Everything You Should Know Before Filing a Class-Action Lawsuit

A class-action lawsuit is a lawsuit where one of the parties involved, usually the plaintiff, consists of a group of individuals with collective representation. Oftentimes, the group bringing the suit is a collection of consumers or employees that are taking action against a manufacturer or an employer.

Class action lawsuits are most common in the United States and Canada, but several countries in the European Union have changed their civil law codes to make this type of suit easier for consumer protection groups to bring against corporations. Class-action lawsuits have a unique structure and certification process that allows a single court proceeding to resolve the claims of multiple parties.

Famous Examples of Class-Action Lawsuits

Over the past three decades, class-action lawsuits against some of the world’s largest corporations have resulted in multi-billion dollar settlements. For example, the class-action lawsuit against Phillip Morris, RJR Nabisco, Lorillard Inc., and Brown and Williamson Corporation resulted in a $206 billion award for the plaintiffs.

Enron shareholders famously sued the Texas-based energy company after a series of fraud scandals brought the stock price to nearly zero in 2001. Enron paid out $7.2 billion in damages as a result. To this day, the class-action lawsuit against Enron is the largest such securities case in the history of the United States.

Other famous class-action lawsuits include:

  • The case against British Petroleum for its role in the Deepwater Horizon oil spill that damaged the Gulf of Mexico. A New Orleans federal judge ordered BP to pay nearly $20 billion in penalties and damages to several local and state governments.
  • The multibillion-dollar fraud complaint against WorldCom for improper accounting procedures. Of the $6.1 billion awarded in the resulting settlement, JP Morgan Chase paid more than $2 billion.
  • The consumer class-action lawsuit against American Home Products for the company’s role in distributing fen-phen, a diet drug with a history of causing heart damage among users. The judge awarded individual damages of as much as $1.5 million for certain class members.

The Four Qualifications for a Class-action Lawsuit

Before a judge certifies a class-action lawsuit and lets the case proceed, the judge must affirm that the case meets the following four criteria:

  1. The number of people in the class bringing the collective suit must be so large that it is more practical for a small group of representatives to represent the whole.
  2. The questions of law involved in the suit must apply to each member of the class.
  3. The class representatives must bring claims that adequately reflect a typical claim that an individual class member could make. In other words, every class member must have a legal claim that legitimately matches one or more of the claims brought by the class representatives.
  4. Each representative must act in the best interests of the class at all times.

Who Is Eligible to Join a Class-Action Lawsuit?

Anybody who has legal rights affected by a class-action lawsuit can join the suit in some capacity. For example, an automobile owner who has suffered a serious injury due to a faulty airbag can join a class-action lawsuit against the automobile manufacturer if an adequate number of other drivers have also suffered injuries due to defective components.

The majority of class-action lawsuits have an “opt-out” structure by default. If a class member with a legal right to participate in the suit wishes to withdraw their participation before the suit begins, then they must formally withdraw their class membership.

Becoming the Lead Plaintiff on a Class Action Lawsuit

After the presiding judge certifies a class-action lawsuit to move forward, the court appoints a party known as a “representative plaintiff” for the case. The representative plaintiff is a party that, in the court’s best judgment, is in a position to best represent the legal interest of each class member.

The representative plaintiff is typically the party that stands to gain the most financially from a successful settlement. In large class-action securities suits, for example, the lead plaintiff will often be a pension fund or another institutional investor.

The Advantages of Filing a Class-Action Lawsuit

Lower Litigation Costs

If the case is especially strong, a law firm may agree to a risk-sharing fee structure. In such an agreement, the representing attorneys may agree to use any resulting settlement funds as the sole source of their fees. This type of fee structure aligns every party’s incentive and offers a risk-free proposition to all class members.

More Negotiating Leverage

Companies and other organizations facing a class-action lawsuit are, by definition, confronted with a large number of similar claims. As such, the defendant typically finds themselves in a weakened negotiating position. Thus, it should come as no surprise that the vast majority of class-action lawsuits settle out of court.

A “Free Ride” for the Plaintiffs

In many situations, the damages that a single plaintiff can expect from filing suit are often smaller than the cost of bringing the suit in the first place. Since a class-action lawsuit spreads the attorney’s fees and legal costs over so many parties, an individual plaintiff only needs the chance of a small settlement award to make joining the suit worth the effort. If the attorneys representing the class are working on contingency fees, then there is zero financial risk for any of the individual plaintiffs.

The Cons of Class-Action Lawsuits

Less Control

When the judge appoints a representative plaintiff, that plaintiff gains the power to act on behalf of the entire class. This means the plaintiff can decide whether or not to accept a settlement agreement. Unless the representative plaintiff’s incentives align perfectly with every member of the class, the representative plaintiff may take actions that further their own interests at the expense of other class members.

More Complexity

Since the procedures governing class-action lawsuits are more complex than traditional cases, class-action lawsuits often take longer to resolve. The famous class-action suit against Phillip Morris and co-defendants, for example, had an appeal process that lasted nine years.

In Conclusion

Class-action lawsuits are a viable way for multiple parties to pool their respective resources together and file a claim against a large entity. However, class-action suits aren’t without their drawbacks.

Oftentimes, the representative plaintiff will have disproportionate influence over the case’s outcome. With that said, the right type of fee structure can give plaintiffs absolutely nothing to lose by joining the claim.

How to Obtain Legal Assistance From yourlawyer.com Today

If you or somebody that you know needs legal assistance involving a class-action lawsuit, Parker Waichman may be able to help. With over four decades of experience, we have recovered more than $2 billion on behalf of our clients. For a free legal consultation, simply fill in our online form at www.yourlawyer.com.

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