In
law, a
class action or a
representative action is a form of
lawsuit where a large group of people collectively
bring a claim to court. This form of collective lawsuit originated
in the United States and is still predominantly a U.S. phenomenon,
at least the U.S. variant of it. However, in several European
countries with
civil law
(as opposed to the English
common law
principle, which is used by US courts), changes have in recent
years been made that allow consumer organizations to bring claims
on behalf of large groups of consumers.
US federal class actions
In the United States federal courts, class actions are governed by
Federal Rules of Civil
Procedure Rule 23 and 28 U.S.C.A. § 1332 (d).
Class action lawsuits may be brought in
federal court if the claim
arises under federal law, or if the claim falls under 28 USCA §
1332 (d). Under § 1332 (d) (2) the federal district courts have
original jurisdiction over any civil action where the amount in
controversy exceeds $5,000,000 and either 1. any member of a class
of plaintiffs is a citizen of a State different from any defendant;
2. any member of a class of plaintiffs is a foreign state or a
citizen or subject of a foreign state and any defendant is a
citizen of a State; or 3. any member of a class of plaintiffs is a
citizen of a State and any defendant is a foreign state or a
citizen or subject of a foreign state. Nationwide plaintiff classes
are possible, but such suits must have a commonality of issues
across state lines. This may be difficult if the
civil law in the various states have
significant differences. Large class actions brought in federal
court frequently are consolidated for pre-trial purposes through
the device of
multidistrict
litigation (MDL). It is also possible to bring class action
lawsuits under state law, and in some cases the court may extend
its jurisdiction to all the members of the class, including out of
state (or even internationally) as the key element is the
jurisdiction that the court has over the defendant.
Typically, federal courts are thought to be more favorable for
defendants, and state courts more favorable for plaintiffs. Many
class action cases are filed initially in state court. The
defendant will frequently try to
remove the case to federal court. The
Class Action Fairness
Act of 2005 increases defendants' ability to remove state cases
to federal court by giving federal courts original jurisdiction for
all class actions with damages exceeding $5,000,000, exclusive of
interest and costs. It should be noted, however, that the Class
Action Fairness Act contains carve-outs for, 'inter alia',
shareholder class action lawsuits covered by the
Private Securities
Litigation Reform Act of 1995 and those concerning internal
corporate governance issues (the latter typically being brought as
shareholder derivative actions in the state courts of Delaware, the
state of incorporation of most large corporations).
The procedure for filing a class action is to file suit with one or
several named plaintiffs on behalf of a proposed class. The
proposed class must consist of a group of individuals or business
entities that have suffered a common injury or injuries. Typically
these cases result from an action on the part of a business or a
particular product defect or policy that applied to all proposed
class members in a uniform manner. After the complaint is filed,
the plaintiff must file a motion to have the class certified. In
some cases class certification may require additional
discovery in order to determine if the
proposed class meets the standard for class certification.
Upon the motion to certify the class, the defendants may object to
whether the issues are appropriately handled as a class action, to
whether the named plaintiffs are sufficiently representative of the
class, and to their relationship with the law firm or firms
handling the case. The court will also examine the ability of the
firm to prosecute the claim for the plaintiffs, and their resources
for dealing with class actions.
Due process requires in most cases that
notice describing the class action be sent, published, or broadcast
to class members.As part of this notice procedure, there may have
to be several notices, first a notice giving class members the
opportunity to opt out of the class, i.e. if individuals wish to
proceed with their own litigation they are entitled to do so, only
to the extent that they give timely notice to the class counsel or
the court that they are opting out. Second, if there is a
settlement proposal, the court will usually direct the class
counsel to send a settlement notice to all the members of the
certified class, informing them of the details of the proposed
settlement.
In federal
civil procedure law,
which has generally been accepted by most states (through adoption
of state civil procedure rules paralleling the federal rules), the
class action must have certain definite characteristics:
(1) the class must be so large as to make
individual suits impractical,
(2) there must be
legal or factual claims in common
(3) the claims
or defenses must be typical of the plaintiffs or defendants, and
(4) the representative parties must adequately
protect the interests of the class. In many cases, the party
seeking certification must also show
(5) that
common issues between the class and the defendants will predominate
the proceedings, as opposed to individual fact-specific conflicts
between class members and the defendants and
(6)
that the class action, instead of individual litigation, is a
superior vehicle for resolution of the disputes at hand.
