| Civil procedure in the United States |
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In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued. Class actions are commonly referred to as "class action suits," however this phrase is redundant as the historical distinction between "actions" at law and "suits" in equity is no longer recognized. This form of collective lawsuit originated in the United States and is still predominantly a U.S. phenomenon. However, in several European countries with civil law, as opposed to the Anglo-American common law system, changes have been made in recent years that allow consumer organizations to bring claims on behalf of large groups of consumers.
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In the United States federal courts, class actions are governed by Federal Rules of Civil Procedure Rule 23 and 28 U.S.C.A. § 1332 (d).[1]
Class actions may be brought in federal court if the claim arises under federal law, or if the claim falls under 28 USCA § 1332 (d). Under § 1332 (d) (2) the federal district courts have original jurisdiction over any civil action where the amount in controversy exceeds $5,000,000 and any of
Nationwide plaintiff classes are possible, but such suits must have a commonality of issues across state lines. This may be difficult if the civil law in the various states lack significant commonalities. Large class actions brought in federal court frequently are consolidated for pre-trial purposes through the device of multidistrict litigation (MDL).[3] It is also possible to bring class actions under state law, and in some cases the court may extend its jurisdiction to all the members of the class, including out of state (or even internationally) as the key element is the jurisdiction that the court has over the defendant.
Typically, federal courts are thought to be more favorable for defendants, and state courts more favorable for plaintiffs. Many class actions are filed initially in state court. The defendant will frequently try to remove the case to federal court. The Class Action Fairness Act of 2005[4] increases defendants' ability to remove state cases to federal court by giving federal courts original jurisdiction for all class actions with damages exceeding $5,000,000, exclusive of interest and costs.[5] It should be noted, however, that the Class Action Fairness Act contains carve-outs for, 'inter alia', shareholder class actions covered by the Private Securities Litigation Reform Act of 1995 and those concerning internal corporate governance issues (the latter typically being brought as shareholder derivative actions in the state courts of Delaware, the state of incorporation of most large corporations).[6]
The procedure for filing a class action is to file suit with one or several named plaintiffs on behalf of a proposed class. The proposed class must consist of a group of individuals or business entities that have suffered a common injury or injuries. Typically these cases result from an action on the part of a business or a particular product defect or policy that applied to all proposed class members in a typical manner. After the complaint is filed, the plaintiff must file a motion to have the class certified. In some cases class certification may require discovery in order to determine its size and if the proposed class meets the standard for class certification.
Upon the motion to certify the class, the defendants may object to whether the issues are appropriately handled as a class action, to whether the named plaintiffs are sufficiently representative of the class, and to their relationship with the law firm or firms handling the case. The court will also examine the ability of the firm to prosecute the claim for the plaintiffs, and their resources for dealing with class actions.
Due process requires in most cases that notice describing the class action be sent, published, or broadcast to class members. As part of this notice procedure, there may have to be several notices, first a notice giving class members the opportunity to opt out of the class, i.e. if individuals wish to proceed with their own litigation they are entitled to do so, only to the extent that they give timely notice to the class counsel or the court that they are opting out. Second, if there is a settlement proposal, the court will usually direct the class counsel to send a settlement notice to all the members of the certified class, informing them of the details of the proposed settlement.
In federal civil procedure law, which has also been accepted by approximately 35 states (through adoption of state civil procedure rules similar to the federal rules), the class action must have certain definite characteristics (often referred to by the acronym CANT):
Since 1938, many states have adopted rules similar to the FRCP. However, some states like California have civil procedure systems which deviate significantly from the federal rules; the California Codes provide for four separate types of class actions. As a result, there are two separate treatises devoted solely to the complex topic of California class actions.[7] Some states, such as Virginia, do not provide for any class actions, while others, such as New York, limit the types of claims that may be brought as class actions.
