Class action
A class action lawsuit, also known as a class suit, class-action, or representative action, is a type of lawsuit where one of the parties is a group of people who are represented collectively by a member or members of that group. The class action originated in the United States and is still predominantly an American phenomenon, but Canada, as well as several European countries with civil law, have made changes in recent years to allow consumer organizations to bring claims on behalf of consumers.
This article is about the legal term. For other uses, see Class Action.Description[edit]
In a typical class action, a plaintiff sues a defendant or a number of defendants on behalf of a group, or class, of absent parties.[1] This differs from a traditional lawsuit, where one party sues another party, and all of the parties are present in court. Although standards differ between states and countries, class actions are most common where the allegations usually involve at least 40 people who the same defendant has injured in the same way.[1] Instead of each damaged person bringing one's own lawsuit, the class action allows all the claims of all class members—whether they know they have been damaged or not—to be resolved in a single proceeding through the efforts of the representative plaintiff(s) and appointed class counsel.[1]
History[edit]
England and the United Kingdom[edit]
The antecedent 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.[2]: 38 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. Unlike modern courts, the medieval English courts did not question the right of the actual plaintiffs to sue on behalf of a group or a few representatives to defend an entire group.[2]: 38–40
Criticisms[edit]
There are several criticisms of class actions.[15][16][17] 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.[18] 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.[18]
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 a small 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 many 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. An independent expert may scrutinize coupon settlements 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 portion of any attorney's fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed". 28 U.S.C.A. 1712(a).
Ethics[edit]
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".[19]
Defendant class action[edit]
Although normally plaintiffs are the class, defendant class actions are also possible. For example, in 2005, the Roman Catholic Archdiocese of Portland in Oregon 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.[20] Where both the plaintiffs and the defendants have been organized into court-approved classes, the action is called a bilateral class action.
Mass actions[edit]
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.
Class action legislation[edit]
Argentina[edit]
Class actions were recognized in "Halabi" leading case (Supreme Court, 2009).
Australia and New Zealand[edit]
Class actions became part of the Australian legal landscape only when the Federal Parliament amended the Federal Court of Australia Act in 1992 to introduce "representative proceedings",[21] the equivalent of the American "class actions".[22]
Likewise, class actions appeared slowly in the New Zealand legal system. However, a group can bring litigation through the action of a representative under the High Court Rules which provide that one or a multitude of persons may sue on behalf of, or for the benefit of, all persons "with the same interest in the subject matter of a proceeding". The presence and expansion of litigation funders have been playing a significant role in the emergence of class actions in New Zealand. For example, the "Fair Play on Fees" proceedings in relation to penalty fees charged by banks were funded by Litigation Lending Services (LLS), a company specializing in the funding and management of litigation in Australia and New Zealand. It was the biggest class-action suit in New Zealand history.[23][24]
Austria[edit]
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 brought claims on behalf of hundreds or even thousands of consumers. In these cases, the individual consumers assigned their claims to one entity, who has then brought an ordinary (two-party) lawsuit over the assigned claims. The monetary benefits were redistributed among the class. This technique, labeled as "class action Austrian style," allows for a significant reduction of overall costs. The Austrian Supreme Court, in a judgment, confirmed the legal admissibility of these lawsuits under the condition that all claims are essentially based on the same grounds.
The Austrian Parliament 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.[25]
Canada[edit]
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 had 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 has 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.
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 certified overlapping class actions whereby Canadian residents were class members in two class actions in two provinces.[26] Both decisions are under appeal.
Other legislation may provide for representative actions on behalf of a large number of plaintiffs, independent of class action procedures. For instance, under Ontario's Condominium Act, a condominium's governing corporation may launch a lawsuit on behalf of the owners for damage to the condominium's common elements, even though the corporation does not own the common elements.
The largest class action suit 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.[27]
Chile[edit]
Chile approved class actions in 2004.[28] The Chilean model is technically an opt-out issue class action, followed by a compensatory stage which can be collective or individual. This means that the class action is designed to declare the defendant generally liable with erga omnes effects if and only if the defendant is found liable, and the declaratory judgment can be used then to pursue damages in the same procedure or in individual ones in different jurisdictions. If the latter is the case, the liability cannot be discussed, but only the damages.[29] There under the Chilean procedural rules, one particular case works as an opt-out class action for damages. This is the case when defendants can identify and compensate consumers directly, i.e. because it is their banking institution. In such cases, the judge can skip the compensatory stage and order redress directly. Since 2005 more than 100 cases have been filed, mostly by Servicio Nacional del Consumidor [SERNAC], the Chilean consumer protection agency. Salient cases have been Condecus v. BancoEstado[30] and SERNAC v. La Polar.[31]
France[edit]
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 but did not pass.
Following the change of majority in France in 2012, the new government proposed introducing class actions into French law. The project of "loi Hamon" of May 2013 aimed to limit the class action to consumer and competition disputes. The law was passed on March 1, 2014.[32]
Germany[edit]
Class actions are generally not permitted in Germany, as German law does not recognize the concept of a targeted class being affected by certain actions. This requires each plaintiff to individually prove that they were affected by an action, and present their individual damages, and prove the causality between both parties.
Joint litigation (Streitgenossenschaft) is a legal act that may permit plaintiffs that are in the same legal community with respect to the dispute, or are entitled by the same factual or legal reason. These are not typically regarded as class action suits, as each individual plaintiff is entitled to compensation for their individual, incurred damages and not as a result of being a member of a class.
The combination of court cases (Prozessverbindung) is another method that permits a judge to combine multiple separate court cases into a single trial with a single verdict. According to § 147 ZPO, this is only permissible if all cases are regarding the same factual and legal event and basis.