State class actions
Since 1938, many states have adopted rules similar to the Fed. R.
Civ. P.
However, some states like California
have homegrown civil procedure codes which less
closely mirror the federal rules. As a result, there are
entire treatises dedicated to the topic. Some states, such as
Virginia, do not provide for any class actions, while others, such
as New York, limit the types of claims that may be brought as class
actions.
History
As Justice
Kathryn Werdegar of the Supreme Court of
California
noted in a 2009 concurring opinion, class actions evolved
in the U.S. state courts out of the
equitable doctrine of virtual representation, under which
"a person who was not a party to an action was deemed to have been
virtually represented, and thus bound by the judgment, if his or
her interests had received adequate representation by a
party." This doctrine was originally developed to enable
courts of
equity to make a final
resolution of all property interests in a deceased person's estate,
including contingent interests, even where the court did not have
or could not obtain jurisdiction over all the potential holders of
the contingent interests.
Federal class actions evolved separately in the federal courts out
of gradual revisions of the federal equity rules. The oldest
predecessor was Equity Rule 48, promulgated in 1833, which 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. Within 10
years, the Supreme Court interpreted the rule in such a way so that
it could apply to absent parties under certain circumstances. In
the early 20th century, 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.
A major revision of the FRCP in 1966 radically transformed Rule 23
and made the opt-out class action the standard option. This is the
most unique and well-known feature of contemporary U.S. class
actions, where they generally bind
all absent members of
the class unless those persons appear before the court and
expressly indicate their desire to not be bound by its outcome.
Most class actions prior to that point were opt-in class actions,
and opt-out was the exception, not the rule.
Advantages and criticisms of class actions
Advantages of class actions
Class action lawsuits may 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.
[762] 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, 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.
Criticisms of class actions
There are several criticisms of class action lawsuits. 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 minimal 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
attorney must take a corresponding part of his fee in coupons. 28
U.S.C.A. 1712(a).
Defendant class action
Although normally plaintiffs are the class, defendant class actions
are also possible.
For example, in 2005, the Archidiocese of
Portland
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.
[763] Where both the plaintiffs and the
defendants have been organized into court-approved classes, the
action is called a bilateral class action.
Class actions vs. mass actions
In a class action, the plaintiff seeks court approval to litigate
on behalf of a group of similarly-situated persons. Not every
plaintiff looks for, or could obtain, such approval. As a
procedural alternative, plaintiff's counsel may attempt to sign up
every similarly-situated person that counsel can find as a client.
Plaintiff's counsel can then join the claims of all of these
persons in one complaint, a so-called "mass action," hoping to have
the same efficiencies and economic leverage as if a class had been
certified.
Because mass actions operate outside the detailed procedures laid
out for class actions, they can pose special difficulties for both
plaintiffs, defendants, and the court. For example, settlement of
class actions follows a predictable path of negotiation with class
counsel and representatives, court scrutiny, and notice. There may
not be a way to uniformly settle all of the many claims brought via
a mass action. Some states permit plaintiff's counsel to settle for
all the mass action plaintiffs according to a majority vote, for
example. Other states, such as New Jersey, require each plaintiff
to approve the settlement of that plaintiff's own individual
claims.
Class actions in other countries
Austria
The Austrian Code of Civil Procedure (Zivilprozessordnung – ZPO)
does not provide for a special proceeding for complex class action
litigation. However,it is not Austrian consumer organizations
(Verein für Konsumenteninformation/VKI and the Federal Chamber of
Labour/Bundesarbeitskammer) have, in recent years, brought claims
on behalf of hundreds or even thousands of consumers. This
technique, soon labelled as “class action Austrian style”, allows
for a significant reduction of overall costs. The Austrian Supreme
Court, in a recent judgment, has confirmed the legal admissibility
of these lawsuits under the condition that all claims are
essentially based on the same grounds.
The Austrian Parliament has unanimously requested the Austrian
Federal Minister for Justice to examine the possibility of new
legislation providing for a cost-effective and appropriate way to
deal with mass claims. Together with the Austrian Ministry for
Social Security, Generations and Consumer Protection, the Justice
Ministry opened the discussion with a conference held in Vienna in
June, 2005. With the aid of a group of experts from many fields,
the Justice Ministry began drafting the new law in September, 2005.
