Updated July 13, 2023
Definition of Class Action Lawsuits
A Class Action Lawsuits refers to a legal action wherein a large number of people have similar injuries of different degrees from a specific situation, and they jointly file a suit against the defendant (usually a corporate entity).
These lawsuits are helpful to understand the collective concerns of the individual people who have suffered a similar type of damage. The damage can be in the form of defective products, side effects of pharmaceutical drugs, damage due to the use of any machine, false advertising, or the result of discrimination. A group takes legal action on a collective basis. Hence, the term is called a class action lawsuit. These actions are usually taken by employers, manufacturing corporates, etc.
How Does it Work?
- Say, the number of people who suffered from similar damage is 1000. These people appoint a lead plaintiff or class representative who will speak on behalf of all the plaintiffs. These plaintiffs provide their consent to the lead plaintiff.
- However, the lead plaintiff is required to demonstrate to the judge that the claim is valid and the members who have signed the class suits have similar claims.
- The class suit has to be certified by the judge before it is heard in a court of law. A mail is sent to all plaintiffs regarding certification of the lawsuit. Mail is sent to all except ones who had to opt out from such mail communication.
- Further, the plaintiffs may decide to remain out of the class action at the time of the hearing. But they need to inform the lead plaintiff accordingly. The compensation will not be provided to those who had to opt out of the class.
- The responsibilities of the lead plaintiff include appointing the attorney, consultation with the attorney, making the decision on the settlement quantum and medium, fair representation of the case, and leading the case on behalf of all.
- After the class action suit is completed, each plaintiff may receive the settlement in the form of cash or service or any other benefit. However, in many cases, such settlement occurs outside the court. Thus, compensation will be equally divided among all members regardless of individual damage.
Example of Class Action Lawsuit
Many class-action lawsuits occurred in history, which have resulted in a settlement for the plaintiffs. Following are a few classic examples:
- The collapse of Enron has impacted the lives of many in the US. The class-action lawsuit filed in the case of Enron has resulted in a settlement of $ 7.2 billion for the alleged fraud.
- In respect of the securities fraud that happened in the case of Nortel networks, the settlement amount was $ 2.4 billion.
- When the oil tanker of Exxon Shipping Company struck the Bligh Reef of Prince William Sound at Alaska in 1989, the oil tanker split around 10.8 million gallons of crude oil. This was the worst damage to the environment and the 2nd largest in US waters. Exxon was charged to pay $ 507 million for the punitive damages caused.
- Musk gave a series of tweets in 2018 through which he gave indications of converting the Company to private. This significantly shook wall street resulting in a huge surge in Tesla’s share price.
What Qualifies as a Class Action Lawsuit?
As per rule 23 of the Federal Rules of Civil Procedure, the following are the attributes that qualify a class action lawsuit:
- In case only 1 individual files a suit, it is difficult to make the defendant accountable. Also, individual suits may not protect the rights of the plaintiff.
- If individual cases are filed in the court for similar damages and the same defendant, it becomes difficult for the court to hear each contention.
- The majority of the plaintiff has more or less a similar type of damage from the same defendant.
Advantages of Class Action Lawsuits
- The courts are relieved from hearing the same case of 1000s of people for similar damage against the same defendant.
- This reduces the cost of litigation for many plaintiffs.
- Corporations are reluctant to face such lawsuits. Hence, sometimes class action lawsuits are settled outside court.
- Many plaintiffs maybe not be in a financial position to bear the litigation cost. Hence, a class-action lawsuit becomes a medium for delivering the required justice.
- It further helps the defendant to settle all the plaintiffs in one go rather than settling one after another.
- Law is one for all, and thus class action suits help to treat all the plaintiffs similarly.
- Due to the higher number of plaintiffs, the lawsuit becomes stronger, and becomes easy for the lead plaintiff to win.
Disadvantages of Class Action Lawsuits
- Even if the lead plaintiff is a single individual, the attorneys charge higher fees considering the number of plaintiffs for whom the case is to be led.
- Plaintiffs may have to settle in goods or services instead of a cash refund.
- Even if the damage is similar, the degree of damage for each individual differs, and the compensation received may not be in line with the degree of damage.
- The court takes a long time to settle since the lawsuit may become complex.
- In case the attorney selection is not competent, all class members have to suffer.
- Class action lawsuits are legal lawsuits by a larger group of people against one defendant for a similar type of damage caused to all.
- The damage caused can be in the form of defective products, side effects of the pharmaceutical drugs, or damage due to the use of any machine, false advertising, or result of discrimination.
- The plaintiffs appoint a lead plaintiff who will take responsibility for leading the case.
- These lawsuits save a considerable time in court.
- After the class action suit is completed, each plaintiff may receive the settlement in the form of cash or service or any other benefit.
Class action lawsuits are a collective measure to resolve similar cases speedily. It helps to give justice to even those who don’t have the financial resources to lead the case. It also becomes an easy route for the defendant to face all such issues in one go.
This is a guide to Class Action Lawsuits. Here we also discuss the definition, working, and example of Class Action Lawsuits along with their advantages and disadvantages. You may also have a look at the following articles to learn more –