Class Action – Definition

Cite this article as: Jason Mance Gordon, "Class Action – Definition," in The Business Professor, updated January 6, 2015, last accessed April 9, 2020, https://thebusinessprofessor.com/knowledge-base/class-actions/.
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What is a Class Action Lawsuit?
This video explains what is a class action lawsuit.

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What is a “Class Action” lawsuit?

A class action is a special type of lawsuit in which one or more plaintiffs file suit on their own behalf and on behalf of all other persons who have a similar claim against the defendant. The individuals represented by the lead plaintiff(s) are known as a “class” of plaintiffs. This type of lawsuit is popular when many individuals suffer the same type of harm by the defendant’s conduct. Frequently, it involves matters in which no one member of the class has suffered a sufficient loss or harm to justify bringing the lawsuit alone. Basically, the damage suffered by one person is not enough to support the expense of litigation. Class status allows plaintiffs to aggregate their claims into one trial. It also avoids multiple legal actions involving the same issue. It provides advantages to the class of plaintiffs when the cost of litigation high and the issues are complex.

Discussion: Do you think that class actions are valuable or detrimental to US society? Do you think that class actions have an impact on corporate behavior with regard to consumers?

Discussion Input

  • May consider class actions are valuable to the US society. The plaintiffs in the cases are able to harmonize their cases into one. This helps to reduce the work of the court. It is also cost effective to the members in the suit because the cost of the suit is shared among the plaintiffs. This makes the legal costs affordable and allows for actions that would otherwise be cost prohibitive. It also helps in the expeditious dealing with legal issues. Class actions have an impact on how corporations behave in the United States. This is because corporations are often called to answer for conduct that could not be challenged by plaintiffs individually.

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Certifying a Class Action
This video explains what it means to certify a class for purposes of bringing a class action lawsuit.

Requirements for a Class Action

The requirements for a plaintiff to bring a class action against a defendant are as follows:

Certify the Class – The primary hurdle for the plaintiff is to “certify” all potential plaintiffs as a class. To certify a class, the plaintiff(s) must present evidence of the following:

  • Numerosity – The class is so numerous that joinder of class members in a trial outside of a class action is impracticable;
  • Commonality – There must be questions of law or fact common to the class;
  • Typicality – The claims (harms suffered) or defenses of the class representatives are typical of those of the class;
  • Adequacy – The class representatives will fairly and adequately protect the interests of the class; and
  • Any of the following:
    • Risk of Inconsistency – Hearing separate actions risks either inconsistent adjudications and standards or any one action would be dispositive of cases by other parties;
    • Defendant’s Obstinance – The defendant fails to act on any grounds or causes of actions by the defendants.
  • Example: One example is Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011)). In this case the nationwide class of 1.5 million women alleging discrimination in pay and promotions by the largest private employer. The plaintiff failed to satisfy commonality prerequisite for class action certification.
  • Note: Denying the class does not give rise to immediate appeal. The case must be tried to a result first. This procedural requirement places a significant hurdle in the way of individuals trying to get certified as a class.

Discussion: In recent years, Wal-Mart was the subject of a class action lawsuit for gender discrimination in hiring, promotion, and salary. The court denied class status to the plaintiff on the grounds that all plaintiffs did not suffer the same type of harm. Gender discrimination in hiring is not sufficiently similar to discrimination in promotion and salary so that the plaintiffs are representative of all class members. Do you believe that the requirement that each plaintiff be representative of all class members should be construed more strictly or loosely?

Discussion Input

  • Some would argue that it should be more strict to prevent abuse of the process by bringing cases that have no merit. Others would argue that cases like the Wal-Mart cases show that the standard for bringing a class action can be overly difficult to achieve.

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Procedural Requirements for Bringing a Class Action Lawsuit
This video explains the Procedural Requirements for Bringing a Class Action Lawsuit

Procedural Requirements for Class Action Lawsuit

Notice to Opt-Out – Once certified, the lead plaintiff must give notice of the litigation to all prospective members of the class who can be found through reasonable efforts. Once identified, the prospective members are then given the option of opting out of the litigation. Opting out means that they will not be included in the class of plaintiffs. In most cases, this reserves the ability of the potential class member to bring her own legal action against the defendant.

Discussion: You may have gotten notice in the mail or via an email that you are a potential class action member. They are common with purchases of electronics, lending practices, and communications or data usage agreements. Do you believe that failing to opt out of such actions is in your best interest? Were you satisfied with the result from the class action suit?

Discussion Input

  • To many, requiring a plaintiff class member to opt out of the class action seems somewhat counterintuitive. This procedure, however, has proven to be necessary for the effective administration of the action. The question becomes whether the procedural necessities outweigh the potential that an individual will inadvertently be included in a class action with which they do not wish to be a part.

Cost of Litigation – The lead plaintiffs in the class action must generally pay all of the costs associated with bringing the suit. This includes the heavy fee associated with notifying all potential class members. This makes it prohibitively expensive for one individual or a small group of plaintiffs to serve as plaintiffs for the class. Aggregating the claims among a group of lead plaintiffs, however, makes the action more affordable. Further, if the class action is successful, the plaintiffs paying the cost of litigation may recoup those expenses from any judgment rendered.

