Practical Insights for Business Owners
Client Q&A: I was cheated by a big company. My loss was not big, but they probably cheated other people, too. How can we all get justice?
I was cheated by a big company. My loss was not big, but they probably cheated other people, too. How can we all get justice?
In general, a plaintiff in a lawsuit can only assert claims for injuries that he suffered – and cannot assert claims on behalf of others. A class action is a special procedure that permits a plaintiff (if certain requirements discussed below are met) to assert a claim on his own behalf and also on behalf of a class of similarly situated persons who suffered the same injury. A class action is an especially useful device in situations where a defendant inflicts relatively small injuries on a large group of people. For example, a company might overcharge thousands of consumers by a small amount. The value of each individual claim might not justify the expense of a lawsuit, but when the claims are aggregated, the total damages may be large.
Class actions are brought in a variety of contexts, including consumer fraud (such as the example above); securities fraud (on behalf of investors claiming injuries based on misstatements in a company's financial statements); products liability (on behalf of consumers injured by a defective product); and employment law (on behalf of employees for wage and hour violations or discrimination).
To bring a class action, a number of requirements must be met. These are discussed below.
Named Plaintiffs With Standing
First, the action must be commenced by a named plaintiff (or plaintiffs) with legal standing to assert a claim against the defendant. That is, the named plaintiffs must have suffered an injury for which they can sue in their own name. The named plaintiffs' claim must be connected to the injuries suffered by the unnamed class members.
In order for a lawsuit to proceed as a class action, the court must grant a motion to certify a class. The named plaintiffs bring such a motion at an early stage of the case.
Numerosity. The first element that must be established to certify a class is "numerosity" – i.e., that there are a sufficient number of class members that it would be "impractical" to join all of them as named plaintiffs in a regular lawsuit. Although there is no fixed standard as to how many class members are required, as a general rule courts will find the numerosity requirement satisfied if there are 40 or more members in the class.
Commonality. Second, the named plaintiffs must show that there are issues of law or fact that are common to the group. The claims of the class members need not be identical in every respect. But there must be some common questions that affect the class members generally. The commonality requirement will be satisfied if the class members were victims of the same fraudulent scheme, injured in a similar way by the same product, or signed the same standardized contract.
Typicality. The named plaintiffs must establish that their claims are "typical" of the claims asserted on behalf of the class. There must be a connection between the named plaintiffs' claims and the questions of law or fact that are common to the class. Courts will generally find this requirement satisfied if the named plaintiffs' claims arise from the same events and are based on the same legal theory as the class claims.
Adequacy of Representation. Finally, the named plaintiffs must establish that they can fairly and adequately represent the interests of the class. If the other elements have been established, adequacy of the representation is usually presumed, although the court may consider any conflicts of interest that may exist in a particular case, as well as the reputations of the named plaintiffs (also known as the "class representatives"), and their attorneys' experience litigating class actions.
Notice to Class Members
If the court certifies a class, notice is sent to the class members by mail and also by publication in newspapers or the Internet. In most cases, membership in the class is automatic, although individual class members can choose to opt out if they wish to pursue an individual claim or for some other reason do not want to be a part of the class.
Distribution of Damages Payment or Settlement Proceeds
The court oversees the distribution of any recovery among the class members. If there is a settlement, it must be approved by the court. The court will also award a fee to the attorneys who represent the class, often based on a percentage of the recovery. The class representatives who serve as lead plaintiffs may be entitled, in the court's discretion, to an additional "incentive award" to compensate them for their efforts on behalf of the class.
Our firm has experience both bringing and defending class action lawsuits. We would be happy to advise you on pursuing or defending such an action.