Daily Quiddity: Class Action Lawsuits

A class action, class suit, or representative action is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member of that group. The class action originated in the United States and is still predominantly a U.S. phenomenon, but Canada, as well as several European countries with civil law have made changes in recent years to allow consumer organizations to bring claims on behalf of consumers.

Description

In a typical class action, a plaintiff sues a defendant or a number of defendants on behalf of a group, or class, of absent parties. This differs from a traditional lawsuit, where one party sues another party for redress of a wrong, and all of the parties are present in court. Although standards differ between states and countries, class actions are most common where the allegations involve a large number of people (usually 40 or more) who have been injured by the same defendant in the same way. Instead of each damaged person bringing his or her own lawsuit, the class action allows all the claims of all class members—whether they know they have been damaged or not—to be resolved in a single proceeding through the efforts of the representative plaintiff(s) and appointed class counsel.

History

England

The antecedent of the class action was what modern observers call "group litigation", which appears to have been quite common in medieval England from about 1200 onward. These lawsuits involved groups of people either suing or being sued in actions at common law. These groups were usually based on existing societal structures like villages, towns, parishes, and guilds. Unlike modern courts, the medieval English courts did not question the right of the actual plaintiffs to sue on behalf of a group or a few representatives to defend an entire group.

From 1400 to 1700, group litigation gradually switched from being the norm in England to the exception. The development of the concept of the corporation led to the wealthy supporters of the corporate form becoming suspicious of all unincorporated legal entities, which in turn led to the modern concept of the unincorporated or voluntary association. The tumultuous history of the Wars of the Roses and then the Star Chamber resulted in periods during which the common law courts were frequently paralyzed, and out of the confusion the Court of Chancery emerged with exclusive jurisdiction over group litigation. By 1850, Parliament had enacted several statutes on a case-by-case basis to deal with issues regularly faced by certain types of organizations, like joint-stock companies, and with the impetus for most types of group litigation removed, it went into a steep decline in English jurisprudence from which it never recovered. It was further weakened by the fact that equity pleading in general was falling into disfavor, which culminated in the Judicature Acts of 1874 and 1875. Group litigation was essentially dead in England after 1850.

United States

Class actions survived in the United States thanks to the influence of Supreme Court Associate Justice Joseph Story, who imported it into

U.S.

law through summary discussions in his two equity treatises as well as his opinion in West v. Randall (1820). However, Story did not necessarily endorse class actions, because he "could not conceive of a modern function or a coherent theory for representative litigation".

The oldest predecessor to the class action rule in the United States was in the Federal Equity Rules, specifically Equity Rule 48, promulgated in 1842.

Where the parties on either side are very numerous, and cannot, without manifest inconvenience and oppressive delays in the suit, be all brought before it, the court in its discretion may dispense with making all of them parties, and may proceed in the suit, having sufficient parties before it to represent all the adverse interests of the plaintiffs and the defendants in the suit properly before it. But in such cases the decree shall be without prejudice to the rights and claims of all the absent parties.

This allowed for representative suits in situations where there were too many individual parties (which now forms the first requirement for class action litigation – numerosity). However, this rule did not allow such suits to bind similarly situated absent parties, which rendered the rule ineffective. Within ten years, the Supreme Court interpreted Rule 48 in such a way so that it could apply to absent parties under certain circumstances, but only by ignoring the plain meaning of the rule. In the rules published in 1912, Equity Rule 48 was replaced with Equity Rule 38 as part of a major restructuring of the Equity Rules, and when federal courts merged their legal and equitable procedural systems in 1938, Equity Rule 38 became Rule 23 of the Federal Rules of Civil Procedure.

Modern developments

A major revision of the FRCP in 1966 radically transformed Rule 23, made the opt-out class action the standard option, and gave birth to the modern class action. Entire treatises have been written since to summarize the huge mass of law that sprang up from the 1966 revision of Rule 23. Just as medieval group litigation bound all members of the group regardless of whether they all actually appeared in court, the modern class action binds all members of the class, except for those who choose to opt out (if the rules permit them to do so).