Discussion: Do you believe that plaintiff’s attorneys should be able to pay the costs of certifying the class? Why or why not?

Discussion Input

  • Many would argue that the plaintiff’s class should pay the costs of certifying the class as a mechanism to avoid frivolous and vexatious matters to the court. Others would argue that this is simply a procedural measure aimed at protecting companies from answering for their actions. We know that plaintiffs generally form a class to spread the costs that frequently make the case too expensive to bring individually.

State or Federal Court – Plaintiffs may be able to bring a class action in state or federal court. State class action suits must demonstrate the court’s subject-matter jurisdiction over the case and personal jurisdiction over the defendants. For the court to have subject-matter jurisdiction over the class action, a cause of action claimed against the defendants (such as fraud) must arise under state law. The court has personal jurisdiction over all defendants when they all have minimum contacts with the state. Issues arise when there are multiple defendants from different states and they have very little contact with the state of litigation. A class action in federal court avoids the issue of personal jurisdiction, but the plaintiffs must still demonstrate that the court has subject-matter jurisdiction. If the parties are not suing the defendant based upon a federal law, then there must be diversity between the plaintiffs and defendants. Generally two federal statutes allow for class actions involving “complete diversity” and “minimum diversity”.

Complete diversity – This requires that all plaintiffs be from different states than all defendants. This is difficult to achieve when the plaintiff class is very large and some class members are located in the same state as the defendant.

Minimum diversity – This allows for the diversity action in federal court when only one plaintiff is diverse from one defendant. In both complete and minimum diversity situations, the amount in controversy must be at least $75K. In some situations, all claims can be aggregated to meet the $75K amount. In other situations, a single plaintiff must have a claim of $75K in order to meet the statutory amount in controversy requirement.

Practice Question: Save-Mart is national retailer of consumer products. A large group of female employees seek to bring a class action against Save-Mart for discriminatory practices in the hiring, promotion, compensation, benefits, scheduling, and firing of female employees. Most of these employees received minimum wage during their period of employment, which averaged 6-8 months. Four women from California will serve as the representative plaintiffs. What issues exist here for the plaintiffs in bringing the class action?

Proposed Answer

  • The first issue that arises here is that of jurisdiction. The plaintiffs will have to decide which court (federal or state – and which state) will be best suited to adjudicate the matter. If the matter is brought before the state court, the court will have to look if it has jurisdiction over the subject matter and personal jurisdiction over the defendant. Bringing the action in federal court would avoid the issue of personal jurisdiction, but the plaintiffs must still demonstrate that the court has subject-matter jurisdiction. Generally, this would require bringing the class action under a federal statute or demonstrating the required level of diversity (complete or minimum) among plaintiffs and defendants. The next issue would concern certifying the class. Can the plaintiffs demonstrate the requisite elements of: numerosity, commonality, typicality, and adequacy of remedy?

Academic Research

Fitzpatrick, Brian T., An Empirical Study of Class Action Settlements and Their Fee Awards (July 7, 2010). Journal of Empirical Legal Studies, Vol. 7, 2010; CELS 2009 4th Annual Conference on Empirical Legal Studies Paper; Vanderbilt Public Law Research Paper No. 10-10; Vanderbilt Law and Economics Research Paper No. 10-06. Available at SSRN: https://ssrn.com/abstract=1442108or http://dx.doi.org/10.2139/ssrn.1442108

Wasserman, Rhonda, Dueling Class Actions. Boston University Law Review, Vol. 80, No. 2, April 2000. Available at SSRN: https://ssrn.com/abstract=230942

Klerman, Daniel M., Posner and Class Actions (January 2, 2019). University of Chicago Law Review, 2019 Forthcoming; USC CLASS Research Paper Series No. CLASS19-1; USC Law Legal Studies Paper No. 19-1. Available at SSRN: https://ssrn.com/abstract=3309338

Mullenix, Linda S., Dubious Doctrines: The Quasi-Class Action (December 30, 2011). University of Cincinnati Law Review, Vol. 80, No. 2, 2012; U of Texas Law, Public Law Research Paper No. 253. Available at SSRN: https://ssrn.com/abstract=2205479

Issacharoff, Samuel, Governance and Legitimacy in the Law of Class Actions. The Supreme Court Review, 1999. Available at SSRN: https://ssrn.com/abstract=181750 or http://dx.doi.org/10.2139/ssrn.181750

Hines, Laura J., Codifying the Issue Class Action (December 20, 2015). Nevada Law Journal, Vol. 16, No. 625, 2015. Available at SSRN: https://ssrn.com/abstract=2776687

Campos, Sergio J., The Uncertain Path of Class Action Law (December 21, 2018). University of Miami Legal Studies Research Paper No. 18-5; Cardozo Law Review, Vol. 40, 2019. Available at SSRN: https://ssrn.com/abstract=3124353 or http://dx.doi.org/10.2139/ssrn.3124353

Fitzpatrick, Brian T., Do Class Actions Deter Wrongdoing? (September 12, 2017). The Class Action Effect (Catherine Piché, ed., Éditions Yvon Blais, Montreal, 2018); Vanderbilt Law Research Paper No. 17-40. Available at SSRN: https://ssrn.com/abstract=3020282 or http://dx.doi.org/10.2139/ssrn.3020282

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