Litigation Issues: What is a Class Action?

Introduction

Class action litigation is at the cutting edge of our legal system. A number of prominent cases have captured the attention of the media and the public recently, including class action lawsuits against breast implant manufacturers, the tobacco industry, asbestos manufacturers, insurance companies, and most recently, gun makers. Mercy, Carter & Elliott, has been involved in class actions in each of these areas. These lawsuits have generated much discussion and controversy regarding the nature and purpose of class action litigation.

Class action litigation plays an important role in the United States legal system. Class action lawsuits can serve both to deter wrongful conduct and to provide compensation to injured persons. Individuals with a common legal interest can band together in a class action suit to pursue a common goal. Social changes, from school desegregation to prison reform have been brought about by class action litigation. Consumers have also taken advantage of class action litigation to recover damages for product defects and fraudulent business practices. Further, large groups of individuals injured by dangerous products, toxic waste, or mass accidents can recover damages to compensate for their injuries and to deter other companies from engaging in similar conduct.

The goal of class action litigation, from the perspective of the judicial system, is to achieve economies of time, effort, and expense, and uniformity of judicial decisions without sacrificing procedural fairness. Such lofty goals are, unfortunately, not always met. The result is that class action lawsuits are controversial. Some critics question whether the benefits of these lawsuits are worth the enormous costs, which can run into hundreds of millions of dollars. Defenders of class action lawsuits claim they are necessary to enforce regulations government bureaucrats have neither the money nor the inclination to enforce, and to compensate those who would otherwise be unable to seek justice. This debate over the relative worth of class actions has simmered for years, occasionally flaring up when a particularly problematic lawsuit reignites the controversy.

Class action litigation may appear to be a modern invention, but actually has its roots in medieval English courts. The "Bill of Peace" allowed the English Court of Chancery to rule on disputes involving multiple parties with common questions. Class action litigation in the United States developed out of this English practice. A class action lawsuit may be filed either in state or federal court, depending on the parties and issues involved. More than half of all class action litigation proceeds in state court, but this article will focus on federal class actions, which are governed by a uniform set of rules.

Class action litigation increased dramatically following World War II, as post-war prosperity and an increased concern for individual rights coincided, allowing the nation to focus on achieving greater justice. In 1966, the federal rules governing class actions were revised. The most significant revision changed the requirement that class members who wanted to participate in a class action had to opt-in, or affirmatively state a desire to become involved in the lawsuit. Now, any class member who did not wish to participate would be required to affirmatively opt-out. This single revision changed the scope and impact of class action lawsuits, making them larger and more powerful agents for change. Class action lawsuits surged, both in number and size, in the last three decades of the millenium following this revision.

A class action lawsuit allows individual claims to be aggregated into a single lawsuit, resulting in substantial advantages for individuals who might otherwise be deterred by the cost of bringing an individual suit. A representative party (or parties) is designated to litigate on behalf of the whole group, or class. The whole class will be bound by the outcome, even though only the representative party will be actively involved in the lawsuit. The Due Process Clause of the Constitution requires that for a person to be bound by the judgment in a lawsuit, that person's interests must be protected by the procedures of the lawsuit. For that reason, the class action lawsuit sets some requirements for the protection of absent parties, as we will see later. (The representative party is sometimes called a representative plaintiff, or named plaintiff. Other individuals in the class are called class members.) The representative party pleads an individual claim, but also states the existence of a class, and alleges a claim or claims on behalf of the class. For example, Jane Smith (the representative party) may claim she was misled and defrauded by an insurance company, and also state that a number of other insurance policy holders (the class) were similarly misled and defrauded. Generally, Jane Smith would file a lawsuit on behalf of herself and "all others similarly situated." After the representative party files a claim stating the existence of a class and alleging class claims, the court must decide whether to certify the case as a class action. Certification of a lawsuit as a class action means that a judge has reviewed certain factors in the case and has determined that a class action lawsuit is the appropriate method of resolving the dispute. A judge must look at a number of factors in deciding whether to certify a case as a class action. Those factors are spelled out in rules governing procedures to be followed in Federal Court. (Most state courts follow similar, if not identical, procedural rules.) The representative plaintiff must prove that the requirements for certification have been met. Under the federal rules, there are four basic requirements for certification. First, the class must be so numerous that it would be impossible for each class member to be an active participant in the case. If the class were so small that each individual could participate, there would be no need for the case to proceed as a class action. Second, there must be questions of law or fact common to the class. Usually there are several common questions, but a single common question can satisfy this requirement. Third, the claims of the representative parties must be typical of the claims of the class. And fourth, the representative parties must be able to fairly and adequately protect the interests of the class. The last two requirements help satisfy due process requirements, by ensuring that members of the class will be fairly represented by parties who share the same interests and have suffered the same injuries as class members.

