Define: Class Action Suit

Business, Legal & Accounting Glossary

Definition: Class Action Suit


Quick Summary of Class Action Suit


A class-action lawsuit is a claim brought by one party for a group of individuals who have been injured or suffered loss from the same action or grievance. To have a class action lawsuit there must be a group of people with a “well-defined interest” who have similar injuries as each other. The goal of the class action lawsuit is to increase the power of the suit of individuals to fight against the malfeasance of a larger entity.

Common class actions suits included a 2006 class-action suit against Enron by a group of investors who settled their lawsuit for $7.2 billion. Another common class-action suit was filed against Bridgestone/Firestone when their tires led to numerous accidents and injuries. Makers of silicone breast implants were the subject of another huge product liability class action, which eventually settled for $3.4 billion. Fishermen and canners also successfully filed a lawsuit against Exxon for the Valdez oil spill.



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Full Definition of Class Action Suit


A class-action suit is a lawsuit filed by one or more individuals belonging to a large group on behalf of all members of the group. A class-action suit is generally initiated on behalf of a class of plaintiffs or defendants who share an interest in litigation with their representative. Thus, in a class action suit rights and liabilities can be better decided as a group than in a string of individual suits. Once the court approves the class action suit, all class members must receive a notice of the action. Members are also given an opportunity to opt-out of the class action suit. Members who fail to exclude themselves from the class action suit are bound by the judgment of the class action suit, whether it is in their favour or not. A class-action suit is an instrument often employed by shareholders as an affordable and collective way to counter corporate transgressions.

Class action lawsuits that involve personal injury are usually brought forward in large-scale product liability cases. Other class-action lawsuits have been brought against companies for certain business practices such as “after-hours trading” by mutual funds companies that involve financial loss and fraud.

A large number of individual, yet similar lawsuits brought against the same defendant will most often be grouped into a single class-action lawsuit in an effort to find a singular remedy for multiple parties.

One of the advantages of class action lawsuits over hundreds, thousands or millions of individual lawsuits is that a singular class action lawsuit will unclog the courts that may be overwhelmed by individual cases. Another advantage is that a singular cohesive verdict may be given rather than many dissimilar verdicts that vary because of the dissimilarity of laws between states.

Commonly, class action lawsuits are initiated in one state and then move into the federal court system at the request of the defendant. This is an advantage to the defendant since state courts are seen to favour plaintiffs while federal courts are more often seen to favour the defendants.

Because of the Class Action Fairness Act of 2005, pushed through by the Republican majority as a part of tort reform, large-scale class actions in excess of $5 million are generally moved to the federal courts as long as more than 1/3 of the plaintiffs reside in a state outside the state in which the lawsuit was initiated. The aim of the Class Action Fairness Act of 2005 was to reduce excessive verdicts and reduce attorneys’ fees that were also seen as excessive, in light of the services offered in the class action cases.

According to the Federal Rules of Civil Procedure, a class action must have six components:

  1. The class must be large enough and separate lawsuits would be unwieldy
  2. The class has factual or legal claims in common
  3. The claims are common among the group
  4. The representative attorney must protect the interests of the class
  5. The issues common to the plaintiffs and defendant/s will dominate the proceedings
  6. The class action as presented will be a superior vehicle to any other legal avenue for all involved

When a class action lawsuit is filed, it is submitted on behalf of the named plaintiffs including a putative class. The term “putative” simply means the known or reported group or class. This class must be a large group who has suffered a common wrong from a common source. Once the complaint is filed, the plaintiff needs to have the class certified by the courts.

The defendant may argue that the class is not representative or cohesive, the law firm handling the case is not well suited to represent the class or that the case should not be handled as a class action at all. As part of due process, the court will have notices of the class action sent out to an expanded list of potential class-action members. These notices usually give the potential members of the class an opportunity to opt-out of the class action within a limited time-frame. Those who are thinking of bringing forth their own individual lawsuits may wish to opt-out in favour of an individual court proceeding. Settlement offers may also be sent out to members of the class outlining the terms of the settlement and the plaintiff’s attorneys’ fees.

High-Profile Class Action Lawsuits

The Exxon Valdez disaster of 1989, in which 11 million gallons of crude oil was spilt into Prince William Sound in Alaska resulted in 1,300 miles of beaches being fouled and tens of thousands of coastal animals being killed. In 1994, a class action jury awarded the plaintiff class $5 billion in punitive damages. The class was made up of 32,000 fishermen, landowners and Alaska natives who livelihoods were adversely affected by the disaster.

In August 2000, Firestone / Bridgestone recalled 6.5 million tires that were related to rollover crashes of Ford Explorer SUVs and other vehicles. In March 2004 a Texas judge approved a class action settlement of $149 million covering the estimated 10 – 15 million in the class. The verdict did not, however, cover those who were bringing individual lawsuits for damages in rollover cases.

In May 1994, the Engle v. Philip Morris tobacco lawsuit was filed on behalf of a class of smokers in Florida who had been adversely affected by cigarettes with tobacco-related diseases (approximately 500,000 class members). In July 2000, the jury award $145 billion in punitive damages. In July 2006, the verdict was struck down by the Florida Supreme Court.


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Definition Sources


Definitions for Class Action Suit are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 1st April, 2020