With the individual positions varying greatly, a political
consensus could not be reached.
[764].
Canada
Provincial laws in Canada allow class actions. All provinces permit
plaintiff classes and some permit defendant classes.
Quebec
was the
first province to enact U.S.-style class proceedings legislation in
1978. Ontario
was next
with the Class Proceedings Act, 1992. As of 2008, 9 of 10
provinces have enacted comprehensive class actions legislation.
In
Prince Edward
Island
, where no comprehensive legislation exists,
following the decision of the Supreme Court of Canada in
Western Canadian Shopping Centres Inc. v.
Dutton, [2001] 2 S.C.R. 534, class actions may be advanced
under a local rule of court. The Federal Court of Canada permits
class actions under Part V.1. of the Federal Courts Rules.
Legislation in Saskatchewan
, Manitoba
, Ontario, and
Nova
Scotia
expressly or by judicial opinion have been read to
allow for what are informally known as national "opt-out" class
actions,whereby residents of other provinces may be included in the
class definition and potentially be bound by the court's judgment
on common issues unless they opt-out in a prescribed manner and
time. Court rulings have determined that this permits a
court in one province to include residents of other provinces in
the class action on an "opt-out" basis.
Recent judicial opinions have indicated that provincial legislative
national opt-out powers should not be exercised to interfere with
the ability of another province to certify a parallel class action
for residents of other provinces. The first court to certify will
generally exclude residents of provinces whose courts have
certified a parallel class action.
However, in the
Vioxx litigation, two
provincial courts recently certified overlapping class actions
whereby Canadian residents are class members in two class actions
in two provinces. Both decisions are under appeal.
Class action certification is considered easier to obtain in Canada
than in the United States, because predominance of common issues is
merely a factor in determining whether to certify a class action,
but not a requirement.
France
Under French law, an association can represent the collective
interests of consumers; however, each claimant must be individually
named in the lawsuit. On January 4, 2005, President Chirac urged
changes that would provide greater consumer protection. A draft
bill was proposed in April 2006. Under the proposals the court will
be able to decide whether to allow an action brought by an
association on behalf of consumers (which must comprise at least
two individuals) for goods purchased under a standard contract.
After such an action is brought, the association would be entitled
to identify additional consumers for a one-month period. The court
would determine the damages that must be awarded to the consumers
who have opted-in to the proceedings, with damages limited to 2000
Euros;
contingent fees for attorneys
would be barred.
[765] The president of the French Supreme Court
recently declared that "class actions are inescapable."
[766] Nevertheless, the bill was withdrawn in January
2007 at the request of Minister of Health
Xavier Bertrand.
[767]
Germany
On November 1, 2005, Germany enacted the “Act on Model Case
Proceedings in Disputes under Capital Markets Law (Capital Markets
Model Case Act)” allowing sample proceedings to be brought before
the courts in litigation arising from mass capital markets
transactions. It does not apply to any other civil law proceeding.
It is not
like class actions in the United States
it only applies to parties who have already filed
suit and does not allow a claim to be brought in the name of an
unknown group of claimants. The effects of the new law will
be monitored over the next five years. It contains a ‘sunset
clause’, and it will automatically cease to have effect on November
1, 2010, unless the legislature decides to prolong the law, or
extend it to other mass civil case proceedings.
“Capital Markets Model Case Act” Der Bund
Retrieved July 16, 2006
Italy
Italy has class action legislation now. Consumer associations can
file claims on behalf of groups of consumers to obtain judicial
orders against corporations that cause injury or damage to
consumers. These types of claims are increasing and Italian courts
have recently allowed them against banks that continue to apply
compound interest on retail clients’ current account overdrafts.
The introduction of class actions is on the new government’s
agenda. On the 19th of November 2007 the Senato della Repubblica
passed a class action law in Finanziara 2008, a financial document
for the economy management of the government. Now (from 10 December
2007), in order of Italian legislation system, the law is before
the House and has to be passed also by the Camera dei Deputati, the
second house of Italian Parliament, to become an effective law.
