Frequently Asked Questions about Class Actions

This page contains answers to common questions asked about class action litigation. For more detailed information, links to other sites are provided. Further, detailed information about some aspects of class action litigation may be found in the Federal Class Action Manual - Internet Edition on this website.

What is a Class Action?

A class action is a representative action wherein one or more plaintiffs actually named in the complaint, along with their counsel pursue a case for themselves and the defined class against one or more defendants. The claims of the "class representatives" must arise from facts or law common to the class members. Most class actions are called "plaintiff class actions;" however, in limited circumstances a class action can be filed against one or more defendants representing a group of defendants, i.e., a "defendant class" action.

In federal court, the procedures for certifying a class and the requisite elements for certification are governed by Rule 23, Federal Rules of Civil Procedure. For general information about federal courts and how they are structured, you may want to try "Understanding the Federal Courts." Another website with useful information on the federal court system and its procedures is the Federal Judiciary Homepage at www.uscourts.gov Also, a flow chart indicating the normal manner in which a typical class action proceeds through the courts is available on this site: Class Action Flow Chart.

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How do corporations improperly avoid class actions in consumer litigation?

In the early 1900's congress passed a law called the "Federal Arbitration Act." This law which was intended to apply only to merchants engaged in interstate commerce at the time it was passed, is now in the 1990's being used as a weapon against consumers. Arbitration was intended to be a process whereby equally sophisticated businessmen could negotiate an agreement with each other to submit any dispute they might have to an independent third party for resolution instead of a court. The theory was that as to businessmen, the law should permit an alternative method for them to quickly resolve their differences outside of court. The fact is that most businesses engaged in such transactions have lawyers on retainer or on staff to negotiate such agreements, they fully understand the ramifications of arbitration, and the terms of the arbitration are agreed to by parties of equal bargaining strength.

Corporations are now using the same law to abuse the American consumer. Contracts with arbitration clauses involving credit, banking, insurance, and even home construction projects are now appearing with increasing frequency. An arbitration clause is particularly insidious when included in contracts of adhesion, i.e., contracts between businesses and consumers offered solely on a take-it-or-leave-it basis. Why are such arbitration clauses bad for consumers?

(1) An arbitration clause generally prohibits a consumer from filing any lawsuit in a court of law. In a lawsuit people have much broader procedural protections and rights than they have in arbitration. After a lawsuit is filed in court, a lawyer can force a defendant to submit his employees for deposition, to answer questions under oath in writing, and to allow an inspection of documents. If a defendant or its lawyers are caught concealing information or lying, severe penalties can be imposed by a judge. If a defendant refuses to produce documents or is evasive in answering questions, they can be forced by a court to fully answer, or in extreme cases a defendant can be found liable without a trial.

In an arbitration proceeding, these rights may not exist, or may be severely curtailed. Since a plaintiff likely will never be able to obtain full discovery, many frauds, lies and deceptions may go totally undiscovered. Even if a consumer, for instance finds an intentional pattern of fraud by a defendant to cheat thousands of people out of money in the same manner the consumer in arbitration was cheated, there is little that can be done to provide a remedy for those other people. Why?

(2) Because arbitration clauses generally prohibit the resolution of any dispute as a class action. Since no claims can be arbitrated as a class action, the most the defendant could ever be held accountable for is the claim of the individual who filed a demand for arbitration. So as long as the corporate crooks only cheats that consumer out of two or three hundred dollars, they probably have a license to steal. Even if the consumer gets mad, in the absence of a right to pursue a class action, he would never find a lawyer willing to take a case that involves only a couple hundred dollars. Therefore, the consumer would probably have to represent himself in an arbitration. If the consumer does try to represent himself, the filing fee to demand arbitration could be as much as a hundred dollars or more. If the consumer pays the filing fee and attempts to represent himself, he won't likely get the "discovery" that he needs to prove his claim. Finally, when the claim comes up for hearing, the corporate crooks send in three high-powered shark defense lawyers to eat his lunch. Does this sound lop-sided? Now you know why corporations like arbitration clauses.

As a general rule, if any business wants you to agree to settle your differences out of court, you should find a different place to do business. Any arbitration agreement included in a contract involving any transaction where you don't have a lawyer representing you, and where you are not actively negotiating the "contract as a whole" is almost invariably bad news for the consumer. Any company that is engaged in consumer transactions and feels it needs protection from lawsuits is probably engaged in questionable business practices. In fact, including an arbitration clause in any consumer contract is itself a questionable business practice. For further information try: http://www.thecre.com/fedlaw/legal89.htm

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What types of class actions may be filed?