In addition to satisfying the above four requirements, a potential class action must fit into one of the categories set forth in the federal rules authorizing class action lawsuits. Usually, a class action lawsuit will be authorized when the court finds: 1) that the questions of law or fact common to the class predominate over any questions affecting only individual members, and 2) that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. If the judge determines that a lawsuit should be certified as a class action, members of the class will generally be notified of the class action. The attorneys for each side will begin to prepare for trial, and will generally discuss potential settlement options. Most class action lawsuits settle before trial, largely due to the enormous expense of the lengthy, complex trials required by such cases.

The judge in a class action lawsuit plays an important role. In addition to making the initial determination as to whether to certify the class, the judge must approve any settlement. If the attorneys for each side agree on a potential settlement, class members will be sent a notice explaining the allegations in the case, the proposed settlement terms, and their rights as a class member. The judge will scrutinize the notice to insure that it adequately explains these issues to the class. Class members will also be informed that they will be bound by the settlement in the class action, that is, they will not be able to file another lawsuit based on the same claims as the class action lawsuit. Class members will also be informed of their right to opt-out of the class. A class member who opts out will no longer be considered a member of the class, and will not receive any of the benefits of the settlement. An individual who opts out will also not be bound by the judgment in the class action lawsuit, and may be free to file an individual lawsuit, if he or she so chooses.

After class members have been notified of the proposed settlement, a fairness hearing is held. At the fairness hearing, the judge will determine whether the settlement is fair, adequate, and reasonable. The distribution strategy for damages will be reviewed to ensure class members are fairly compensated. The judge will listen to any class members who object to the proposed settlement, as well as the attorneys for both sides. The judge will also review the proposed attorneys' fees, since the judge has authority to award attorney fees in a class action. If the judge determines that the settlement is fair, adequate, and reasonable, he or she will issue an order approving the settlement. Damages will then be apportioned to class members according to the distribution strategy, and the lawsuit will be over.

If the case does not settle, it will proceed to trial. A jury will then determine whether the defendant is liable (legally responsible). If the jury finds the defendant liable, it will decide what damages should be awarded to the class. After the trial, the case may be appealed by the losing party. It can take many years for a class action to be resolved if there is an appeal.

Class action lawsuits have increased dramatically in both number and size in the past few decades, and this increase shows no signs of slowing. Although sometimes controversial, class action lawsuits serve a purpose in our legal system, and are likely to remain part of our legal landscape for years to come.

Mercy, Carter & Elliott, has been involved in class actions class action lawsuits involving automobile manufacturers, breast implant manufacturers, the tobacco industry, asbestos manufacturers, insurance companies, and most recently, gun makers. The firm represents both plaintiffs and defendants in class action litigation. If you would like our assistance with an issue involving class actions, you can contact us at:

1730 Galleria Oaks Drive
Texarkana, Texas 75503
(903) 794-9419
(903) 794-1268 (facsimile)
(877) 499-9419 (toll free)
www.mercylawfirm.com