More information
Class Action Italia. In 2004, the Italian parliament
considered the introduction of a type of class action lawsuit,
specifically in the area of consumers’ law. To date, no such law
has been enacted, however scholars demonstrated that class actions
(azioni rappresentative) do not contrast with Italian principles of
civil procedure. Class Action is regulated by
art. 140 bis of the Italian consumers' code and will
be in force from 1 July 2009. [FAVA P., L’importabilità delle class
actions in Italia, in Contratto e Impresa 1/2004 FAVA P., Class
actions all’italiana:“Paese che vai, usanza che trovi”
(l’esperienza dei principali ordinamenti giuridici stranieri e le
proposte A.A.C.C. n. 3838 e n. 3839), in Corr. Giur. 3/2004; FAVA
P., Class actions tra efficientismo processuale, aumento di
competitività e risparmio di spesa: l’esame di un contenzioso
seriale concreto (le S.U. sul rapporto tra indennità di
amministrazione e tredicesima), in Corr. Giur. 2006, 535; FAVA P.,
Indennità di amministrazione e tredicesima: il “no secco” delle
Sezioni Unite. Un caso pratico per valutare le potenzialità delle
azioni rappresentative (class actions) nel contenzioso seriale
italiano, Rass. Avv. Stato 2005].
[768]. See also
Class Action Italia, Dalle origini ad oggi and
Italy introduces consumer class actions
India
Decisions of the Indian Supreme Court in the 1980s loosened strict
locus standi requirements to permit the filing of suits on
behalf of rights deprived sections of society by public minded
individuals or bodies. Although not strictly "class action
litigation" as it is understood in American law, Public Interest
Litigation arose out of the wide powers of judicial review granted
to the Supreme Court of India and the various High Courts under
Articles 32 and 226 of the Constitution of India respectively. The
sort of remedies sought from courts in Public Interest Litigation
go beyond mere award of damages to all affected groups and have
sometimes (controversially) gone on to include Court monitoring of
the implementation of legislation and even the framing of
guidelines in the absence of Parliamentary legislation.
However, this innovative jurisprudence did not help the victims of
the Bhopal Gas Tragedy who were unable to fully prosecute a class
action litigation (as understood in the American sense) against
Union Carbide due to procedural rules that would make such
litigation impossible to conclude and unwieldy to carry out.
Instead, the Government of India exercised its right of parens
patriae to appropriate all the claims of the victims and proceeded
to litigate on their behalf, first in the New York courts and
later, in the Indian courts. Ultimately, the matter was settled
between the Union of India and Union Carbide (in a settlement
overseen by the Supreme Court of India) for a sum of Rs. 760 crores
(about 400 million dollars) as a complete settlement of all claims
of all victims for all time to come.
Public Interest Litigation has now broadened in scope to cover
larger and larger groups of citizens who may be affected by
Government inaction. Recent examples of this trend include the
conversion of all public transport in the city of Delhi from Diesel
engines to CNG engines on the basis of the orders of the Delhi High
Court; the monitoring of forest use by the High Courts and the
Supreme Court to ensure that there is no unjustified loss of forest
cover; and the directions mandating the disclosure of assets of
electoral candidates for the Houses of Parliament and State
Assembly.
However, of late, the Supreme Court has observed that the PIL has
tended to become a means to gain publicity or obtain relief
contrary to constitutionally valid legislation and policy.
Observers point out that many High Courts and certain Supreme Court
judges are reluctant to entertain PILs, even those filed by well
known Non-Governmental Organizations and activists, citing concerns
of balance of powers and the importance of democratic law
making.
Netherlands
Dutch law allows collective actions brought by associations on
behalf of injured parties seeking a judicial declaration that the
company is liable for the damage it has caused
[769].
Spain
Spanish law allows nominated consumer associations to not take
action to protect the interests of consumers. A number of groups
already have the power to bring collective or class actions:
certain consumer associations, bodies legally constituted to defend
the ‘collective interest’ and groups of injured parties. See
Class Actions in Spain
Recent changes to Spanish civil procedure rules include the
introduction of a quasi-class action right for certain consumer
associations to claim damages on behalf of unidentified classes of
consumers. The rules require consumer associations to represent an
adequate number of affected parties who have suffered the same
harm. Also any judgment made by the Spanish court will list the
individual beneficiaries or, if that is not possible, conditions
that need to be fulfilled for a party to benefit from a
judgment.
Switzerland
Swiss law does not allow for any form of class action. When the
government proposed a new
federal code of civil
procedure in 2006, replacing the cantonal codes of civil
procedure, it rejected the introduction of class actions, arguing
that:
See also
External links
U.S. law
Proposals to expand European class action law
Online Class Action Repository
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