With few exceptions, any type of claim that may be asserted by an individual plaintiff may also be brought as a class action. The most common types of matters litigated as class actions involve securities, labor and employment disputes, consumer-related claims, product liability and civil rights claims. The rules and procedures governing the trial of a class action suit are similar to any other trial, including a plaintiffs’ entitlement to a jury trial.
Jurisdiction over class actions
With certain exceptions, at the election of the named plaintiff, class actions may be filed in either federal or state court, although a defendant has the right to have certain putative class suits that are filed in state court transferred to federal court.
Federal courts have jurisdiction to hear claims of the class that arise under federal law, regardless of the citizenship of the parties. If the claims of the class do not arise under federal law, however, the action traditionally could be maintained in federal court only if all class representatives (not class members) were citizens of different states than all of the defendants, and at least one class member had damages in excess of $75,000.
Two federal statutes enacted over the last twenty years, however, significantly expanded federal jurisdiction over class actions. The Securities Litigation Uniform Standards Act of 1998 generally preempts state securities fraud lawsuits where there are at least 50 class members and makes such class actions removable to federal court. More recently and more significantly, the Class Action Fairness Act of 2005 provides that, subject to certain exceptions, a class action may be litigated in federal court if (1) there are at least 100 class members, (2) any class member is a citizen of a different state than any defendant and (3) the amount in controversy in the aggregate exceeds $5 million. Moreover, if a class action filed in a state court satisfies these requirements, subject to certain exceptions, a defendant may have the case transferred from state court to federal court.
The court plays an important role in protecting the interests of absent class members. The first point at which this occurs is at the outset of the case. Shortly after a class action complaint is filed, the named plaintiff typically will ask the court to certify the lawsuit as a class action and approve the named plaintiff as the representative of the class. In certain types of cases, such as securities fraud class actions, there are additional procedural requirements that a named plaintiff must satisfy in prosecuting a class action.
When seeking class certification, the named plaintiff has the burden of demonstrating to the court that the suit satisfies the requirements to proceed as a class action and that it and its counsel are adequate to represent the interests of absent class members. Through this process, the court conducts an inquiry into, among other things, the common nature of the class representative’s claims and the absent class members’ claims and the adequacy of representation, and attempts to ensure that the interests of the absent class members will be adequately protected. If the court certifies the class, the suit proceeds as a class action. If, on the other hand, the court denies class certification, the action may proceed only as to the named plaintiff’s individual claims.
Whether a class is certified is the critical point in a class action suit. Most putative classes are not certified by the court, thus the matter cannot proceed as a class action. On the other hand, cases in which a class is certified rarely make it to trial. While some of the actions in which a class is certified are subsequently dismissed on legal grounds, the vast majority are ultimately settled because of the costs and risks associated with litigating a class action. By contrast, only a small number of non-certified putative class actions are settled. Accordingly, the court’s decision whether to certify a class action is significant in terms of determining the ultimate outcome of the action.
Procedural Requirements for Class Actions
Federal law - copied in many states - has two procedural requirements for a lawsuit to proceed as a class action. First, there are four prerequisites for maintaining a class action relating to the class and the representative:
- Numerosity. The putative class must be so numerous that individually naming and joining all members of the class to the lawsuit is impractical. There is no minimum number of class members necessary to proceed as a class action. Courts have discretion in that regard based on the facts of a case, and have certified classes with less than 20 members and denied certification to putative classes with more than 100 members. Typically, however, 20 to 40 class members is the minimum number of members necessary to proceed as a class action.
- Commonality. There must be questions of law or fact common to all class members. Although it is not necessary that all questions of law or fact be common, at a minimum, the central question or questions must be common to the class.
- Typicality. The claims or defenses of the class representative must be typical of the claims or defenses of the absent class members. In other words, there must be a close relationship between the representative’s claims and the claims alleged on behalf of the class.
- Adequacy. The class representative, as well as counsel for the class representative, must adequately represent the class members. This typically requires that the class representative be a member of the proposed class, free from conflicts and engaged and attentive, and that its counsel is proficient and competent to represent the interests of the class.