The ancestor of the class action was what modern observers call "group litigation," which appears to have been quite common in medieval England from about 1200 onward.[8] These lawsuits involved groups of people either suing or being sued in actions at common law. These groups were usually based on existing societal structures like villages, towns, parishes, and guilds. What is striking about these early cases is that unlike modern courts, the medieval English courts never questioned the right of the actual plaintiffs to sue on behalf of a group or a few representatives to defend an entire group.[9]
As UCLA law professor Stephen Yeazell has pointed out, the most likely reason is that the abysmally poor transportation, communications, and administrative apparatus of medieval times made it impossible for the English sovereign to directly manage the entire country in terms of individuals; it was easier to structure society by imposing obligations upon groups which were enforced by the sporadic use of force.[10] In turn, lawyers and judges who operated the king's system of justice in a society strictly organized into groups would not question the right of a group to sue or be sued because to do so would bring into question the entire group-oriented society in which they operated.[10]
From 1400 to 1700, group litigation gradually switched from being the norm in England to the exception.[11] The development of the concept of the corporation led to the wealthy supporters of the corporate form becoming suspicious of all unincorporated legal entities, which in turn led to the modern concept of the unincorporated or voluntary association.[12] The tumultuous history of the Wars of the Roses and then the Star Chamber resulted in periods during which the common law courts were frequently paralyzed, and out of the confusion the Court of Chancery emerged with exclusive jurisdiction over group litigation.[13]
Chancery cases on group litigation after 1700 were a totally incoherent mess, which Yeazell has explained by pointing to the trends towards fragmentation and individualism in English society during that period; the resulting societal pressures ultimately led to the Reform Act 1832.[14] The problem which confounded Chancery was the shift from representation based on the consent of a group to representation based on a common interest, such as holding shares of a corporation.[15] Group litigation has struggled with the tension between consent and interest ever since.
By 1850, Parliament had enacted several statutes on a case-by-case basis to deal with issues regularly faced by certain types of organizations, like joint-stock companies, and with the impetus for most types of group litigation removed, it went into a steep decline in English jurisprudence from which it never recovered.[16] It was further weakened by the fact that equity pleading in general was falling into disfavor, which culminated in the Judicature Acts of 1874 and 1875.[16] Group litigation was essentially dead in England after 1850.
Group litigation survived in the United States only thanks to the influence of Supreme Court Associate Justice Joseph Story, who imported it in a rather mangled form into U.S. law through summary discussions in his two equity treatises as well as his famous opinion in West v. Randall (1820). Although Story was highly intelligent and familiar with all the relevant English precedents, he merely summarized them in a confused fashion because he "could not conceive of a modern function or a coherent theory for representative litigation: why?"[17] Like most Americans then and since, Story took individualism for granted; on that basis, he simply could not comprehend a rule that allowed a court to bind someone who had never been a party to litigation purportedly conducted on his behalf.[18]
The oldest predecessor to the class action rule was Equity Rule 48, promulgated in 1833, which allowed for representative suits in situations where there were too many individual parties (which now forms the first requirement for class action litigation, numerosity).[19] However, this rule did not allow such suits to bind similarly situated absent parties, which rendered the rule almost entirely useless and was a direct reflection of Story's inability to understand the old English Chancery precedents.[20] Story's confusion was apparently typical of 19th century American lawyers, as even the legendary Christopher Columbus Langdell also could not understand the old cases.[18]
Within ten years, the Supreme Court interpreted Rule 48 in such a way so that it could apply to absent parties under certain circumstances, but only by ignoring the plain meaning of the rule.[21] In the early 20th century, Equity Rule 48 was replaced with Equity Rule 38 as part of a major restructuring of the Equity Rules, and when federal courts merged their legal and equitable procedural systems in 1938, Equity Rule 38 became Rule 23 of the Federal Rules of Civil Procedure.
A major revision of the FRCP in 1966 radically transformed Rule 23, made the opt-out class action the standard option, and gave birth to the modern class action. Entire treatises have been written since to summarize the huge mass of law that sprang up from the 1966 revision of Rule 23.[22] Just as medieval group litigation bound all members of the group regardless of whether they all actually appeared in court, the modern class action binds all members of the class, with the exception of those who appear and object.
