Class Action

Class action lawsuits provide legal relief to large numbers of individuals who were wronged by a corporation yet suffered relatively small monetary losses. An example would be mothers who paid a premium price for organic infant formula, yet the formula is, in fact, no different than its non-organic counterpart.

Class action lawsuits are typically filed by one person or a small group of people on behalf of all those who were similarly harmed. All the people involved are referred to as “class members.” This means that while the class members are not the ones filing the lawsuit, they will be able to receive a part of any settlement or court award that results from the case.

What is a Class Action?

We are all exposed to television ads about bad drugs.  We read in the newspaper about product recalls.  Whether it’s cars that seem to accelerate on their own, defective toys a manufacturer makes or lumber that was treated with chemicals and is now making people sick, a lot of people seem to be effected.   Just because a lot of people may be hurt does not mean there it is appropriate for a class action.   This article will outline what a class action case is, what is needed to form a class action and what the government and courts have been doing to try to limit class action lawsuits.

What is the difference between a Mass Tort and a Class Action?

Before discussing class action cases, let us first clear up a common misunderstanding between a mass tort case and a class action case. Mass tort cases are different than class action cases. Mass tort cases involve cases where individuals suffer a different, unique harm due to a similar occurrence.  While the same mechanism of injury exists for everyone injured, the actually injury caused is unique to the individual.

For example, if a pharmaceutical company fails to disclose the drug exposes everyone who takes it to an increased risk of bladder cancer, everyone who is diagnosed with bladder cancer after taking the drug has the same claim regarding what the pharmaceutical company failed to warn about.  However, the effect of bladder cancer on each person is unique. The uniqueness comes from their age, sex, employability, treatment, family situation, treatment required and long-term consequences caused by the drug.

Dangerous Drugs Mass Tort

Since the mechanism of injury is similar, all of those claiming bladder cancer the drug from all across the country are aggregated together in front of a single judge to determine if the drug is capable of causing the claimed injury. In our example, whether the drug has the capacity to cause bladder cancer. This is called a mass tort.

Once the judge determines the drug has the capacity to cause the claimed injury, each individual case is then sent back to their original state for determination of whether the drug actually caused the claimed injury in the individual case.  If it is determined the drug has caused the claimed injury, then a determination of the extent of harm caused by the drug is undertaken.

In a mass tort case, the only similarity among all the people bringing the claim is whether the drug has the capacity to cause the claimed harm.  What is not similar is whether the claimed harm in fact caused it in any individual person and, if it did, what the extent of the harm was to each individual.

How does a case qualify as a class action?

To qualify as a class action, as opposed to a mass tort, there is similarity in both the cause of the harm and the harm itself.   As will be discussed in greater detail below, the people who suffer the harm are called the class.  Those in the class generally all suffer a harm that is often solely an economic harm.

That is, everyone in the class who suffered harm suffered the same financial loss.

Many people are in a class and do not even know they are in the class or they have been harmed.    You may have received a notice in the mail called advising you that you may be a member of a class.  Such a notice means you may have unknowingly suffered a financial harm and entitled to recover that harm if you participate in the class action settlement.


Where can a class action suit be brought?

A Class Action Lawsuit can be brought in State Court or Federal Court.  Every State has their own rules defining when a class action case may be brought, who can bring them and what type of wrongful activity qualifies as a basis for commencing a class action.   Since there is so much discrepancy on a State-by-State level, this article will be limited to Federal class action cases.

What is Federal Rules of Civil Procedure (FRCP), Rule 23?

Federal class actions cases are governed by the Federal Rules of Civil Procedure (FRCP).  Specifically, FRCP Rule 23 governs class action lawsuits.   Before a group of people can proceed as a class action, a judge must first certify the case qualifies, or meets the elements, of a class action under the statute.

First, a class representative starts a lawsuit on behalf of himself or herself and all others similarly situated.   In the most basic of terms, the class representative must have the same common harm from the same course of conduct as all others they are seeking to bring the class action case on behalf of.

When the class representative brings the case, they must show several things to qualify under FRCP Rule 23.  Prior to a federal judge certifying any case as a class action, the class representative must demonstrate that there are so many possible claimants that it is impracticable to join them in one traditional lawsuit.

How big does a class need to be?

The size must be large enough to justify certification as a class action.

In addition to having a large enough class, the issues the class representative seeks to bring must be common among all the proposed members of the class. Commonality of issues can be commonality of questions of law or commonality of questions of fact.  Questions of law relate specifically to how a particular law affects the class members.

Commonality of questions of fact requires that the same set of facts apply to all members of the class.

For example, the same language is used in a product label.  When the underlying claim is that the warning label is fraudulent or deceptive, there is commonality for all purchasers of the product because they all received the same label.   If there is no commonality of questions of law or questions of fact, a judge will not certify a case as a class action.  Often times defendants will argue the actions they have claimed to have done are unique to each individual in an effort to not have a case certified against them.

As mentioned above, FRCP requires the class representative, also known as the named plaintiffs, have identical claims as those in the class they seek to represent.  A federal judge will not certify a class action if the named plaintiff does not fully represent the class.

