What Is A Class Action Lawsuit?

If many people suffer damage from a common product, event or conduct, the law may provide relief for them as a “class.” If the cost of bringing individual lawsuits would be prohibitive, and individual claimants might be unwilling to take the chance of losing, a class action may offer a way to share expense and risk. In a class action, typically, one or two individuals are named as class representatives to represent a group of persons who were damaged by the same product, event or conduct by the same actors.

Class actions are established in the law, recognized under the procedural and substantive jurisprudence of federal and state courts in the U.S. and in several foreign countries.

What Do Class Action Lawsuits Accomplish?

Class actions have, over the years, terminated or deterred unfair business practices and outright fraud, and continue to be an important tool in protecting the rights of consumers and businesses alike.

Class actions have been the subject of much debate. Some argue that stopping unlawful behavior should be left to the government, or to individual litigants. However, history shows that enforcement actions by government agencies may leave many offenders untouched, or may have limited effect, that individual litigants cannot battle large corporations, and that the public is better served by allowing class actions in addition to any government action that might apply. In many instances, if a class action is not filed or fails, the offensive continues unchecked.

Are Class Actions Fair?

Critics decry the small sums typically paid to each class member and the apparently large fees paid to the attorneys, even when the suit is “successful.”

Where a class action results in a multi-million dollar outcome, the court may, after briefing, a fairness hearing, and consideration of any objections, approve fees for class counsel in the range of 25% to ⅓ of the total sum. After certain other costs, the balance gets divided among the class members, who might number in the tens of thousands. While the net to each member in that case might be just a few dollars, the defendant feels the effect of the multi-million dollar outcome.

The economics must be viewed in their entirety: the fees apply to the entire basket of relief obtained for the class. Also, deterrence comes via the aggregate impact of the suit; a few cases by individual plaintiffs would have no such impact.

Critics also argue that class actions are unduly harsh on small businesses. If there is likely to be no net recovery, the parties normally adjust their expectations. Many potential class actions are never filed, or are terminated early, for this reason. It makes little sense to wage a major battle if the end result is no benefit for the class.

Who Takes On The Risk of Loss?

Attorneys who undertake class actions must often front expenses in the thousands of dollars for experts, data managers and various litigation support services, while receiving no compensation until the end, if at all. They must often maintain salaried employees during the litigation. They must be capable of litigating against large law firms who are likewise experienced and capable. The extensive body of law on this topic provides for compensation of class counsel based on many factors that include the skill of counsel and the risk of loss.

The risk of failure is present in most class actions; this risk helps justify compensation to counsel, usually a percentage of the class-wide economic value of the outcome, when a case is successful.