Class Action Basics

Jean Boler

Unless you live in a remote corner of the country where you don't work, don't borrow or invest money, and don't own anything more complicated than a shovel, you've probably either been a member of a class action or known others who have been. If you've ever wondered about a class action and the pros and cons of joining one, read on.

The Basics

The class action rule is intended to improve court efficiency by allowing a large group of people with similar claims to join together in one lawsuit. One or more representatives of the harmed group go to court on behalf of everyone else who was similarly affected. If those representatives meet certain criteria, they are allowed to prove and settle not only their own claims, but the claims of everyone in the larger group as well.

A potential class action lurks whenever a company's actions harm lots of people. Class actions have been brought against the manufacturers and distributors of products as diverse as IUDs, computer monitors, asbestos and tobacco. Business practices that harm consumers, such as overcharging for banking services or using misleading information to sell products ("You're already a winner, send in your magazine subscription to collect your prize"), have spawned class actions. Shareholders can bring class actions against companies for poor management or misleading investment literature. Employees can sue employers collectively for discriminatory practices or for violating employment or benefit agreements.

Rule 23 of the Federal Rules of Civil Procedure usually governs class actions in federal courts. State courts have adopted similar rules with the same basic requirements. Both state and federal courts set strict parameters to assure that a few people can adequately represent the interests of many. Here are the basic elements:

• Numbers: The actions of the defendant have to affect so many people that it is more practical for a few representative plaintiffs to address the claims than for all the individual plaintiffs to join together in a regular lawsuit. If twenty people are swindled in a business venture, they can file their own lawsuits. But if hundreds or thousands have been harmed, a class action allows a few to represent the multitude.
• Common claims: The claims must raise similar questions of law or fact so that it saves time to lump everybody together. If a hundred people all bought cars with defective seatbelts from the same company, a class action may be the way to handle the complaint.
• Typical cases: The people bringing the lawsuit on behalf of others (the "named plaintiffs") must have the same claims and defenses as those they are representing. For example, a person who claims his seatbelt doesn't work cannot represent those who think the seatbelt works fine but the airbags inflate dangerously.
• Fair and adequate representation: The plaintiffs and the class lawyers must be good caretakers for other people's claims. A lawyer who has made major mistakes in other class actions or a representative plaintiff who has lied under oath may not meet this criterion.

If these five criteria are met and all the class wants is an order telling the defendant to stop doing something - dumping waste into a river, for example - a judge will usually agree to "certify" the class. (Certification allows a few designated appointees to represent the other members of the class.) If the class also wants money, they have to prove that the claims and injuries are so similar that they can be well managed in one lawsuit. Mass tort cases, in which a lot of people have been physically injured in a disaster or by a dangerous product, are often denied class action status because the causes and extent of individual injuries vary so much from person to person.

Getting Help

If you think you have a claim against a company that many others share, you should research whether a class action is already in progress. Thanks to the Internet, you can often find out if there is a pending class action against a particular company by searching for the company name and the term "class action." If you've checked the Internet and find no evidence of a class action pending, either the case is too small to have attracted much attention yet, or no one has filed one.

In searching for an attorney to handle a class action case, follow all of the common sense rules you'd use to find a competent attorney for any kind of case. Successful class actions can be very lucrative for attorneys, leading some to claim an expertise they may just barely possess. Make sure you hire a specialist with a reputation for quality work. Check into the prospective firm's financial stability and record for successfully pursuing class actions. Ask for a list of cases and find out how they were resolved. Track down previous clients through case names to find out how they felt about the firm's performance and professionalism.

If you're not interested in instigating a class action, but open the mail one day and find a notice saying you are already a class member, read the fine print before deciding what to do. Such notices are usually sent out when a case is settled. If you do nothing, you will lose the right to sue the company individually. If you have developed a serious injury from a product, or lost a lot of money because of a company's business practices, you'll want to check with your own attorney before letting your rights become subsumed within a class. The more harmed you've been, the more wary you should be of a settlement that will be stretched among a large group of people. But if you reject a class settlement because you believe you can do better on your own, make sure you have a Class Actions attorney willing to take your case.

What's Next

Depending on the defendant's attitude, a class action may take many times longer or quite a bit shorter than individual cases. Some drag on for 10 years, while others settle in six months. The usual order of events is that after a complaint is filed, the parties do limited investigation into whether the action fits the class action requirements. The plaintiffs then ask the court for class certification. If the court says yes, there may be more investigation or the case may settle. If the court says no, the case will proceed only for the few individuals named as plaintiffs in the complaint and not for the rest of the group.

The vast majority of class action cases are settled if they are certified or if the defendant believes they will be. The class members are notified of the proposed settlement and given an opportunity to join in or object to its terms. Some types of class actions require that you send in an "opt-in" form to join. For others, you're in if you do nothing. After the class members respond to the proposed settlement, a court determines whether the settlement is fair and reasonable.

In recent years, some politicians and legal pundits have become increasingly vehement in their criticism of plaintiffs' attorneys who specialize in class actions, because of the many highly publicized settlements that seem to result in a windfall for the attorneys and little benefit for the harmed plaintiffs. Attorney's fees for class actions are usually a percentage of the common fund set up to compensate the class. The lawyers sometimes walk away with millions of dollars in fees, while individual class members receive small amounts or coupons. It is misleading, however, to compare the lawyer's fees to the individual recoveries in class actions, because the lawyer represents the whole class. In judging fairness, courts look at the relationship of the fee to the value of the overall recovery.

On the other hand, some attorneys may overreach and rush into a settlement that isn't good for the class. Overworked courts sometimes do not examine class settlements closely enough. Here are some things to look for in the fine print when you are reviewing a class settlement:

• Does the notice tell the amount of the attorney's fee or its percentage of the overall settlement? Nondisclosure is a red flag.
• Has the defendant agreed not to challenge class counsel's attorney's fees? Such "clear sailing" agreements are common, but combined with other factors may signal that the defendant is getting a better deal than the class.
• Did the settlement come fast on the heels of the complaint being filed, with little or no investigation by class counsel? The notice should summarize the investigation.
• Is the release of claims broader than the wrongdoings claimed in the original lawsuit? For example, if the action only covered one of the company's products, you shouldn't have to release all claims against the company in the settlement.
• Does the class member get any real benefit from the settlement? Sometimes benefits are intangible but worthwhile, such as when a company agrees to stop polluting. But if the complaint claimed money damages, class members should be wary of settlements in which only the lawyers get paid. "Coupon settlements" for money off the next purchase are often criticized, but can be valuable if the coupon gives a good discount on a desired product.

The main benefit of class actions is that they level the playing field when individuals join together to take on a big company. The main danger is that if class actions are handled irresponsibly, class members can lose more than they gain.

Jean Boler has practiced law for 18 years and specialized in class actions for 13 years. She has litigated and settled class actions and lectured extensively on the subject.

Related Resources on lawyers.com

- Class Actions
- Products Liability
- Class Action Message Board for more help

Web Links:

- LawCash.com provides information about suits filed under a variety of topics, the ability to follow a specific case and updates.