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A class action is a procedure whereby one or more claimants, called the class representative, may bring suit (or, more rarely, be designated as a defendant class) to obtain a remedy responsive to the legal interest of all members of the class (Lindblom 1996). The remedy may be an injunction, for example prohibiting racial discrimination in public schools, or compensatory damages and, in some instances, punitive damages, for example in claims of mass consumer fraud. The suit may seek both an injunction and monetary redress for or against a class. The procedure facilitates assertion of similar claims on behalf of a large number of allegedly injured parties, including claims that could not, as a practical matter, otherwise be asserted on account of the cost of litigation. A suit against a defendant class typically would seek imposition of an identical remedy against all of them, for example, against stockholders or creditors of a corporation. By the same token, because the procedure aggregates claims, it can impose very heavy liability and hence can become a weapon of ‘legal blackmail.’ The procedure is governed by Rule 23 of the Federal Rules of Civil Procedure in federal courts and by similar rules in state courts. Class suits are very controversial but they are an important component in the American use of litigation to address public issues of compensatory and distributive justice.
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1. History
English courts recognized litigation on behalf of groups from no later than the fifteenth century and perhaps earlier. The concept of a class suit evolved in the Court of Chancery in the sixteenth and eighteenth centuries, in such cases as rights to fish in a river, rights of creditors against an insolvent debtor, rights of shareholders to enforce duties of corporate directors and obligations of parishioners to pay church titles (Yeazell 1987). By the end of the eighteenth century the basic formula for a class suit had been established, in these terms: ‘Plaintiff, suing on behalf of himself and all others similar situated, alleges as follows: …’
In the United States the class suit procedure was elaborated by Justice Joseph Story in his treatise on Equity and was recognized in the federal courts, notably in the case of Smith . Swormstedt, (57 US [16 How] 288 [1853]). In the nineteenth century the class suit evolved in state court procedure, particularly in litigation by city taxpayers complaining about improper municipal expenditures and in proceedings to reorganize insurance companies that had overextended themselves. The ‘taxpayers’ suit’ has since evolved into a standard procedure for obtaining judicial review of action by municipal and state government. The insurance reorganization proceedings have since evolved, in one direction into bankruptcy procedure and in another offshoot into procedures for reorganization of insurance companies and banks (Hazard et al. 1998). The class suit procedure was used only infrequently until the litigation involving desegregation of the public schools in the 1960s and 1970s, in which the procedure was a standard technique.
The class suit procedure was given greater status and more precise definition in the Federal Rules of Civil Procedure, adopted in 1938. Federal Rule 23 permitted class suits for injunctions, damages and multiple claims against a limited fund. In 1966 Federal Rule 23 was elaborately amended to provide clearer criteria for when class suits maybe maintained and greater protection for class members, particularly those who were not the designated representative parties.
The validity of class suit procedure has been recurrently questioned in terms of due process. The issue is essentially whether, and in what circumstances, a judgment in a class suit can validly determine the rights of members of class who do not actively participate in the litigation. The courts have upheld the concept of the class suit but have given ambiguous pronouncements about its effect on absent class members. Leading Supreme Court cases addressing that issue include Hansberry . Lee (311 US 32 [1938]) disapproving a class suit where the representative has a conflict of interest; Phillips Petroleum Co. vs. Shutts (472 US 797, [1985]) approving a class suit in state court determining rights of residents of other states; and Amchem Products, Inc. vs. Windsor (521 US 591, [1997]), and Ortiz vs. Fibreboard Corp. (527 US 815 [1999]) disapproving class suit settlements covering potential claimants who could not be given notice of the suit.
2. Requirements For A Class Suit
The requirements for a class suit in federal court are set forth in Federal Rule 23. Essentially similar requirements prevail in state court procedures.
The class suit complaint must be set forth, first, that plaintiff is a party injured in the manner detailed in the complaint’s subsequent allegations and, second, that the plaintiff maintains the action on behalf of all members of the described class, for example, all Black children seeking admission to the defendant public school or all consumers who borrowed money from the defendant lending institution. The first of these allegations establishes ‘standing’ to sue and the second asserts plaintiff’s assumption of a representative capacity in the litigation. The remedy must be sought for all members of the class. The complaint must describe the wrong in accordance with the usual pleading rules. It must also allege that the members of the group are too numerous to sue separately; that there are common questions presented in the claims for the class; and that the representative party will be an adequate representative of the entire class. It must also be shown that common relief for all class members is necessary or at least convenient and that the procedure will be efficient as a means of resolving the many claims involved.