The Advisory Committee that drafted the new Rule 23 in the mid-1960s was influenced by two major developments. First was the suggestion of Harry Kalven, Jr. and Maurice Rosenfeld in 1941 that class action litigation by individual shareholders on behalf of all shareholders of a company could effectively supplement direct government regulation of securities markets and other similar markets.[23] The second development was the rise of the African-American civil rights movement, environmentalism, and consumerism.[24] As expected, the groups behind these movements, as well as many others in the 1960s, 1970s, and 1980s all turned to class actions as a means for achieving their goals. For example, a 1978 environmental law treatise reprinted the entire text of Rule 23 and mentioned "class actions" 14 times in its index.[25]
Of course, businesses targeted by class actions for inflicting massive aggregate harm have sought ways to avoid class actions altogether. In the 1990s, the U.S. Supreme Court issued a number of decisions which strengthened the "federal policy favoring arbitration".[26] In response, lawyers have added provisions to consumer contracts of adhesion called "collective action waivers". In 1999 the National Arbitration Forum began advocating that such contracts should be drafted so as to force consumers to waive the right to a class action completely, and such provisions have become very popular among businesses.[26] As of November 2007, the legal validity of contracts of adhesion with class action waivers is unclear, and courts have rendered mixed and sometimes contradictory opinions.[27]
In the 2011 court case AT&T Mobility v. Concepcion, the U.S. Supreme Court ruled in a 5-4 decision that the Federal Arbitration Act of 1925 preempts state laws that prohibit contracts from disallowing class action lawsuits, which will make it more difficult for consumers to file class action lawsuits. The dissent pointed to a saving clause in the federal act which allowed states to determine how a contract or its clauses may be revoked.[28]
Class actions may offer a number of advantages[29] because they aggregate a large number of individualized claims into one representational lawsuit.
First, aggregation can increase the efficiency of the legal process, and lower the costs of litigation.[30] In cases with common questions of law and fact, aggregation of claims into a class action may avoid the necessity of repeating "days of the same witnesses, exhibits and issues from trial to trial." Jenkins v. Raymark Indus. Inc., 782 F.2d 468, 473 (5th Cir. 1986) (granting certification of a class action involving asbestos).
Second, a class action may overcome "the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v. Van Ru Credit Corp., 109 F.3d 388, 344 (7th Cir. 1997)). "A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor." Amchem Prods., Inc., 521 U.S. at 617 (quoting Mace, 109 F.3d at 344). In other words, a class action ensures that a defendant who engages in widespread harm – but does so minimally against each individual plaintiff – must compensate those individuals for their injuries. For example, thousands of shareholders of a public company may have losses too small to justify separate lawsuits, but a class action can be brought efficiently on behalf of all shareholders. Perhaps even more important than compensation is that class treatment of claims may be the only way to impose the costs of wrongdoing on the wrongdoer, thus deterring future wrongdoing.
Third, class action cases may be brought to purposely change behavior of a class of which the defendant is a member. Landeros v. Flood was a landmark case used to purposely change the behavior of doctors, and encourage them to report suspected child abuse. Otherwise, they would face the threat of civil action for damages in tort proximately flowing from the failure to report the suspected injuries. Previously, many physicians had remained reluctant to report cases of apparent child abuse, despite existing law that required it.
Fourth, in "limited fund" cases, a class action ensures that all plaintiffs receive relief and that early-filing plaintiffs do not raid the fund (i.e., the defendant) of all its assets before other plaintiffs may be compensated. See Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999). A class action in such a situation centralizes all claims into one venue where a court can equitably divide the assets amongst all the plaintiffs if they win the case.
Finally, a class action avoids the situation where different court rulings could create "incompatible standards" of conduct for the defendant to follow. See Fed. R. Civ. P. 23(b)(1)(A). For example, a court might certify a case for class treatment where a number of individual bond-holders sue to determine whether they may convert their bonds to common stock. Refusing to litigate the case in one trial could result in different outcomes and inconsistent standards of conduct for the defendant corporation. Thus, courts will generally allow a class action in such a situation. See, e.g., Van Gemert v. Boeing Co., 259 F. Supp. 125 (S.D.N.Y. 1966).
