CLASS ACTION FAQs
What types of cases are appropriate for litigation as a class action?
In the 1960's, the Federal Rules of Civil Procedure were amended to
allow for class actions. The new Rules were promulgated with an eye toward
strengthening the hands of government agencies seeking to uphold and enforce
the recently enacted civil rights legislation by the empowerment of private
attorneys. Class action law has evolved over time and is now used to seek
money damages and other relief arising out of securities law violations,
consumer fraud and deceptive trade practices, antitrust violations, wage and
hour violations, human and civil rights violations, employment
discrimination and employee benefits disputes. In order for a claim to be
prosecutable as a class action, any common issues of fact or law must
substantially outweigh any individual issues. Because of this requirement,
there are certain types of litigation that are typically not appropriate for
resolution on a class-wide basis. These include personal injury and fraud
claims, which frequently include highly individualized questions of
causation and reliance.
How do You Join a Class Action?
In most cases you need take no steps of your own to join a class action.
Indeed, usually only those who wish to exclude themselves from a class need
do anything. It is only in rare instances that a suit is filed as an "opt
in" class action, that you must submit a claim form or request to join the
class case. You may receive compensation for a wrong, injury, or loss you
have sustained – compensation that may not have been available to you in any
other forum. As a member of a class of similarly harmed persons, you help
demonstrate to the court that the alleged harm done was substantial and
affected a large number of people, increasing both the likelihood of a
recovery and its size. Moreover, with rare exceptions in a handful of
states, the only cost to you will be drawn from any settlement or judgment
upon successful resolution of the matter. They work on a contingency fee
basis and are paid upon a successful resolution of the matter. Generally,
the attorneys advance the expenses and costs of prosecuting class cases.
Can you be bound by a settlement or judgment of a class action?
If the court decides the underlying legal proceedings were fair, all absent
class members are generally bound by the judgment or settlement of a case.
However, if the lawsuit is primarily to recover money, absent class members
are entitled to notice and an opportunity to "opt out" (exclude themselves)
from the proceedings. If a person opts out, he is not bound by any judgment
or settlement of the class action. If a person opts out, he may be free to
bring a claim for damages individually. When a class action is for
declaratory or injunctive relief, notice isn't required to bind absent class
members and the court may not allow a person to opt out.
Is it better to file an individual lawsuit?
The answer typically depends on the nature of the suit and the individual
circumstances of the parties. Often, class actions seek recovery for a large
group of people, but individual damages may be small. Thus, while the total
recovery may be large, the recovery per class member may be relatively
small. Typically, in these types of cases, the benefit of bringing an
individual claim is outweighed by the cost. However, if you have substantial
damages and a serious claim, you should talk to a lawyer about whether to
file your own lawsuit.
Which Courts have jurisdiction over class actions?
Both Federal District Courts and State trial courts have jurisdiction over
class actions. However, which court will preside over a particular class
action is dependent upon the claims asserted (whether federal or state law
claims) and the residency of the parties and class members. Due to changes
in federal law pursuant to the Class Action Fairness Act, almost every
nationwide class action will be litigated in Federal District Court
regardless of the claims.
What is the cost of bringing a class action?
In most class action lawsuits class members are represented by attorneys who
are paid on a contingency fee basis. In a contingency fee arrangement the
attorneys representing the class only receive compensation if the lawsuit
results in some significant benefit to the class. If class counsel recover
nothing for the class, then they are not rewarded for their efforts. If a
recovery is obtained, application for payment of the legal fees is made to
the court and the court approves and awards the amount to be paid. Class
members and class representatives do not pay for any legal fees associated
with the case. This is also true of the costs incurred in litigating the
class action case. All of the costs of the case are incurred by the counsel
representing the class and reimbursement of those costs are sought from the
court after a recovery has been made for the class. Class members and class
representatives do not pay for these costs.
How are attorneys paid in class action cases?
The plaintiff’s attorneys are usually paid in accordance with an order from
the court before which the case is pending. The judge responsible for the
class action reviews a submission made by the attorneys, called a “fee
petition.” This petition sets forth in detail the work the attorneys have
done on behalf of the class. After consideration, the court enters an order
fixing the amount of the fees to be paid to the attorneys form the judgment
or settlement fund. The amount of the fees awarded is based upon a number of
factors, including, among others, the quality of the work, the difficulty of
the case, the nature of the result, the amount of time spent on the case,
and the risks involved. As a percentage of the gross settlement or recovery,
the fee amount can vary greatly within a wide range depending on the factors
the court takes into account and the weight it attaches to each of them.