The Advisory Committee that drafted the new Rule 23 in the mid-1960s was influenced by two major developments. First was the suggestion of Harry Kalven, Jr. and Maurice Rosenfield in 1941 that class action litigation by individual shareholders on behalf of all shareholders of a company could effectively supplement direct government regulation of securities markets and other similar markets. The second development was the rise of the civil rights movement, environmentalism and consumerism. The groups behind these movements, as well as many others in the 1960s, 1970s and 1980s, all turned to class actions as a means for achieving their goals. For example, a 1978 environmental law treatise reprinted the entire text of Rule 23 and mentioned "class actions" 14 times in its index.

Businesses targeted by class actions for inflicting massive aggregate harm have sought ways to avoid class actions altogether. In the 1990s, the U.S. Supreme Court issued a number of decisions which strengthened the "federal policy favoring arbitration". In response, lawyers have added provisions to consumer contracts of adhesion called "collective action waivers", which prohibit those signing the contracts from bringing class action suits. In 2011, the U.S. Supreme Court ruled in a 5–4 decision in AT&T Mobility v. Concepcion that the Federal Arbitration Act of 1925 preempts state laws that prohibit contracts from disallowing class action lawsuits, which will make it more difficult for consumers to file class action lawsuits. The dissent pointed to a saving clause in the federal act which allowed states to determine how a contract or its clauses may be revoked.

In two major 21st century cases, the Supreme Court ruled 5–4 against certification of class actions due to differences in each individual members' circumstances: first in Wal-Mart v. Dukes (2011) and later in Comcast Corp. v. Behrend (2013).

Companies may insert the phrase "may elect to resolve any claim by individual arbitration" into their consumer and employment contracts to use arbitration and prevent class action lawsuits.

Statistics

As of 2010, there was no publicly maintained list of nonsecurities class action settlements, although a securities class action database exists in the Stanford Law School Securities Class Action Clearinghouse and several for-profit companies maintain lists of the securities settlements. One study of federal settlements required the researcher to manually search databases of lawsuits for the relevant records, although state class actions were not included due to the difficulty in gathering the information. Another source of data is U.S. Bureau of Justice Statistics Civil Justice Survey of State Courts, which offers statistics for the year 2005.

Advantages of Class Action Lawsuits

Proponents of class actions state that they offer a number of advantages because they aggregate a large number of individualized claims into one representational lawsuit.

First, aggregation can increase the efficiency of the legal process, and lower the costs of litigation. In cases with common questions of law and fact, aggregation of claims into a class action may avoid the necessity of repeating "days of the same witnesses, exhibits and issues from trial to trial". Jenkins v. Raymark Indus. Inc., 782 F.2d 468, 473 (5th Cir. 1986) (granting certification of a class action involving asbestos).

Second, a class action may overcome "the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights". Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru Credit Corp., 109 F.3d 388, 344 (7th Cir. 1997)). "A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor." Amchem Prods., Inc., 521 U.S. at 617 (quoting Mace, 109 F.3d at 344). In other words, a class action ensures that a defendant who engages in widespread harm – but does so minimally against each individual plaintiff – must compensate those individuals for their injuries. For example, thousands of shareholders of a public company may have losses too small to justify separate lawsuits, but a class action can be brought efficiently on behalf of all shareholders. Perhaps even more important than compensation is that class treatment of claims may be the only way to impose the costs of wrongdoing on the wrongdoer, thus deterring future wrongdoing.

Third, class action cases may be brought to purposely change behavior of a class of which the defendant is a member. Landeros v. Flood (1976) was a landmark case decided by the California Supreme Court that aimed at purposefully changing the behavior of doctors, encouraging them to report suspected child abuse. Otherwise, they would face the threat of civil action for damages in tort proximately flowing from the failure to report the suspected injuries. Previously, many physicians had remained reluctant to report cases of apparent child abuse, despite existing law that required it.