For example, if the named defendant can raise a unique defense against the individually named plaintiff, the court may not certify the case as a class action.  Additionally, if the named plaintiff has harms that are different than all others from the group he or she seek to represent, a court also may not certify the case as a class action.

An additional requirement of FRCP is an analysis of the lawyers who represent the proposed class representative.   The judge must be satisfied that the lawyers seeking to represent the class representative on behalf of the entire class have enough experience and knowledge with handling class action matters.  In short, experience counts.

Not only does the judge evaluate the lawyer or law firm seeking to represent the class representative, the federal judge examines the fee agreement between the class representative and the law firmUltimately, the judge is required to approve the legal fee earned by the law firm.

This is required because all members of the class, except the designated class representative, pay the lawyer fees. Since members of the class do not have the opportunity to negotiate the legal fees with the law firm representing them, requiring the federal judge to approve the entire legal fee creates extra protection for all members of the class.

Court House

Examples of Class Action Cases

Having outlined the basic concepts regarding class action cases, let’s turn to why class actions cases benefits the American consumer by reviewing some class action cases.   The main benefit of class action cases is they allow individual consumers who, on his or her own, have a small claim, but in the aggregate the activity affects a large group consumers due the wrongdoing of a corporate actor.   While the individual claim is not practical to bring, the corporate wrongdoer can be held accountable for their misconduct through class actions lawsuits.

Class Actions against Electric Resellers

For example, with the deregulation of the electrical industry Congress has permitted companies to resell electricity.   Some resellers advertise a teaser rate – a below market cost – to get homeowners and business to switch from their current utility source to the new reseller.   In the contract, after the teaser rate period expires the reseller is permitted to switch to a variable rate.  That is, the cost to the consumer is a defined percentage above the actual cost of the electricity.  However, if the resellers formula in calculating the variable rate exceeds the contracted premium, even by one cent, there is a tremendous windfall to the reseller and a minor premium paid by any one customer.   A class action lawsuit enables any of the resellers customers who may be paying and additional five to ten dollars a month to bring a claim on behalf of all customers of the reseller.  Suddenly, when the claim is for all customers of the reseller, which may be hundreds of thousands of customers, the claim is one that the reseller will take seriously.

Class Actions against Financial Institutions

Another example relates to financial institutions.  Some states have a law that require banks or mortgage companies to file a mortgage satisfaction with the county clerk where the property is within a defined time period after a mortgage is paid off.   The purpose of the law is to protect consumers credit by insuring financial records be filed with governmental agencies.  Without such laws, consumers may have properties listed on their credit reports that they no longer own.

Those states that have such laws often include a penalty against the bank or mortgage company for failing to timely file the mortgage satisfaction.

For example, there may be a five hundred dollar penalty if the satisfaction is not filed within thirty days.  The penalty increased to seven hundred fifty dollars if the satisfaction is not filed within forty-five days and a thousand dollar penalty for all filings beyond sixty days.  If a bank routinely fails to comply with the law and individual consumer may not think it is worth suing the bank to force compliance or to seek the financial penalty.   With class action lawsuits, however, one of the banks customers can bring the claim on behalf of themselves and all other bank customers who the bank failed to file the necessary mortgage satisfaction with the local county clerk.

Class Actions against Food and Products Companies

Fraudulent food or product labeling is another area that is ideal for a consumer to pursue a class action lawsuit.   Consider a company that markets their shampoo as being “all natural” yet the product contains synthetic substances.   If the company that sells the shampoo that does not market itself as all natural cost two dollars and the company that sells the similar shampoo but markets it as all natural and it is not sells their shampoo for two dollars and fifty cents and the consumer is willing to pay that fifty cent premium because they believe it is in fact all natural, the consumer can bring a class action claim on behalf of all people who purchased the two dollars and fifty cent shampoo.

Product labeling must be truthful and the only mechanism a consumer has to hold companies accountable for fraudulent labels is through class action lawsuits.

Class Actions against Employers

Consider an employer who fails to accurately reimburse their delivery employees for mileage expenses.  The employer shortchanges every employee fifty cents per delivery.   The underpayment may amount to fifteen dollars a week for any one employee.  However, if there are hundreds of employees suffering the same harm any one of them can bring a class action on behalf of all employees to force the employer to fully reimburse all delivery staff.

Are you required to participate in a class action if you are a member of the class?

No. While class action cases are intended to help consumers right wrongs, not every class member is required to participate in the class action case.  While the class representative brings the case on behalf of the entire group, class members are given an opportunity to either “opt out” or “opt in” as a member of the class.  With an “opt in” class, only those members who notify the class representative lawyer once they received notice of the class action lawsuit will be considered to waive their individual rights to bring an individual case against the corporate wrongdoer.

The more common class action lawsuit is an “opt out” class action.

This presumes every member in the effected class agrees to be part of the class action settlement and the only way to preserve your individual rights to pursue an individual case is if the class member notifies the class representative lawyer they opt out of the settlement.  When an individual opts out they retain all the rights they had as if the class action case was never started.

Bottom Line – Class action cases serve a benefit to all American consumers.

Class actions are a mechanism to hold corporate wrongdoers accountable when corporations cause a small harm to any one individual but a large harm to American consumers when they are aggregated together.