What is a Class Action Lawsuit?

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A class action lawsuit is a legal action filed against a defendant by a group of individuals. This article will explain how class action suits typically work.

When They Are Used

Class action lawsuits are designed for situations in which many individuals have suffered similar injuries as a result of actions committed by the defendant. Such suits are appropriate when the damages claimed by each plaintiff are too small for individual claims to be worthwhile.

By filing a suit as a group, the plaintiffs have the resources to hire an attorney and obtain restitution.

Class action lawsuits are often filed against government entities, financial institutions, manufacturers, retailers, and employers. Many suits are based on allegations of defective products, false advertising, discrimination, or unlawful employment practices. Some suits have alleged that the defendant violated the Telephone Consumer Protection Act.

How They Work

In a class action lawsuit, the group (class) of plaintiffs is represented by one or more lead plaintiffs. The injuries suffered and the allegations alleged by the lead plaintiff must be similar to those of the other class members. Otherwise, the lead plaintiff won't be a suitable representative of the class.

Before a class action lawsuit can proceed, the class must be certified by a judge. The lead plaintiff must demonstrate that the plaintiffs have a valid claim against the defendant and that all class members have similar claims.

The lead plaintiff must also show that he or she can adequately represent all group members. 

Once the class has been certified, the plaintiffs are notified of the lawsuit by mail or other means. All are automatically included in the lawsuit unless they opt out. Those that wish to opt out must follow a specified procedure.

If they fail to do so, they will remain part of the class.

Most class action suits are settled out of court. Each plaintiff receives a portion of the settlement. The settlement may consist of a cash payment or a coupon that can be applied toward a future purchase.

Advantages

Class action lawsuits have some advantages. They:

  • Provide restitution to plaintiffs who would otherwise receive nothing because they cannot afford an attorney
  • Help reduce the number of suits clogging the courts since one suit is filed instead of many small suits
  • Reduce the cost of litigation. One suit is cheaper to litigate than many small ones
  • Ensure that defendants with similar injuries are treated consistently. One decision applies to the entire class.
  • Motivate defendants to settle since there are many plaintiffs

Disadvantages

While they have some benefits, class actions lawsuits have disadvantages. Here are some of them.

  • Plaintiffs receive a very small award while attorneys earn large fees.
  • Cases take a long time to settle because of the complex procedures involved.
  • Class members give up their right to sue individually. They also cede control over the suit to the lead plaintiff and his or her attorney.
  • The quality of legal representation affects all class members. If the lawyer does a poor job, all members suffer.
  • Plaintiffs may receive coupons or rebates instead of cash.

State or Federal Court

Depending on the circumstances of the case, a class action suit may be filed in state or federal court. State courts are generally considered friendlier to plaintiffs, while federal courts are deemed friendlier to defendants.

The Class Action Fairness Act was enacted by Congress in 2005. This law was designed to protect defendants from abusive suits. It enables defendants to move their case from state court to federal court if the damages sought by plaintiffs exceed $5 million. The class must consist of at least 100 plaintiffs. A third requirement has to do with diversity. Generally, diversity exists when the plaintiff and defendant reside in different states. For a class action lawsuit to be moved to federal court, one or more plaintiffs must reside in a different state (or country) from the defendant.