What are the signs of that a class action settlement is unfair?
Courts consider a number of factors when examining the fairness and adequacy
of a class settlement. Below are some examples of circumstances where it may
be justified for a Court to examine the terms of a settlement in further
detail:
- The proposed settlement fails to create a substantial return for the class in terms of collective benefit to the absent class members. For example, in a case alleging a defect in a particular product, the proposed settlement provides only that class members are to receive a nontransferable coupon good for a limited time on the purchase of a new product by the same manufacturer. It's likely that if the class members purchased a defective product in the first place, they might not be interested in repeating the mistake again with the same manufacturer. And it could be argued that the settlement is of more value to the defendant as a marketing scheme than to the class members as compensation for damages. On the other hand, such a "coupon settlement" could be of substantial value if the coupon can be used on a product in great demand, offers substantial savings to the class, provides a reasonable period of time in which it may be used and is transferable.
- A class action was filed as an action for money damages, but the
settlement provides no monetary award for the class members.
Further, the attorney's fee is for several million dollars and is based
on "nontangible" benefits the class will purportedly receive. For
example, in a case involving a vehicle subject to rollovers, class
counsel negotiates a settlement in which a class member receives only an
inspection of his vehicle to determine if it has been modified since the
date of manufacture, a warning sticker for the visor saying "watch out,"
and a toll free number they can call for a free tow if their vehicle
rolls over. At the end of the proposed settlement, the class members are
still left with dangerous, unmodified vehicles and provided no
compensation for the defect. Yet the class counsel contends the
settlement is fair and worth millions in fees.
In some instances, however, nontangible benefits can be substantial. For example, in a pollution case, a defendant might be sued for both money damages and injunctive relief in an effort to stop continued pollution. Under some circumstances, the injunctive relief could provide true substantial benefits to the class even in the absence of money damages. If the pollution is stopped, the quality of life for those in the area could very well be improved, potential illness and risk to children from the pollution eliminated and any further damages to the class from continuing pollution stopped. In such a situation, a class counsel might make a conscious and intelligent decision that it's more important to the class to stop the pollution now through settlement than to continue it indefinitely by continuing to litigate. In such a situation, a substantial fee may be appropriate even if no direct compensation is paid to individual class members. - Any settlement where the release being demanded as a condition of
the settlement is extremely broad and may cover claims that weren't
pursued in the lawsuit. For instance, a bank is improperly charging
a "fax fee" when a person pays off a mortgage issued by the bank. Assume
such a practice violates state loan charge disclosure statutes or the
Truth in Lending Act and the $15 fee charged for a fax is improper.
Assume further that the same bank is also improperly calculating interest due on a loan closing date and is overcharging some customers several hundred dollars in interest at the time a loan is paid off. A lawyer finds out about and sues over the improper fax fee, but never discovers the bank is improperly charging interest. It is possible that under some circumstances a bank could even lie about the interest charges and preclude the class action attorney from discovering the lie by blocking procedures in the litigation. The bank agrees to settle the fax claim, but knowing it may soon be sued for the interest claim attempts to head off in advance any such new suit by insisting that the release in the fax claim case covers "every and all claims relating to loans, known or unknown" arising from any loan. If a demand by a defendant is made for a ridiculously overbroad release of claims, they may very well have something to hide that hasn't yet been discovered. - The failure to conduct any meaningful "discovery." Discovery is research into the other party's case, including looking at documents, taking depositions, etc. In order for an attorney to be able to tell a court that a settlement is fair, reasonable and adequate, he or she must be familiar with the underlying facts of the case. If the attorneys have not performed adequate discovery, they may not have sufficient familiarity with the facts to adequately make recommendations to the class or to the court.
- In a settlement class, the amount of attorney's fees to be requested appears on its face to be excessive, the fees were negotiated with the defendant, and the defendant agreed not to object to the fee request as part of the settlement. Such agreements create an appearance of class counsel putting their interest ahead of the class. On the other hand, such an agreement might not be improper if the fee is reasonable, the fact the defendant will not be objecting is disclosed, the class is given an opportunity to object to the fee, and the court provides oversight on ultimate approval of the amount awarded.
The presence of one or more of these factors doesn't necessarily lead to
the conclusion that a settlement is unfair or that the class has been poorly
or inadequately represented. But if several of these elements are present in
the same case, a more detailed inquiry into the settlement may be necessary
to protect the interests of the class members.