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.
Table of Contents
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
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
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
A. 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
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:
A. 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.
A. 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.
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.
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.
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.
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
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.
A class action was filed as an action for compensatory damages
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
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
- 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.
A. 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
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"
which you may review at
www.aallnet.org/sis/lisp/research.htm. The staff of the Saint
Louis University Law Library also has authored a research guide available
The Library of Congress has an on-line guide at:
http://lcweb2.loc.gov/glin/worldlaw.html Professor Smith's
Guide to Legal research is at
http://www.west.net/~smith/research.htm Marquette has published
a guide about finding court cases at:
http://www.marquette.edu/law/library/rgcourt.html Also, see
the Law Library and Legal Research Guide at http://www.law.uh.edu/guides/
Another easy to use
tool for legal research is the Internet Legal Resource Guide at www.ilrg.com/
If you are a novice to the web, try
tips on legal research techniques may be found at