Most class actions are filed for compensatory (money) damages. Class actions may also be filed to resolve disputes over a "limited fund," where the money available is inadequate to fully compensate all class members. Occasionally, class actions are filed to seek a declaratory judgment. Finally, a class action may seek injunctive relief. For example, a class action may be filed to request the court order the police or authorities to discontinue an unconstitutional practice.

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Can I be bound by a settlement or judgment of a class action?

Yes. If the constitutional and procedural protections required for fairness are met in the underlying action, all absent class members are bound to the judgment or settlement of the case. However, if the action is primarily for compensatory damages, 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. In the event a class action is for declaratory or injunctive relief, notice is not required to bind absent class members and the court may not allow your to opt-out.

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How do I join a class action?

A. Generally, before a court certifies a class action, it must conclude that there are too many class members for them all to be named as parties in the lawsuit. Technically, class members do not "join" into the litigation, but decide to participate by not "opting-out." It is only in rare instances when a suit is filed as an "opt-in" class action. In those rare instances, a claim form or request to join form may be necessary. Ordinarily, the notice issued to class members in the usual suit for compensatory damages will tell the class if they need to take any action to participate. In a suit for compensatory damages, any class member who does not "opt-out" may be bound by the results of the litigation if it proceeds as a class action. If a class member should determine, however, that he wants to participate in the suit as a named party, he may hire his own lawyer and seek to intervene (participate) in the lawsuit.

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If I have a claim, should I file my own lawsuit?

A. The answer depends on the nature of the suit and individual circumstances. Some class actions seek recovery for a large group of people; however, individual damages may be small. For instance, if a mortgage company was improperly charging interest, and as a result every class member paid $100 more than should have been charged, it may not be practical because of the cost of litigation to pursue such a case individually. On the other hand, if a person has substantial damages and a serious claim, a lawyer should be consulted to assist in making the decision. In cases where the damages involved do not amount to several thousand dollars, litigation involving complex issues, due to the cost involved, may result in no recovery after those expenses and costs are deducted.

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Who pays the lawyers in a class action lawsuit?

A. In a class action for money damages, lawyers who represent the class are generally paid out of the recovery, i.e., "common fund" they create for the plaintiff class. In class actions involving declaratory judgments or injunctive relief, lawyers may be paid by the plaintiffs that hired them, or in some cases, by the defendants if the plaintiffs win.

Attorney fee awards are subject to court review and approval. Ordinarily, if an award is made in a common fund case, it will be awarded as a percentage of the fund created for the class. A benchmark award generally accepted by the courts is approximately 25% to 35% although the award may be adjusted higher or lower depending on the specific facts of a case.

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What are the signs of an unfair settlement or improper representation?

A. There has been a great deal of criticism of class action litigation in the news in recent years. Much of the criticism is unjustified. A good deal of the criticism focuses on the fees that lawyers receive for representing a class in such litigation. The most vocal opponents of class action litigation are insurers who are required to pay covered claims as a result of the litigation, or the wrongdoers involved in the underlying misconduct.

The truth of the matter is that the lawyers who represent a class will often recover in fees an award many times greater than the compensation received by any given class member; however, the total collective allocations to the class in a proper settlement are invariably many times the fee awarded to lawyers. Without a means to sue wrongdoers for cheating people out of small sums, we would all be at the mercy of small time cheats. No one person cheated out of a hundred dollars can find a lawyer to represent him. Several thousand people cheated out of a hundred dollars each, however, have a powerful collective wrong that attracts qualified legal representation to put a stop to the practice.

Notwithstanding the frequent unjustified criticism cast on lawyers handling class action litigation, there have been instances where representation of a class has been found by courts to be less than optimal, and proposed settlements have been found unfair. Although the presence of one or more of the following circumstances does not invariably mean a settlement is unfair, the following are examples of hypothetical circumstances which may justify heightened scrutiny of any proposed settlement of litigation.

(1) 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 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. Thus, the class members only receive a benefit if they spend their own money in the process. Such an arrangement is of questionable value. It is likely that if the class purchased a defective product in the first instance, they might not be interested in repeating the mistake again with the same manufacturer. Moreover, it could be argued that the settlement is of more value to the defendant as a marketing scheme than to the class as compensation for damages. On the other hand, such a "coupon settlement" could be of substantial value if the coupon may 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.