Fourth, in "limited fund" cases, a class action ensures that all plaintiffs receive relief and that early-filing plaintiffs do not raid the fund (i.e., the defendant) of all its assets before other plaintiffs may be compensated. See Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999). A class action in such a situation centralizes all claims into one venue where a court can equitably divide the assets amongst all the plaintiffs if they win the case.

Finally, a class action avoids the situation where different court rulings could create "incompatible standards" of conduct for the defendant to follow. See Fed. R. Civ. P. 23(b)(1)(A). For example, a court might certify a case for class treatment where a number of individual bond-holders sue to determine whether they may convert their bonds to common stock. Refusing to litigate the case in one trial could result in different outcomes and inconsistent standards of conduct for the defendant corporation. Thus, courts will generally allow a class action in such a situation. See, e.g., Van Gemert v. Boeing Co., 259 F. Supp. 125 (S.D.N.Y. 1966).

Whether a class action is superior to individual litigation depends on the case and is determined by the judge's ruling on a motion for class certification. The Advisory Committee Note to Rule 23, for example, states that mass torts are ordinarily "not appropriate" for class treatment. Class treatment may not improve the efficiency of a mass tort because the claims frequently involve individualized issues of law and fact that will have to be re-tried on an individual basis. See Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996) (rejecting nationwide class action against tobacco companies). Mass torts also involve high individual damage awards; thus, the absence of class treatment will not impede the ability of individual claimants to seek justice. See id. Other cases, however, may be more conducive to class treatment.

The preamble to the Class Action Fairness Act of 2005, passed by the United States Congress, found:

Class-action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.

Criticism of Class Action Lawsuits

There are several criticisms of class actions. The preamble to the Class Action Fairness Act stated that some abusive class actions harmed class members with legitimate claims and defendants that have acted responsibly, adversely affected interstate commerce, and undermined public respect for the country's judicial system.

Class members often receive little or no benefit from class actions. Examples cited for this include large fees for the attorneys, while leaving class members with coupons or other awards of little or no value; unjustified awards are made to certain plaintiffs at the expense of other class members; and confusing notices are published that prevent class members from being able to fully understand and effectively exercise their rights.

For example, in the United States, class lawsuits sometimes bind all class members with a low settlement. These "coupon settlements" (which usually allow the plaintiffs to receive a small benefit such as a small check or a coupon for future services or products with the defendant company) are a way for a defendant to forestall major liability by precluding a large number of people from litigating their claims separately, to recover reasonable compensation for the damages. However, existing law requires judicial approval of all class action settlements, and in most cases class members are given a chance to opt out of class settlement, though class members, despite opt-out notices, may be unaware of their right to opt out because they did not receive the notice, did not read it, or did not understand it.

The Class Action Fairness Act of 2005 addresses these concerns. Coupon settlements may be scrutinized by an independent expert before judicial approval in order to ensure that the settlement will be of value to the class members (28 U.S.C.A. 1712(d)). Further, if the action provides for settlement in coupons, "the portion of any attorney’s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed". 28 U.S.C.A. 1712(a).

Ethics

Class action cases present significant ethical challenges. Defendants can hold reverse auctions and any of several parties can engage in collusive settlement discussions. Subclasses may have interests that diverge greatly from the class, but may be treated the same. Proposed settlements could offer some groups (such as former customers) much greater benefits than others. In one paper presented at an ABA conference on class actions in 2007, authors commented that "competing cases can also provide opportunities for collusive settlement discussions and reverse auctions by defendants anxious to resolve their new exposure at the most economic cost".

Defendant Class Action

Although normally plaintiffs are the class, defendant class actions are also possible. For example, in 2005, the Roman Catholic Archdiocese of Portland in Oregon was sued as part of the Catholic priest sex-abuse scandal. All parishioners of the Archdiocese's churches were cited as a defendant class. This was done to include their assets (local churches) in any settlement. Where both the plaintiffs and the defendants have been organized into court-approved classes, the action is called a bilateral class action.

Saturday, August 4, 2018

Class Action Lawsuits

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