Class Actions

When many people have common claims against one or more defendants, one or more plaintiffs may also file a lawsuit, known as a class action, on behalf of all similarly situated individuals. Class actions allow courts to manage a large number of claims more efficiently, and they enable plaintiffs who might not have been able to pursue a claim individually to assert their rights in court. Individuals who have claims under a consumer protection statute, for example, may not find it economically feasible to file a lawsuit on their own, but they could participate in a class action.

Federal and State Law

The Federal Rules of Civil Procedure (FRCP) establish requirements for class actions in federal court, and many states have adopted similar rules. A few states have their own class action rules, which may differ considerably from the federal model. The Class Action Fairness Act of 2005 allows defendants to remove a class action from state to federal court if the amount in controversy is more than $5 million.

Legal Requirements for Class Actions

A court must determine that a lawsuit meets four criteria, described in FRCP 23(a), in order to certify it as a class action:

  • Numerosity: The size of the class is such that joining all plaintiffs individually as parties would not be practical;
  • Commonality: The class members’ claims present common legal and factual issues;
  • Typicality: The claims of the named plaintiff are typical of the class as a whole; and
  • Adequacy: The named plaintiff can “fairly and adequately” represent the class members and advocate for their interests.

When certifying a case as a class action, the court must clearly define the class and its claims or defenses. It must also appoint class counsel, who is usually the named plaintiff’s attorney.

Types of Class Actions

FRCP 23(b) identifies three types of class actions. The court must make one of the following findings when certifying the class:

  • Requiring separate lawsuits could result in inconsistent rulings, or a ruling on one class member’s claims could affect other class members’ ability to pursue their own claims, known as a (b)(1) class;
  • The defendant has acted, or declined to act, in a way that affects the whole class, meaning that the court could grant injunctive or declaratory relief for them as a group, known as a (b)(2) class; or
  • The common questions of law or fact “predominate” over any individual class members’ claims, making a class action the better means of resolving the dispute, known as a (b)(3) class.

Class Action Claims

Courts have certified class actions in a wide variety of civil lawsuits, and they are common in consumer disputes, such as broker or securities fraud, false advertising claims, debt collection practices, and other violations of state or federal consumer protection statutes.

Class Membership

Once the court has certified a lawsuit as a class action, it has the duty of notifying class members of the pending litigation. FRCP 23(c)(2) requires that notice of a (b)(3) class contain detailed information about the class, the lawsuit, and procedures for requesting exclusion, or “opting out” from the class. For other types of class actions, the notice must simply be “appropriate.”

Most class action rules require class members to opt out of a class, rather than creating a class composed of members who opt in. Class members who opt out may bring a claim on their own, but they must notify the class counsel within a specific time frame. If a class member does not opt out, he or she will be bound by the outcome of the class action.

Settlement of Class Actions

Any settlement in a class action requires court approval. The court must provide notice to all class members and give them the opportunity to object. In cases with (b)(3) classes, the court may also require the parties to allow class members another opportunity to opt out of the class. The court may reject the proposed settlement if it concludes that it does not provide a reasonable recovery for the class members, as a judge recently did in a California class action involving Apple, Google, and other tech companies.

Limits on Right to File Class Actions

Businesses may include provisions in their contracts with customers that require them to use arbitration or other procedures in the event of a dispute, instead of filing a lawsuit. Some states have laws prohibiting contractual clauses that take away consumers’ rights to file class actions. The U.S. Supreme Court ruled against a class of consumers in a dispute with a wireless telephone service provider, holding that the Federal Arbitration Act of 1925 preempted such state laws, meaning that the plaintiffs were barred from filing suit. AT&T Mobility v. Concepcion, 563 U.S. 321 (2011).