Class Actions in the United States

Understanding Class Actions

A class action is a type of lawsuit in which one or more plaintiffs sue as representatives of a larger group of similarly situated persons. This procedural device allows numerous claims sharing common questions of law or fact to be resolved efficiently in a single proceeding. Class actions are governed by Rule 23 of the Federal Rules of Civil Procedure and similar state rules.

Class actions serve several important functions. They provide access to justice for small claims that would not be economically viable to litigate individually, allowing plaintiffs to aggregate claims that would otherwise go unvindicated. They promote judicial efficiency by resolving numerous similar claims in a single proceeding. They also create incentives for private enforcement of laws, including consumer protection, securities, antitrust, and civil rights statutes.

Requirements for Certification

To maintain a class action, the court must certify the class under Rule 23(a), which requires four elements. Numerosity means the class is so numerous that joinder of all members is impracticable. There is no fixed numerical threshold, but classes with more than 40 members typically satisfy this requirement. The court considers the size of the class, the geographic dispersion of members, and the practicality of individual joinder.

Commonality requires questions of law or fact common to the class. In Wal-Mart Stores v. Dukes (2011), the Supreme Court clarified that commonality requires a common contention capable of classwide resolution, meaning that determination of its truth or falsity will resolve an issue central to the validity of each claim in one stroke. The common contention must be of such a nature that it is capable of generating common answers, not merely common questions. This standard has made commonality more difficult to establish in large employment discrimination cases.

Typicality means the claims or defenses of the representative parties are typical of those of the class. The representative’s claims need not be identical to those of the class members, but they must arise from the same course of conduct and be based on the same legal theory. Typicality ensures that the representative will fairly and adequately protect class interests.

Adequacy of representation requires that the representative parties and their counsel will fairly and adequately protect the class interests. The court examines whether the representative’s interests conflict with those of the class and whether counsel is qualified, experienced, and able to conduct the litigation. The class representative must have sufficient knowledge of the case and commitment to pursuing the class claims.

Types of Class Actions

Rule 23(b) identifies three types of class actions. Rule 23(b)(1) classes are appropriate when individual litigation would create inconsistent standards of conduct for the party opposing the class (Rule 23(b)(1)(A)) or when individual judgments would practically dispose of nonparty interests (Rule 23(b)(1)(B)). These classes are mandatory; no opt-out right exists.

Rule 23(b)(2) classes seek injunctive or declaratory relief where the party opposing the class has acted on grounds generally applicable to the class. These classes are appropriate for civil rights cases seeking structural reform, such as school desegregation or prison condition cases. No opt-out right exists in (b)(2) classes. The Court in Wal-Mart v. Dukes held that (b)(2) classes may not seek individualized monetary relief.

Rule 23(b)(3) classes are for damages actions where common questions predominate over individual ones and a class action is superior to other available methods of adjudication. Predominance requires that common issues be central to the litigation and more significant than individual ones. Superiority considers the class size, the desirability of concentrating litigation, and the manageability of the class action.

Rule 23(b)(3) classes require notice to class members and the opportunity to opt out. Class members who do not opt out by the specified deadline are bound by the judgment. Notice must be the best practicable notice under the circumstances, including individual notice to identifiable members. The court must also appoint class counsel under Rule 23(g), considering counsel’s work, experience, resources, and knowledge of applicable law.

Class Action Fairness Act

The Class Action Fairness Act of 2005 (CAFA) expanded federal diversity jurisdiction over class actions involving at least $5 million in controversy and minimal diversity between parties. CAFA was intended to prevent perceived abuses in state court class actions, including forum shopping and coupon settlements that provided minimal value to class members.

CAFA allows removal of qualifying class actions from state to federal court. A defendant need not obtain consent of all defendants to remove a class action under CAFA. The Act also provides for discretionary appellate review of remand orders, a departure from the general rule that remand orders are not reviewable. CAFA also requires courts to scrutinize coupon settlements and ensures that attorneys’ fees are based on the actual value of the relief provided.

Settlement and Attorneys’ Fees

Class action settlements require court approval after a hearing determining the settlement is fair, reasonable, and adequate. Class members must receive notice and an opportunity to object. The court considers factors including the strength of the plaintiffs’ case, the complexity and duration of the litigation, the stage of proceedings, the settlement amount, and the reaction of class members.

Attorneys’ fees are subject to court review and may be awarded as a percentage of the common fund or calculated using the lodestar method (reasonable hours times reasonable hourly rate). The percentage method is more common in common fund cases, while the lodestar method is more common in statutory fee-shifting cases. Fee awards must be reasonable and must not exceed the value of the relief obtained for the class.

Objectors may challenge settlements as inadequate. Some objectors have been criticized as professional objectors who file objections solely to extract a fee for withdrawing their objection. Courts must carefully scrutinize objector challenges and may impose sanctions for frivolous objections.

Opt-Out and Binding Effect

In Rule 23(b)(3) class actions, class members may opt out by a specified deadline and pursue individual litigation. Those who do not opt out are bound by the judgment, including any settlement or adverse verdict. In Rule 23(b)(1) and (b)(2) classes, there is generally no opt-out right, and all class members are bound by the judgment.

The binding effect of class judgments raises due process concerns, particularly for absent class members. Due process requires adequate representation, notice to class members, and the opportunity to be heard. The Supreme Court held in Phillips Petroleum Co. v. Shutts (1985) that absent class members must receive notice and an opportunity to opt out in damages class actions, and that they are bound by the judgment only if these procedural protections are satisfied.

Criticisms and Reforms

Class actions have generated debate over their effectiveness and fairness. Supporters argue they provide access to justice for small claims that would not be economically viable individually. Without class actions, many consumers, investors, and employees with small-value claims would have no practical remedy for legal violations.

Critics contend class actions can generate excessive attorneys’ fees, impose settlement pressure on defendants, and provide minimal recovery to class members. The risk of class certification can force defendants to settle even weak claims. CAFA, heightened pleading standards, and stricter certification requirements have shaped modern class action practice. The Supreme Court has also restricted class actions through decisions on arbitration agreements, standing requirements, and class certification standards.