Class action

In law, a class action is an equitable procedural device used in litigation to determine the rights of and remedies, if any, for large numbers of people whose cases involve common questions of law and fact.

United States

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 claim arises under federal law, or if any member of the potential plaintiff class & the defendant are from different states. Nationwide plaintiff classes are possible, but such 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.

Typically, federal courts are thought to be more favorable for defendants, and state courts more favorable for plaintiffs. Most class action cases are filed initially in state court. The defendant will almost always try to remove the case to federal court. The Class Action Fairness Act of 2005 increases defendants' ability to remove cases to federal court.

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.

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.

Austria

The Austrian Code of Civil Procedure (Zivilprozessordnung – ZPO) does not provide for a special proceeding for complex class action litigation. However, Austrian consumer organizations (Verein für Konsumenteninformation/VKI and the Federal Chamber of Labour/Bundesarbeitskammer) have, in recent years, brought claims on behalf of hundreds or even thousand of consumers. This technique, soon labelled as “class action action Austrian style”, allows for a significant reduction of overall costs. The Austrian Supreme Court, in a recent judgment, has confirmed the legal admissibility of these lawsuits under the condition that all claims are essentially based on the same grounds.

The Austrian Parliament has unanimously requested the Austrian Federal Minister for Justice to examine the possibility of new legislation providing for a cost-effective and appropriate way to deal with mass claims. Together with the Austrian Ministry for Social Security, Generations and Consumer Protection, the Justice Ministry opened the discussion with a conference held in Vienna in June, 2005. With the aid of a group of experts from many fields, the Justice Ministry began drafting the new law in September, 2005. With the individual positions varying greatly, the process is still pending.4/2/7/CH0604/CMS1133429025309/klauser.pdf

France

Under French law, an association can represent the collective interests of consumers, however each claimant must be individually named in the lawsuit. On January 4, 2005, President Chirac urged changes that would provide greater consumer protection. A draft bill was proposed in April 2006. Under the proposals the court will be able to decide whether to allow an action brought by an association on behalf of consumers (which must comprise at least two individuals). After such an action is brought, the association would be entitled to identify additional consumers for a one-month period. The court would determine the damages that must be awarded to the consumers who have opted-in to the proceedings. The president of the French supreme court recently declared that "class actions are inescapable." ^*

Germany

On November 1, 2005, Germany enacted the “Act on Model Case Proceedings in Disputes under Capital Markets Law (Capital Markets Model Case Act)” allowing sample proceedings to be brought before the courts in litigation arising from mass capital markets transactions. It does not apply to any other civil law proceeding. It is not like class actions in the United States -- it only applies to parties who have already filed suit and does not allow a claim to be brought in the name of an unknown group of claimants. The effects of the new law will be monitored over the next five years. It contains a ‘sunset clause’, and it will automatically cease to have effect on November 1, 2010, unless the legislature decides to prolong the law, or extend it to other mass civil case proceedings. “Capital Markets Model Case Act” Der Bund Retrieved July 16, 2006

The Netherlands

Dutch law allows collective actions brought by associations on behalf of injured parties seeking a judicial declaration that the company is liable for the damage it has caused. ^*

Italy

Italy has no class action legislation. However, consumer associations can file claims on behalf of groups of consumers to obtain judicial orders against corporations that cause injury or damage to consumers. These types of claims are increasing and Italian courts have recently allowed them against banks that continue to apply compound interest on retail clients’ current account overdrafts. The introduction of class actions is on the new government’s agenda. In 2004, the Italian parliament considered the introduction of a type of class action lawsuit, specifically in the area of consumers’ law. To date, no such law has been enacted, however.^*

Spain

Spanish law allows nominated consumer associations to take action to protect the interests of consumers. A number of groups already have the power to bring collective or class actions: certain consumer associations, bodies legally constituted to defend the ‘collective interest’ and groups of injured parties. ^*

Recent changes to Spanish civil procedure rules include the introduction of a quasi-class action right for certain consumer associations to claim damages on behalf of unidentified classes of consumers. The rules require consumer associations to represent an adequate number of affected parties who have suffered the same harm. Also any judgment made by the Spanish court will list the individual beneficiaries or, if that is not possible, conditions that need to be fulfilled for a party to benefit from a judgment.

Pros and cons of class actions

Advantages of class actions

Class action lawsuits may offer a number of advantages because they aggregate a large number of individualized claims into one representational lawsuit.

First, aggregation may increase the efficiency of the legal process, and lower the costs of litigation.^* 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.

Criticisms of class actions

There are several criticisms of class action lawsuits. In the same preamble to the Class Action Fairness Act, Congress found:

Over the past decade, there have been abuses of the class action device that have--

(A) harmed class members with legitimate claims and defendants that have acted responsibly;

(B) adversely affected interstate commerce; and

Class members often receive little or no benefit from class actions, and are sometimes harmed, such as where--

(A) counsel are awarded large fees, while leaving class members with coupons or other awards of little or no value;

(B) unjustified awards are made to certain plaintiffs at the expense of other class members; and

(C) confusing notices are published that prevent class members from being able to fully understand and effectively exercise their rights.

One criticism in the United States is that class lawsuits encourage attorneys to bring a claim 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 "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. However, existing law requires judicial approval of settlement and class members may opt out of settlements.

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.

External links

Educational links on class action litigation
Stanford on securities class actions
Findlaw on Class Actions
Class Action Defense Blog analysis of federal and state class action laws and cases, including a focused section on the Class Action Fairness Act of 2005.
The New Face of Class Action Litigation
million Class Action Controversy?--Go to Federal Court", Court Watch, November 8 2005 (Also, links to the Act and President Bush's statement when signed into law.)
James Copland, Point of Law, "Class Actions"
Michael S. Greve, "Harm-Less Lawsuits? What's Wrong with Consumer Class Actions" ^*
Richard Epstein, "Class Actions: The Need for a Hard Second Look" ^*
An introductory legal text: Misko on Class Actions (pdf file 7.2 MB). or Misko on Class Actions with 400 pages worth of appendices

Civil law

Sammelklage | Recours collectif | Azione collettiva | Gruppesøksmål

Gourt Home::Gourt :: Class action