintiffs. Once the case is filed, the court will determine whether it is appropriate for the matter to proceed as a class action. Typically, the court bases this determination on careful consideration of four main factors:
- Numerosity - Are there enough individual claims to make class certification the most efficient and reasonable way to proceed?
- Commonality - Are the claims sufficiently alike in terms of harm and wrongdoing?
- Typicality - Are the proposed class representatives' claims typical of all class members' claims?
- Adequacy - Are the representatives up to the task of representing the class fairly and effectively?
A typical class action arises when hundreds or thousands of people have been affected by the same problem or issue. Class actions may be filed against:
- a drug company whose medication turns out to have unreasonably harmful side effects
- a bank that has improperly charged fees to hundreds or thousands of customers, or
- a large company that has engaged in discriminatory conduct against thousands of its employees.
Q: How will a class action settlement or judgment affect me?
A: If you're a member of the class, you'll be bound by the terms of any class action settlement or judgment, unless you have the choice to opt out, and you follow the procedures for doing so. In general, all class members must abide by the terms of any judgment or settlement. If the lawsuit is one that seeks monetary damages from the defendant, you'll usually receive notice of the proceedings (by email or "snail" mail), a description of the action, and instructions on how to opt out. By opting out, you will not be bound by any settlement or judgment, and you'll be free to file an individual claim against the defendant, seeking your own damages and making your own arguments for the defendant's liability. Of course, by opting out, you will not be able to share in any financial recovery obtained by the larger class. And if the lawsuit primarily seeks some kind of "declaratory" or "injunctive" relief (meaning the whole point of the class action is to spell out the parties' rights, or force the defendant to take a certain action, or stop certain conduct), you usually won't have the option of opting out.
Q: How do I become part of a class action?
A: In most situations, you become part of the class automatically; you do not have to do anything to join.
If any action is required on the part of a prospective class member (this is exceedingly rare), the notice of the class action will spell out what steps must be taken in order to participate. But again, usually no action is required. At the beginning of the process, the attorneys determine who might have been affected by the defendant's wrongful action -- who owned stock in the company that violated SEC rules, or who bought the defective vehicle, for example. Then, all identified individuals will get some kind of notice -- usually by U.S. mail, or email -- about the class lawsuit. At that point, class members are usually given a chance to "opt out" of the class action, if they want to file their own lawsuits and not be bound by any class settlement or judgment (no "opt out" may be possible if the class action seeks something other than money).
Q: What types of cases are suitable for class actions?
A: When it comes to deciding whether a certain dispute is suitable for resolution as a class action, many states mirror the "certification requirements" set out in the Federal Rules of Civil Procedure (FRCP):
- Numerosity. There must be so many potential claimants that it would be "impracticable" to include all of them as named plaintiffs in one lawsuit.
- Commonality. Across all potential claims there must be common "questions of law or fact." In other words, the claims must all be based on the same problem or wrongdoing (the same faulty vehicle brakes or the same discriminatory action, for example).
- Typicality. The class representatives must have the same claims as other class members, and any arguments that the defendant might raise in response to those claims must be the same or similar. In the vehicle example, the named plaintiff's claim can't be connected to a defective airbag while other class members have claims related to the braking system.
- Adequacy. The class representatives must provide fair and adequate protection for the class. The lawyers representing the class will also be scrutinized, especially when it comes to the fee agreement.
A typical class action might involve a prescription drug with unreasonably harmful side affects. The medication could be taken by thousands of people, satisfying the numerosity factor. The side effects may have caused liver problems in these people. That's a common factual claim. Whether the drug maker should have known of the side effects, and limited those risks (or at least provided adequate warning of the risks), is a common legal question. If the class representatives are in a similar boat, and are up to the task of representing the class, the typicality and adequacy factors are satisfied, and it's likely that the case can proceed as a class action.
Q: How do I decide whether to remain in the class or opt out and file my own lawsuit?
A: This decision usually rests on two factors: the extent of your losses and your willingness to litigate a claim yourself. If you've been harmed only to a small extent, it will usually make sense to just let the class action proceed, see how it gets resolved, and receive the benefit of any settlement or judgment. For example, if your bank has illegally charged fees that add up to $35, opting out of the class action won't make much financial sense. On the other hand, if you were seriously injured in a car accident that you think was caused by a defective braking system, you'll want to pursue your own claim against the vehicle manufacturer even if the braking system defect affects thousands of cars (and therefore thousands of vehicle owners).
Q: How do I know if a settlement is unfair, or the representation improper?
A: Cases in which courts find a problem with a class action settlement (or with the class representation itself) usually share one or more common traits. Here are some red flags to look for:
- Coupon Settlements. Manufacturers and other defendants like to settle class actions by offering coupons to class members, in lieu of paying money damages. Meanwhile, class action attorneys get real money for their services (not coupons). Coupon settlements are usually carefully examined by the courts, usually with one eye on the fairness of the corresponding attorney's fee agreement.
- Intangible Benefits. If class members have suffered clear financial losses because of the defendant's product or conduct, settlements for something other than money will be closely scrutinized. Any benefit will be assessed and valued appropriately by the court, and then weighed against the propriety of the class action lawyers' fees.
- Broad Releases of Unrelated Conduct. If a class action claims the defendant engaged in a very specific illegal action, and the settlement agreement contains a release in which members give up their right to bring any future legal action related to every other conceivable action take by the defendant, this is likely to raise alarms.
- Insufficient Investigation of the Case. Some class actions may settle very quickly, especially if the defendant is motivated to limit its liability. A quick and fair (at first blush, at least) first settlement offer might discourage the class attorneys from fully exploring every angle of the defendant's liability and the resulting harm to the class.
- "Clear Sailing" Agreements. If the settlement appears large on its face, and the defendant has agreed not to object to it (called a "clear sailing" agreement), plaintiffs or some class members might inquire into the reasonableness of the corresponding lawyers' fees.
Q: What kinds of relief are possible in a class action?
A: The same kinds of relief that are available to a plaintiff in an individual civil lawsuit are typically on the table in most class action lawsuits as well. Most class actions seek some kind of financial relief -- an award of money damages (usually minimal) to each class member, for example. These are known as "common fund" cases. In some class actions where the potential claims are too numerous or too large for the defendant to pay in full, a class action seeks to obtain the largest payment possible, to be split fairly among the class. These are called "limited fund" class actions. A class action may also ask the court to declare and define the rights and obligations of the class versus the defendant. This is called a "declaratory judgment" class action. Finally, and not infrequently, a class action seeks what's called "injunctive" relief. In those cases, if the class obtains a settlement or judgment, the court can order the defendant to take a certain action, or stop certain conduct.
Q: How are lawyers for the class paid?
A: In most class actions, lawyers are paid a percentage of the amount recovered on behalf of the class, whether that recovery comes via a class action settlement agreement or court judgment. This percentage varies -- usually from 25 percent to 33 percent of the fund -- but it's usually determined by the judge who approved the settlement agreement or entered the judgment. It's increasingly rare that a class action lawyer's fees are based on the amount of time spent on the case, and/or the quality of the result obtained.