In addition, under the relevant federal rules, to be certified as a class action, a case must fall within one of four categories:
- Damages actions. Far and away the most common type of class action, these law suits typically involve many class members with claims for damages (often for relatively small amounts) where common questions of fact or law “predominate” over questions affecting only individual members, and where proceeding as a class action is “superior” to class members proceeding individually.
- Injunctive cases. This type of class action arises where injunctive or declaratory relief is appropriate to the class as a whole because the defendant has acted the same with respect to all class members.
- Risk of inconsistent results. These class actions are intended to avoid a situation where the prosecution of separate actions by individual class members creates the risk of inconsistent decisions and establishing incompatible standards of conduct for the defendant.
- Limited funds. This category of suits involves situations where a defendant has limited funds incapable of satisfying all potential claimants, so a class action assures fairness by providing that any judgment or settlement may be distributed fairly among the members of the class.
Pre-trial discovery in class actions
Parties in class actions are subject to the same broad discovery obligations to which parties in individual lawsuits are subject in the United States. The discovery process is governed by rules of procedure that vary depending on the court in which the class action is litigated, but generally include producing all documents, including electronically stored information, that are relevant to a party’s claims or defenses and making witnesses with relevant knowledge available for pre-trial depositions.
Oftentimes, initial discovery in putative class actions prior to the certification of a class will be limited by agreement among the parties or order of the court to issues related to class certification, with merits discovery postponed until and unless the court certifies the suit as a class action. This typically results in the initial burden of responding to discovery falling on the named plaintiff because the named plaintiff has the burden of establishing that the action satisfies the requirements of proceeding as a class action.
Relief available in class actions
A wide variety of relief is available in class action proceedings, including money damages, in-kind relief and declaratory or injunctive relief. Punitive damages in class actions are generally available to the same extent they would be available if the claim was litigated on an individual basis. In both cases, in order to recover punitive damages, evidence that the defendant acted in a particularly egregious or outrageous manner is typically required. As is the case in individual actions in the United States, there typically is no cost-shifting and each party bears their own litigation costs, regardless of the outcome of the case, unless otherwise provided by statute or contract.
Settlement of class actions
Like all litigation in the United States, class action lawsuits are likely to settle. Unlike most American litigation, however, most jurisdictions require that a class action, once certified, may not be dismissed or compromised without the approval of the court, thus providing additional safeguards for absent class members. A court must approve the settlement because the parties to the class action - the class representative, class counsel and defendants - are proposing to compromise the rights of absent class members. The court has a duty to ensure that the interests of the absent class members are safeguarded in any settlement and that the settlement is fair to them.
In that regard, notice of any proposed compromise, in a form and manner approved by the court, is typically sent to the class and class members are then given the opportunity to object to the terms of the proposed settlement. This is the one point in a class suit when class members are invited to participate in the proceeding.
After notice to absent class members, the court holds a fairness hearing, during which it may hear from both proponents and objectors to the proposed settlement. The Court also may have a special master or court-appointed expert gather information to assist it in understanding the proposed settlement and determining whether it is fair to the class. Ultimately, the court has the obligation, even in the absence of objections, to satisfy itself that the proposed compromise is fair to all class members.
Binding nature of class actions
One of the purposes of a class action is to allow litigation by a representative of the class, with any settlement or judgment having a binding effect on absent class members, thus precluding class members from individually re-litigating the resolved claims. Subject to later challenges by absent class members that the procedural safeguards designed to protect their interests were not followed (for instance, that absent class members were not adequately represented or that adequate notice of a proposed settlement was not provided), a final judgment in a class action typically will preclude individual class members from separately pursuing the claims resolved.
It is well-established, however, that absent class members be given an opportunity to opt out of a class action seeking predominately money damages, thereby preserving their right to pursue their claims separately, apart from the class. Other types of class suits, by their nature (for instance, limited fund or injunctive cases, as well as cases where there is a risk of inconsistent judgments) are intended to bind all class members with no ability for a class member to opt out. In those situations, if a class member disagrees with the proposed resolution of the action, their only option typically is to file an objection to the proposed settlement and attempt to persuade the court not to approve the compromise.