Whether a class action is superior to individual litigation depends on the case, and is determined by the judge's ruling on a motion for class certification. The Advisory Committee Note to Rule 23, for example, states that mass torts are ordinarily "not appropriate" for class treatment. Class treatment may not improve the efficiency of a mass tort because the claims frequently involve individualized issues of law and fact that will have to be re-tried on an individual basis. See Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996) (rejecting nationwide class action against tobacco companies). Mass torts also involve high individual damage awards; thus, the absence of class treatment will not impede the ability of individual claimants to seek justice. See id. Other cases, however, may be more conducive to class treatment.
The preamble to the Class Action Fairness Act of 2005, passed by the United States Congress, found:
Class-action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.
There are several criticisms of class actions.[31] The preamble to the Class Action Fairness Act stated that some abusive class actions harmed class members with legitimate claims and defendants that have acted responsibly; adversely affected interstate commerce; and undermined public respect for the country's judicial system.
Class members often receive little or no benefit from class actions. Examples cited for this include large fees for the attorneys, while leaving class members with coupons or other awards of little or no value; unjustified awards are made to certain plaintiffs at the expense of other class members; and confusing notices are published that prevent class members from being able to fully understand and effectively exercise their rights.
For example, in the United States, class lawsuits sometimes bind all class members with a low settlement. These "coupon settlements" (which usually allow the plaintiffs to receive minimal benefit such as a small check or a coupon for future services or products with the defendant company) are a way for a defendant to forestall major liability by precluding a large number of people from litigating their claims separately, to recover reasonable compensation for the damages. However, existing law requires judicial approval of all class action settlements, and in most cases class members are given a chance to opt out of class settlement, though class members, despite opt-out notices, may be unaware of their right to opt-out because they did not receive the notice, did not read it, or did not understand it.
The Class Action Fairness Act of 2005 addresses these concerns. Coupon Settlements may be scrutinized by an independent expert before judicial approval in order to ensure that the settlement will be of value to the class members. 28 U.S.C.A. 1712(d). Further, if the action provides for settlement in coupons, the attorney must take a corresponding part of his fee in coupons. 28 U.S.C.A. 1712(a).
Class action cases present significant ethical challenges. Defendants can hold reverse auctions and any of several parties can engage in collusive settlement discussions. Subclasses may have interests that diverge greatly from the class, but may be treated the same. Proposed settlements could offer some groups (such as former customers) much greater benefits than others. In one paper presented at an ABA conference on class actions in 2007, authors commented that "competing cases can also provide opportunities for collusive settlement discussions and reverse auctions by defendants anxious to resolve their new exposure at the most economic cost." [32]
Although normally plaintiffs are the class, defendant class actions are also possible. For example, in 2005, the Archdiocese of Portland was sued as part of the Catholic priest sex-abuse scandal. All parishioners of the Archdiocese's churches were cited as a defendant class. This was done to include their assets (local churches) in any settlement.[7] Where both the plaintiffs and the defendants have been organized into court-approved classes, the action is called a bilateral class action.
In a class action, the plaintiff seeks court approval to litigate on behalf of a group of similarly-situated persons. Not every plaintiff looks for, or could obtain, such approval. As a procedural alternative, plaintiff's counsel may attempt to sign up every similarly-situated person that counsel can find as a client. Plaintiff's counsel can then join the claims of all of these persons in one complaint, a so-called "mass action," hoping to have the same efficiencies and economic leverage as if a class had been certified.
Because mass actions operate outside the detailed procedures laid out for class actions, they can pose special difficulties for both plaintiffs, defendants, and the court. For example, settlement of class actions follows a predictable path of negotiation with class counsel and representatives, court scrutiny, and notice. There may not be a way to uniformly settle all of the many claims brought via a mass action. Some states permit plaintiff's counsel to settle for all the mass action plaintiffs according to a majority vote, for example. Other states, such as New Jersey, require each plaintiff to approve the settlement of that plaintiff's own individual claims.
The Austrian Code of Civil Procedure (Zivilprozessordnung – ZPO) does not provide for a special proceeding for complex class action litigation. However, Austrian consumer organizations (Verein für Konsumenteninformation/VKI and the Federal Chamber of Labour/Bundesarbeitskammer) have, in recent years, brought claims on behalf of hundreds or even thousands of consumers. This technique, soon labelled as “class action Austrian style”, allows for a significant reduction of overall costs. The Austrian Supreme Court, in a recent judgment, has confirmed the legal admissibility of these lawsuits under the condition that all claims are essentially based on the same grounds.
