Business, Legal & Accounting Glossary
A lawsuit that allows a large number of people with a common interest in a matter to sue or be sued as a group.
n. a lawsuit filed by one or more people on behalf of themselves and a larger group of people “who are similarly situated.” Examples might include: all women who have suffered from defective contraceptive devices or breast implants, all those overcharged by a public utility during a particular period, or all those who were underpaid by an employer in violation of the Fair Labor Standards Act. If a class action is successful, a period of time is given for those who can prove they fit the class to file claims to participate in the judgment amount. Class actions are difficult and expensive to file and follow-through, but the results can be helpful to people who could not afford to carry a suit alone. They can force businesses that have caused broad damage or have a “public be damned” attitude to change their practices and/or pay for damages. They often result in high fees for the winning attorneys, although often attorneys do not collect a fee at the beginning of a class action suit but might charge a contingent fee (such as one-third of the final judgment), which, occasionally, can be millions of dollars. Such fees usually require court approval.
The class-action suit began in the equity courts of seventeenth-century England as a bill of peace. English courts would allow a bill of peace to be heard if the number of litigants was so large that joining their claims in a lawsuit was not possible or practical; the members of the group possessed a joint interest in the question to be adjudicated; and the parties named in the suit could adequately represent the interests of persons who were absent from the action but whose rights would be affected by the outcome. If a court allowed a bill of peace to proceed, the judgment that resulted would bind all members of the group.
Justice Joseph Story, who served on the U.S. Supreme Court from 1811 to 1845, advocated the development of the bill of peace in the United States. He wrote that in equity courts, “all persons materially interested, either as plaintiffs or defendants in the subject matter of a bill ought to be made parties to the suit, however numerous they may be,” so that the court could “make a complete decree between the parties [and] prevent future litigation by taking away the necessity of a multiplicity of suits” (West v. Randall, 29 F. Cas. 718, 2 [C.C.R.I. Mason] 181  [No. 17, 424]). The bill of peace, and later the class action, provided a convenient and efficient vehicle for resolving legal disputes affecting a number of parties with similar claims. Common issues that could have similar outcomes did not have to be tried piecemeal in separate actions, thus saving the courts and the litigants time and money.
Initially, a class action could be brought only in equity cases, disputes in which the parties did not necessarily seek monetary damages but instead might desire some other type of relief. The adoption of Rule 23 of the Federal Rules of Civil Procedure in 1938 broadened the scope of the class-action suit, providing that cases in law seeking money damages as well as cases in equity could be brought as class actions. In 1966, the scope of the class action was again clarified and expanded when Rule 23 was amended to provide that unnamed parties to a class action were bound by the final judgment in the action so long as their interests were adequately represented.
Rule 23 of the Federal Rules of Civil Procedure defines three kinds of class actions. The first type may be brought where separate lawsuits might adversely affect other members of the class or the defendant in either of two ways—if the piecemeal litigation resulting from separate suits might impose inconsistent standards of conduct on the defendant, or if multiple suits might “impair or impede” the class members from protecting their various interests. In the second type of class action, a class seeks an injunction or some type of relief compelling the defendant either to cease a certain activity or to perform some other type of action. In the third category of class action lawsuit, there are questions of law or fact common to the entire class that predominates over questions peculiar to each individual plaintiff, and a class action suit is a more efficient means to resolve the controversy. Under the third type of class action, individual members of the class may “opt-out” of the litigation if they do not want to be bound by the results of the suit. Courts have held that due process requires that absent class members be given adequate notice, adequate representation, and adequate opportunity to opt-out, before they can be bound by a final judgment in the suit (Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S. Ct. 2965, 86 L. Ed. 2d 628 ).
Class action suits have led to social reform in the United States. They have helped to remedy discrimination based on race and gender; been used to address inequities in education, housing, and Voting Rights laws; and helped to ensure due process. For example, brown v. board of education, 347 U.S. 483, 74 S. Ct. 686, 98 L. Ed. 873 (1954), the Supreme Court decision striking down segregated schools, was brought as a class-action lawsuit. The landmark decision Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970), in which the SUPREME COURT OF THE UNITED STATES held that recipients of public assistance must be given notice and the opportunity for a hearing prior to termination of benefits, was also litigated as a class action suit.
