Class actions work because they offer an extremely effective alternative to the traditional David vs. Goliath scenario. Suppose, for example, that a large pharmaceutical company introduces a new drug on the market that has painful unforeseen side effects that require about $1,000 in medical treatment for certain types of people who uses the drug.
A single injured individual probably isn't going to sue the pharmaceutical company. First, he or she would have difficulty finding a lawyer who would take a case with only $1,000 in damages. Second, it wouldn't make economic sense because the value of the time and energy it would take to sue a large pharmaceutical company, with far greater resources at its disposal, would probably far exceed the value of the judgment.
If, however, 10,000 people, each with $1,000 claims, were to band together, they would be able to present the company with a $10,000,000 claim. Not only will a $10,000,000 claim get the company's attention far quicker than a $1,000 claim, but 10,000 injured people raise the prospects of both bad publicity and possibly significant punitive damages if the case gets to a jury. Just as importantly, by pooling their resources and legal talent, the class now has the wherewithal to proceed against the pharmaceutical company.
Class actions. In order to proceed as a class action, a group of plaintiffs needs to have the court certify it as a class. Courts will certify a group of plaintiffs as a class if there are an adequate number of plaintiffs, they have common damages and legal issues, their harm resulted from the same event, they have similar legal arguments, and they have adequate representation.
Class actions are not available in every situation where a single company harms multiple people. From the court's point of view, class actions make sense where time and resources can be saved by combining many possible lawsuits into a single lawsuit. The courts, however, will be careful in reviewing requests to certify a group as a class to make sure that no individual plaintiff's interests are compromised if the claims are combined, which is why it looks to see if the parties have similar legal arguments and issues.
One benefit of a class action to the company being sued is that it gets to resolve all related claims in a single forum, and it doesn't have to worry about later claims surfacing. A related downside, of course, is where resolving all related claims may send the company to bankruptcy. In fact, some courts have begun to express a reluctance to certify a class where certification might imperil the company's future.
Lead plaintiff. If the court certifies a group of plaintiffs as a class, it will name one of the plaintiffs as the lead plaintiff (in some cases, it may name more than one). The lead plaintiff then controls the case and how it is presented on the group's behalf. The lead plaintiff is often the one with the largest financial interest at stake or the one who has been damaged most significantly.
Notice. When a judgment is rendered or a settlement is entered into, it applies to all members of the class, even those who were similarly situated but who had no knowledge of the suit. Thus, every effort will be made to notify anyone who might be a member of the class.
Opting out. Individual plaintiffs have the right to opt out of the lawsuit. Those who don't opt out are deemed to be a part of the suit. A party will generally opt out if it believes that its claim is significantly larger or different from the claims of other class members. Usually the court will establish an opt-out period. Once the period passes, no one else can opt out.
Settlements. The parties are free to reach an out-of-court settlement, as with any lawsuit. The court, which must approve any settlements between the parties, usually reviews these settlements more closely than in other cases because it affects the rights of many who may not have been involved in the settlement negotiation.
Common class actions. Some examples of common class actions are those involving securities law violations; anti-trust laws; consumer fraud; employee benefits disputes; human rights violations; and environmental, toxic, and other mass torts (including oil spills, defective products, and defective drugs and medical devices)
Mass torts. A mass tort is a negligent act that harms a great number of people. Although a mass tort is just one of several class action categories, it often generates a great deal of public outrage.
The early history of mass tort class actions was characterized by failure. Following the introduction of the class action rules in the 1960s, courts were at first reluctant to grant class status in mass torts. The reluctance continued into the early 1980s, most notably when a federal appellate court decertified a class of plaintiffs suing for injuries resulting from the use of the Dalkan Shield birth control device (later recertified).
A turning point occurred in the mid-1980s when a federal appellate court upheld the class of plaintiffs suing for injuries resulting from asbestos exposure. The recognition of the asbestos class of plaintiffs gave rise to a spate of class action suits.
Today, class action lawsuits remain a popular tool for fighting large companies. The typical remedies include money damages and injunctive relief in which the company is ordered to take certain steps or to refrain from taking certain steps.
Some of the more high-profile mass torts have involved drugs that had to be taken off the market because they were deemed unsafe, such as Fen-Phen, Baycol, and Rezulin; poisoning from lead-based paint; exposure to workplace chemicals, and extremely poor care at nursing homes.