The Austrian Parliament has unanimously requested the Austrian Federal Minister for Justice to examine the possibility of new legislation providing for a cost-effective and appropriate way to deal with mass claims. Together with the Austrian Ministry for Social Security, Generations and Consumer Protection, the Justice Ministry opened the discussion with a conference held in Vienna in June, 2005. With the aid of a group of experts from many fields, the Justice Ministry began drafting the new law in September, 2005. With the individual positions varying greatly, a political consensus could not be reached.[33]
Provincial laws in Canada allow class actions. All provinces permit plaintiff classes and some permit defendant classes. Quebec was the first province to enact class proceedings legislation in 1978. Ontario was next with the Class Proceedings Act, 1992. As of 2008, 9 of 10 provinces have enacted comprehensive class actions legislation. In Prince Edward Island, where no comprehensive legislation exists, following the decision of the Supreme Court of Canada in Western Canadian Shopping Centres Inc. v. Dutton, [2001] 2 S.C.R. 534, class actions may be advanced under a local rule of court. The Federal Court of Canada permits class actions under Part V.1. of the Federal Courts Rules.
Legislation in Saskatchewan, Manitoba, Ontario, and Nova Scotia expressly or by judicial opinion have been read to allow for what are informally known as national "opt-out" class actions, whereby residents of other provinces may be included in the class definition and potentially be bound by the court's judgment on common issues unless they opt-out in a prescribed manner and time. Court rulings have determined that this permits a court in one province to include residents of other provinces in the class action on an "opt-out" basis.
Recent judicial opinions have indicated that provincial legislative national opt-out powers should not be exercised to interfere with the ability of another province to certify a parallel class action for residents of other provinces. The first court to certify will generally exclude residents of provinces whose courts have certified a parallel class action. However, in the Vioxx litigation, two provincial courts recently certified overlapping class actions whereby Canadian residents are class members in two class actions in two provinces.[34] Both decisions are under appeal.
The largest class action suit to date in Canada was settled in 2005 after Nora Bernard initiated efforts that led to an estimated 79,000 survivors of Canada's residential school system suing the Canadian government. The settlement amounted to upwards of $5 billion dollars.[35]
Under French law, an association can represent the collective interests of consumers; however, each claimant must be individually named in the lawsuit. On January 4, 2005, President Chirac urged changes that would provide greater consumer protection. A draft bill was proposed in April 2006. Under the proposals the court will be able to decide whether to allow an action brought by an association on behalf of consumers (which must comprise at least two individuals) for goods purchased under a standard contract. After such an action is brought, the association would be entitled to identify additional consumers for a one-month period. The court would determine the damages that must be awarded to the consumers who have opted-in to the proceedings, with damages limited to 2000 Euros; contingent fees for attorneys would be barred.[36] The president of the French Supreme Court recently declared that "class actions are inescapable."[37] Nevertheless, the bill was withdrawn in January 2007 at the request of Minister of Health Xavier Bertrand.[38]
On November 1, 2005, Germany enacted the “Act on Model Case Proceedings in Disputes under Capital Markets Law (Capital Markets Model Case Act)” allowing sample proceedings to be brought before the courts in litigation arising from mass capital markets transactions. It does not apply to any other civil law proceeding. It is not like class actions in the United States – it only applies to parties who have already filed suit and does not allow a claim to be brought in the name of an unknown group of claimants. The effects of the new law will be monitored over the next five years. It contains a ‘sunset clause’, and it will automatically cease to have effect on November 1, 2010, unless the legislature decides to prolong the law, or extend it to other mass civil case proceedings.[39]
Italy has class action legislation now. Consumer associations can file claims on behalf of groups of consumers to obtain judicial orders against corporations that cause injury or damage to consumers. These types of claims are increasing and Italian courts have recently allowed them against banks that continue to apply compound interest on retail clients’ current account overdrafts. The introduction of class actions is on the new government’s agenda. On the 19th of November 2007 the Senato della Repubblica passed a class action law in Finanziara 2008, a financial document for the economy management of the government. Now (from 10 December 2007), in order of Italian legislation system, the law is before the House and has to be passed also by the Camera dei Deputati, the second house of Italian Parliament, to become an effective law.[40] In 2004, the Italian parliament considered the introduction of a type of class action, specifically in the area of consumers’ law. To date, no such law has been enacted, however scholars demonstrated that class actions (azioni rappresentative) do not contrast with Italian principles of civil procedure. Class Action is regulated by art. 140 bis of the Italian consumers' code and will be in force from 1 July 2009.[37][41][42][43]
Decisions of the Indian Supreme Court in the 1980s loosened strict locus standi requirements to permit the filing of suits on behalf of rights deprived sections of society by public minded individuals or bodies. Although not strictly "class action litigation" as it is understood in American law, Public Interest Litigation arose out of the wide powers of judicial review granted to the Supreme Court of India and the various High Courts under Articles 32 and 226 of the Constitution of India respectively. The sort of remedies sought from courts in Public Interest Litigation go beyond mere award of damages to all affected groups and have sometimes (controversially) gone on to include Court monitoring of the implementation of legislation and even the framing of guidelines in the absence of Parliamentary legislation.