(2) A class action was filed as an action for compensatory damages; however, the settlement provides the class is to receive no compensatory award. Further, the attorney fee (which is purportedly based on a common fund theory) is for several million dollars and is based on purported "nontangible" benefits the class will purportedly receive. For example, in a case involving a vehicle subject to rollovers, class counsel negotiates a settlement whereby the class receives only an inspection of the vehicle to determine if it has been modified since the date of manufacturer, 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 is still left with a dangerous, unmodified vehicle and provided no compensation for the defect. Yet, the class counsel contends the settlement is fair and worth millions in fees.

On the other hand, in some instances, nontangible benefits can be substantial. For example, in a pollution case, a defendant might be sued for both compensatory 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 compensatory damages. If the pollution is stopped, the quality of life for those in the area of the polluter 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 is more important to the class to stop the pollution now by settlement than to continue it indefinitely by litigation. In such a situation, a substantial fee may be appropriate even if no direct compensation is paid to individual class members.

(3) Any settlement where the release being demanded as a condition of the settlement is extremely overbroad and encompasses claims that were neither pursued in the class complaint nor subject to true adversarial litigation prior to the settlement. 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 fifteen dollar fee charged for a fax is improper.

Assume further that 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 attorney from discovering the lie by formal process. The bank agrees to settle the fax claim, but knowing it may soon be sued for the interest claim attempts to subvert the suit by insisting the release in the fax claim case encompass "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.

(4) The virtual nonexistence of discovery by the class counsel who proposes a settlement. In order for an attorney to assert to a court that a settlement is fair, reasonable and adequate, he must be familiar with the underlying facts of the case. In class litigation there often is a committee of counsel. Although each and every attorney need not be familiar in depth with all underlying facts, that knowledge should be present among the group representing the class.

(5) The failure of the class counsel to notify the class in either general or specific terms the amount of the attorney fee that will sought as part of the settlement. If an attorney earns a fee, he should not be concerned about disclosing the amount. If a fee will be sought as a percentage of a common fund, the class should be informed of the maximum fee that may be requested. Such a disclosure could be made either by disclosing the maximum percentage that may be sought, or the amount in dollars. The failure to disclose the intended fee often is occurs when the fee would be deemed excessive by many people.

(6) In a settlement class, the amount of attorney fees to be requested appears facially excessive, the fees were negotiated with the defendant, and the defendant had agreed not to object to the fee request as part of the settlement. This type of arrangement is known as a "clear sailing" agreement. The majority view on such clear sailing agreements is that they create an appearance of class counsel putting his interest ahead of the class. On the other hand, a clear sailing 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.

As previously stated, the presence of one or more of the above situations does not invariably lead to the conclusion that a settlement is unfair or that the class has been poorly represented. However, if several of these elements are present in the same case, additional scrutiny may be necessary if the interests of the class are to be protected. In reviewing the fairness of a proposed settlement, the following are possible elements the court overseeing the action might consider:

  • Whether the settlement was the product of fraud or collusion.
  • The complexity, expense and likely duration of the litigation if the case were tried.
  • The stage of the proceedings and the amount of discovery completed prior to settlement.
  • The factual and legal obstacles to prevailing on the merits.
  • The possible range of recovery and the certainty of damages.
  • The ability of the defendant to pay claims if individual litigations were pursued.
  • Whether other litigation involving the same claims has been filed against the defendant and the results in those cases.
  • The respective opinions of the participants, including class counsel, class representatives, and absent class members.
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How can I obtain more information on any legal issue regarding a class action?

If you have a question about class action litigation, or are concerned you may be adversely affected by a pending case, you should consult a lawyer. Numerous notices regarding pending class action litigation are published in leading newspapers such as USA Today or the Wall Street Journal. You will also find information regarding pending or settled litigation on the Legal Notices page of this website and the links therefrom.

If you have an interest in obtaining more general information about class actions, or the law generally, the American Association of Law Libraries has published an on-line guide for laymen, "How to Research a Legal Problem."

Georgetown Law Library offers a Health Law Research Guide. which is designed to provide an introduction to U.S. health law research. Other research guides found at the Georgetown Law Library include: Bioethics Research Guide, Complementary & Alternative Medicine Research Guide, Food, Drug, and Cosmetic Law Research Guide, Public Health - Pandemic Flu Research Guide, and a Research Guide on Global Health Law.

The Library of Congress has an on-line guide

Professor Smith's Guide to Legal research.

Marquette has published a guide about finding court cases.

Also, see the Legal Research Guides.

Another easy to use tool for legal research is the Internet Legal Resource Guide.

Finally, tips on legal research may be found here.

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