DEFINITION of Class Action
A class action is a legal proceeding in which one or several plaintiffs bring suit on behalf of a group. The judgment or settlement agreed to arising from the suit covers all members of the group or class.
BREAKING DOWN Class Action
The class represented in a class action lawsuit might consist of groups such as employees, consumers, investors or patients. Lawsuits are designated, or certified, by the court with jurisdiction as class actions if they meet certain criteria spelled out in a legal rule known as Rule 23. The criteria include the existence of a sizable group of people with similar claims or a common interest; lead plaintiff(s) who are representative of the broader class members and “questions of law or fact common to the class.”
Benefits of Class Actions
Being certified as a class can enable litigation to proceed more expeditiously and cost-effectively particularly in cases pursued against large corporations. Because they reduce the costs of legal pursuit, class actions may provide the only means for some individual claimants to pursue their case. Individuals may also have a greater chance of successfully pursuing their claims against a defendant or defendants. Even when represented in a class, members may choose to opt out of any eventual settlement and pursue their claims individually.
Types of Class Actions
Types of class actions include securities litigation, civil rights proceedings such as school funding; and consumer product liability cases. Congress laid out additional rules for securities class action lawsuits in the Private Securities Litigation Reform Act (PSLRA) of 1995. Successful class action cases often result in hefty pre-trial settlements. The lawsuit Enron shareholders filed after the company’s collapse resulted in a $7.2 billion settlement. Another famous class action was the product liability case filed against Toyota for faulty brakes. It resulted in a costly recall and a $1 billion settlement.
Civil rights class action cases typically involve requests for injunctive relief, meaning legal remedies, instead of claims for payment. One of the most famous civil rights class actions is the Brown vs. Board of Education case the Supreme Court decided in 1954, which struck down school segregation as unconstitutional. These types of class actions now face greater legal restrictions than previously.
Lawyers typically take class action cases on contingency, collecting a percentage of any judgment or settlement fees make to plaintiffs. This practice has been scrutinized over the years because in some cases, legal teams’ payout can far exceed the amounts plaintiffs receive.