The terminology in Federal Rule 23(b) differentiates three types of class suits: 23(b)(1), involving a course of conduct by defendant that affects all class members; 23(b)(2), in which an injunction is sought against conduct affecting all members of the class; 23(b)(3), in which similar injury has allegedly been inflicted on all class members, for which damages are sought. These distinctions are not mutually exclusive. For example, a proper class suit can seek both an injunction against future wrong and damages for past conduct. However, other provisions of Rule 23 impose different procedural requirements on the basis of this typology, particularly a requirement that all members of a ‘(b)(3)’class be given individual notice of the pendency of the suit. This discrepancy as well as redundancy in other terminology in Rule 23 have resulted in much confusion in administrating class suits. There is a large and complex procedural jurisprudence concerning these requirements (Wright et al. 1986).
However, there are two essential questions. The first is whether, all things considered, the litigation may be maintained on a group basis, or may not be so maintained. This is the ‘certification’ issue, so-called because the court must certify the suit as a proper class proceeding if it is to proceed as such. The second critical question is whether individual notice to all class members will be required.
3. Certification
A class suit may be maintained as such only with the approval of the court, that is, certification that the suit is proper. An initiative by the plaintiff to proceed with a class suit is ordinarily necessary, except in unusual situations where a defendant class is established. However, a plaintiff initiative is not sufficient without the court’s approval. Usually the question of certification is a major preliminary issue, strenuously contested with legal and factual argument. A great deal depends on resolution of this issue. If certification is denied, the lawsuit lapses into a claim by one or a few parties, rather than on behalf of a large group. Reduction of the size of the case to the claims of the individual representatives usually makes further pursuit of the litigation by the plaintiff unattractive or impractical. On the other hand, if certification is granted, the lawsuit may immediately assume major proportion for the defendant, often creating a compulsion to reach expensive settlement.
Despite extensive procedural jurisprudence, and intensive professional and academic debate, the issue of certification in a specific case remains relatively open ended and hence very much a matter of judicial judgment and discretion (Newberg and Conte 1992). For many years the question of certification was held to be an interlocutory determination and hence not subject to appellate review until final resolution after determination of the merits of the class members claims. See Eisen v. Carlisle & Jacquelin (417 US 156 [1974]). This made the certification issue in the trial court all the more crucial. Denial of certification was termed the ‘death knell’ of a class suit, while grant of certification usually resulted in defendant feeling obliged to negotiate a settlement with the class. In 1999, Rule 23 was amended to permit immediate appeal of a grant or denial of certification. Immediate appeal of the trials courts’ certification decision has been permitted under class suit procedure in most states.
4. Initiative To Prosecute Class Suits
A class suit can be initiated by a pre-existing group, such as a labor union or trade association; by a political action organization wishing to press a legal contention, such the NAACP’s litigation to end school desegregation; or by a group recognizing itself to have a common interest in making claims, such as disaffected shareholders of a corporation. Initiation of such efforts requires assistance of a lawyer willing to prosecute the case. In modern practice such an initiative is often by lawyers specializing in class suit litigation. Because class suits typically involve large stakes so far as defendant is concerned, most class suits are strongly contested. That prospect in turn requires that the organizer, whether an action group or the lawyer, have financial resources and staying power to sustain costly and protracted litigation. Legal grievances that can be framed as class suits hence ordinarily result in escalation of a dispute into litigation of major proportion.
The initiator of a class suit, whether a claimant action group or a lawyer, defines the grievant group by the description of the class in the complaint. The class is defined in terms of common characteristics and usually a specified time interval, for example, ‘female employees of defendant corporation in the period January, 1998 through December, 1999.’ The time interval refers to the period in which the alleged injuries occurred and is called the ‘class period.’ A larger class may be subdivided into subclasses having different specific characteristics, either by the plaintiff or by order of the court.
Some class suits are almost entirely the result of lawyer initiative. A lawyer envisions that a wrong has been committed against many people, locates someone fitting the description to serve as class representative, and then manages the lawsuit. The lawyer’s incentive in such a case includes the prospect of large fees upon obtaining a judgment or, much more likely, a settlement. Some analysts differentiate between ‘cause’ class suits, such those asserting civil rights, and ‘money’ class suits, where large damages are sought.
‘Money’ class suits are typified by cases where inventive lawyers frame class damage claims out of transactions too small to be worth individual prosecution but affecting thousands of alleged victims. A classic illustration is a California case seeking restitution from a taxi company that allegedly fixed its meters to record fares at a rate higher than legally permitted. See Daar vs. Yellow Cab Co. (67 Cal. 2d 695 [1967]): Claims on behalf of corporate stockholders, alleging misrepresentation in the corporation’s financial projections, are a common type of modern class suits. Many class suits involve both politically significantly issues and large financial stakes. In any event the class permits isolated individual legal grievances to be amalgamated into large scale claims.