In addition, the class action suit has been used in several widely publicized mass tort cases. In these actions, many plaintiffs, often hundreds or even thousands, have alleged injuries suffered as the result of the actions of a single defendant, usually the manufacturer of some product believed to have caused damage. In the mid-1970s, thousands of women brought suit against the manufacturer of the Dalkon Shield, an intrauterine contraceptive device linked to numerous health problems, including sterility. A class-action suit was also employed in lawsuits against the manufacturer of the herbicide Agent Orange, a highly toxic defoliant that was used during the Vietnam War and has been linked to cancer and birth defects in Vietnam-era veterans and their families. In mid-1995, two major class-action suits on behalf of millions of smokers were instituted against several tobacco companies. The plaintiffs hoped to prove that they had become addicted to nicotine and suffered illnesses as a result and that the defendant tobacco companies concealed their knowledge of the addictive nature of nicotine and the harmful effects of smoking.
Some large companies, anticipating liability for potentially huge damages as a result of class action suits, file for bankruptcy in order to protect their assets. The pharmaceutical company A. H. Robins, the manufacturer of the Dalkon Shield, filed for bankruptcy in 1985 when it was faced with the prospect of paying millions of dollars as a result of class action suits filed against it. In 1995, Dow Corning Corporation, the subject of hundreds of claims resulting from allegedly defective silicone gel breast implants, filed for Chapter 11 bankruptcy protection. Other companies, fearing the financial consequences of possible class action suits arising from certain types of products, have ceased research and development in certain areas altogether. The Upjohn Company, for instance, ceased contraceptive research in 1986.
The Supreme Court addressed concerns about the use of Rule 23 in mass tort actions in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). This case involved persons who had been exposed to asbestos and who either had diseases attributed to this exposure or who had the potential of developing these diseases. The federal courts became worried that they would be inundated by thousands of individual cases. Therefore, in 1991 all asbestos cases that had been filed but not tried were consolidated and transferred to a single judge in Pennsylvania.
During settlement discussions, the defendants refused to negotiate unless the final agreement bound victims who would file claims in the future. The plaintiffs eventually agreed and the parties came to a settlement. They then went into court and obtained a certification of class action. However, objections were raised by many class members, and the Supreme Court was required to make a final determination.
The Supreme Court ruled the class action was improper. The Court was troubled by attorneys of current victims, who stood to receive payment from the defendants, binding future victims to a settlement that greatly restricted their ability to receive compensation. Rule 23 requires class representatives to protect the interests of all class members, yet it seemed unlikely that future victims were fully protected. Another concern was that the proposed class did not have sufficient unity so that the future claimants could “fairly be bound by class representatives’ decisions. “The current plaintiffs, who had asbestos injuries and wanted immediate compensation, had agreed to terms that future claimants might find unacceptable. These included the lack of inflation adjustment, the limitation on the number of payable claims each year, and the prohibitions against asking for damages based on emotional distress and loss of consortium.
The Court found that the proposed class was not “sufficiently cohesive.” Although all members of the class shared experience of asbestos exposure, this did not meet the predominance requirement under Rule 23 (b)(3). In fact, there were many individual issues and many categories of persons who were exposed and injured or exposed but not yet injured. The supposed class was too “sprawling” to meet the Rule 23 requirement.
In 2002, the Supreme Court reviewed the rights of persons who seek to intervene in a class action settlement for the purpose of objecting to the settlement. In Devlin v. Scardelletti, 536 U.S. 1, 122 S.Ct. 2005, 153 L.Ed.2d 27 (2002), the Court held that persons affected by a settlement may appeal even if they are not a class representative or a court-approved intervener. The decision is likely to increase such appeals.
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This glossary post was last updated: 26th November, 2021 | 1 Views.