However, this innovative jurisprudence did not help the victims of the Bhopal Gas Tragedy who were unable to fully prosecute a class action litigation (as understood in the American sense) against Union Carbide due to procedural rules that would make such litigation impossible to conclude and unwieldy to carry out. Instead, the Government of India exercised its right of parens patriae to appropriate all the claims of the victims and proceeded to litigate on their behalf, first in the New York courts and later, in the Indian courts. Ultimately, the matter was settled between the Union of India and Union Carbide (in a settlement overseen by the Supreme Court of India) for a sum of Rs. 760 crores (about 400 million dollars) as a complete settlement of all claims of all victims for all time to come.
Public Interest Litigation has now broadened in scope to cover larger and larger groups of citizens who may be affected by Government inaction. Recent examples of this trend include the conversion of all public transport in the city of Delhi from Diesel engines to CNG engines on the basis of the orders of the Delhi High Court; the monitoring of forest use by the High Courts and the Supreme Court to ensure that there is no unjustified loss of forest cover; and the directions mandating the disclosure of assets of electoral candidates for the Houses of Parliament and State Assembly.
However, of late, the Supreme Court has observed that the PIL has tended to become a means to gain publicity or obtain relief contrary to constitutionally valid legislation and policy. Observers point out that many High Courts and certain Supreme Court judges are reluctant to entertain PILs, even those filed by well known Non-Governmental Organizations and activists, citing concerns of balance of powers and the importance of democratic law making.
Dutch law allows collective actions brought by associations on behalf of injured parties seeking a judicial declaration that the company is liable for the damage it has caused (section 3:305a Dutch Civil Code). Moreover, a settlement agreement with the association as one of the parties, can be declared binding for all injured parties by the Amsterdam Court of Appeal (section 7:907 Dutch Civil Code). The injured parties have an opt-out right.
Spanish law allows nominated consumer associations to take action to protect the interests of consumers. A number of groups already have the power to bring collective or class actions: certain consumer associations, bodies legally constituted to defend the ‘collective interest’ and groups of injured parties.[44]
Recent changes to Spanish civil procedure rules include the introduction of a quasi-class action right for certain consumer associations to claim damages on behalf of unidentified classes of consumers. The rules require consumer associations to represent an adequate number of affected parties who have suffered the same harm. Also any judgment made by the Spanish court will list the individual beneficiaries or, if that is not possible, conditions that need to be fulfilled for a party to benefit from a judgment.
Swiss law does not allow for any form of class action. When the government proposed a new federal code of civil procedure in 2006, replacing the cantonal codes of civil procedure, it rejected the introduction of class actions, arguing that:
[It] is alien to European legal thought to allow somebody to exercise rights on the behalf of a large number of people if these do not participate as parties in the action. ... Moreover, the class action is controversial even in its country of origin, the U.S., because it can result in significant procedural problems. ... Finally, the class action can be openly or discretely abused. The sums sued for are usually enormous, so that the respondent can be forced to concede, if they do not want to face sudden huge indebtness and insolvency (so-called legal blackmail).—[45]