5. Uses And Abuses Of Class Actions
The typical class suit defendant is a business corporation or a government bureau. The class suit procedure is an important device for commutative and distributive justice on behalf of individuals who have suffered legal wrong at the hands of powerful actors in modern mass society. At the same time, the class suit procedure is a menacing device by which self-constituted protagonists, chiefly lawyers, can exploit relatively minor legal mistakes to reap large recoveries from ‘target’ defendants. Officials of such a defendant typically consider that they cannot afford the risk to their organization’s continuity of a big judgment—the risk, in common parlance, of ‘betting the ranch.’
A class suit also presents opportunity for the plaintiff’s lawyer to exploit the class, often through connivance of the defendant. A class suit settlement typically calls for defendant to pay the plaintiff’s lawyer a substantial fee. A defendant is typically indifferent whether settlement money goes to the lawyer or to the class members. A settlement could pay could pay $1 million to the lawyer and $9 million to the class, or $2 million to the lawyer and $6 million to the class. The terms of a settlement injunction can be similarly manipulated. The class members typically are dispersed and not organized, hence in a weak position to contest the terms of settlement (Coffee 2000).
6. Use And Abuse Of Class Suits
Most class suits are resolved by settlement, typically after a period of intensive discovery and extensive motion practice. Hence, although class suit litigation typically is expensive, there are few cases where an adjudication has determined the merits. Most of the controversy over class suits is founded on dispute about the fairness of settlements.
Control against blackmail of a defendant or exploitation of absent class members is afforded through exercise of responsibility by class counsel and by court supervision. Most class counsel are faithful to their responsibilities, notwithstanding that class suit defendants typically assert that they are being oppressed. But some class counsel have been flagrantly exploitive. The quality of court supervision varies greatly. Some judges conduct searching inquiries into the basis and terms of a proposed settlement, particularly the attorney fees. Some judges make only a perfunctory review. Close supervision is in any event difficult because there is no reference point as to the merits of the claim and both sides are at high risk in a trial on the merits—plaintiff through possible loss of its investment in the litigation, defendant through possible loss on the merits (Hensler et al. 2000).
Both the opportunity to achieve justice for individuals suffering common wrongs and the danger to defendants of ‘betting the ranch’ could be improved if clearer definition could be drawn of claims appropriate for class suits. Efforts in this direction have been without much success. Congress adopted special provisions concerning securities class suits in federal court but their effect has been avoided by bringing suits in state courts. Proposed legislation would extend federal court jurisdiction to class suits involving interstate transactions, but encountered intense criticism that they would stifle proper class suits and inappropriately burden the federal courts. Revisions in Rule 23, in addition to making certification orders immediately appealable, have been proposed but probably would have modest effects.
Much of the controversy over class suits implicates other aspects of American civil procedure, including broad discovery, the right of jury trial of issues of fact, and the American rule concerning court costs (Yeazell 1987). Class suits typically involve extensive discovery which, under broad American discovery practice, can extend to thousands of documents and dozens of witness depositions. The right of jury trial imposes inherent risks to a ‘deep pocket’ defendant and, perhaps more important, precludes decisions by the judge of issues of fact that might narrow the controversy or resolve it altogether. The American cost rule, whereby the winner of litigation generally is not entitled to recover its litigation costs, means that a class suit plaintiff has no ‘down side’ risk of becoming liable for a defendant’s costs. Moreover, many class suits claims are based on statutes that provide recovery of litigation costs to winning plaintiffs but not to defendants. A commonly voiced criticism of these statutes is that they contemplated individual suits, where litigation costs would make enforcement of rights practically impossible, whereas the class suit is another approach to enforcement of individual rights through a ‘private attorney general.’
Bibliography:
- Coffee J 2000 Class action accountability: Reconciling exist, voice, and loyalty in representative litigation. Columbia Law Review 100: 370
- Hazard G, Gedid J, Sowle S 1998 An historical analysis of the binding effects of class suits. University of Pennsylvania Law Review 146: 1849
- Hensler D R, Pace N M, Dombey-Moore B, Giddens B, Gross J, Moller E K 2000 Class Action Dilemmas: Pursuing Public Goals for Private Gain. RAND, Santa Monica, CA
- Lindblom P H 1996 Group Actions and the Role of the Courts: A European Perspective. Kluwer, The Hague, Netherlands
- Newberg H, Conte A 1992 Newberg on Class Actions, 3rd edn. McGraw-Hill, New York
- Vos W de 1996 Reflection on the introduction of a class action in South Africa. Tydskrifvir die Suid-Afrikaanse Reg 4: 639–57
- Wright C, Miller A, Kane M 1986 Federal Practice and Procedure. West, St Paul, MN, Vols. 7A–7C
- Yeazell S 1987 From Medie al Group Litigation to the Modern Class Action. Yale University Press, Haven, CT
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