Class actions have been possible in the US for many years and are the main procedure by which large-scale commercial disputes involving large numbers of claimants are resolved. The requirements around them are well-established: a court must certify the class before the action may commence and they are generally run on an opt out basis. Both compensatory and punitive damages are obtainable, if sufficiently egregious conduct on the part of defendants can be established. Recent decisions by the US Supreme Court have increased the burden on putative class action plaintiffs but also reinforced the continued viability of the class action mechanism, and the number of class actions is likely to continue to increase.
What forms of collective actions are permitted in this jurisdiction and under what authority?
The main procedure for collective actions in the US is the class action. Hundreds or thousands of claimants can be represented in one set of proceedings. Although rare, a defendant class action is also possible, particularly in insolvency-related litigation, in which a plaintiff seeks to pursue claims against a large number of defendants (e.g. a fraudulent transfer claim brought by a litigation trustee against former investors that received merger consideration shortly before a company’s bankruptcy). This review, however, focuses on plaintiff class actions.
The requirements for bringing a class action in the US federal courts are:
- numerosity – that there are too many would-be claimants to join them all in practice;
- commonality – the claims must all raise similar questions of fact or law;
- adequacy – the chosen representative must be appropriate;
- typicality – the representative’s claims must be typical of those of the other individuals; and
- superiority – a class action must be the most appropriate method of settling the dispute.
Class actions are also permissible in state courts. Each state has its own procedural requirements, which are largely similar to the federal court requirements.
An action may be maintained on behalf of a class only with the court’s approval. To do this, the plaintiffs seeking to represent the class must file a motion to have the class certified. Group actions by multiple parties with similar claims are also possible, although less frequently seen than class actions.
Who may bring them?
The procedure for filing a class action is to file suit with one or several named plaintiffs on behalf of a proposed class. The proposed class must consist of a group of individuals or business entities that have suffered a common injury or injuries. Typically, these cases result from an action on the part of a business, a particular product defect, a policy that applied to all proposed class members in a uniform manner or a regulatory enforcement action. After the complaint is filed, the plaintiff must file a motion to have the class certified. In many cases, class certification will require additional discovery in order to determine if the proposed class meets the standard for class certification.
Upon the motion to certify the class, the defendants may object to whether the issues are appropriately handled as a class action, to whether the named plaintiffs are sufficiently representative of the class and to their relationship with the law firm or firms handling the case. The court will also examine the ability of the firm to prosecute the claim for the plaintiffs and its resources for dealing with class actions.
Opt in or opt out?
Class actions in the US are generally opt out. Due process requires, in most cases, that notice describing the class action be sent, published or broadcast to class members. Class members must be given the opportunity to opt out of the class, i.e. if individuals wish to proceed with their own litigation they are entitled to do so, but only to the extent that they give timely notice to the class counsel or the court that they are opting out.
Pursuant to the Class Action Fairness Act 2005 (“CAFA”), defendants that enter into settlement agreements to resolve class actions in federal court are required to provide notice promptly after the filing of a proposed settlement in court to the appropriate federal or state agencies (e.g. state attorneys general) for all states in which potential class members reside.
If the CAFA notice is not provided, class members are entitled to challenge the finality of the settlement.
The class action procedure is commonly utilised in the US when the requirements for maintaining a class described above are satisfied. There are no general limitations on the claims that may be pursued, assuming the prerequisites applicable to any civil claim exist (such as standing and timeliness).
Judge or jury?
Most civil trials involve juries.
What relief may be obtained?
In addition to compensatory relief calculated based on the damage suffered by the class as a whole, punitive damages are obtainable if sufficiently egregious conduct on the part of defendants can be established. In recent years, the US Supreme Court has issued decisions limiting the magnitude of punitive damages awards, requiring lower federal courts to review factors, including the degree of the conduct, the disparity between the actual harm and the punitive award and a comparison of the award to similar civil or criminal penalties. In particular, the punitive damages award must be reasonable and proportionate to the wrong committed, or it will be viewed as irrational, arbitrary and a deprivation of constitutional protections. Federal courts are unlikely to sustain punitive damages awards that exceed a 9:1 ratio as compared with compensatory damages, although the inquiry remains case-specific. Equitable remedies such as injunctions are also available.
How are such actions funded?
Contingency fees are permitted and are standard for plaintiffs in class actions. However, absent statutory or contractual provisions permitting the recovery of attorneys’ fees, the successful party cannot recover costs from the unsuccessful party. Typically, plaintiffs’ counsel file requests for fee disbursements that are paid out of any settlement funds following court approval of a negotiated settlement with a defendant.
Is pre-trial disclosure available?
Yes, there is pre-trial disclosure, which can be extensive, and witness depositions. Disclosure of documents, as well as witness or expert depositions, is typically required prior to certifying a class and may be separate from any disclosure related to the merits of a case. Courts have been aggressive in recent years in enforcing requirements on outside and internal counsel related to the retention, collection and review of documents, particularly electronically stored information.
Likely future scope and development?
Class actions are likely to continue to increase. Class actions are the main procedure by which large-scale commercial disputes involving large numbers of claimants are resolved and civil class actions often follow regulatory investigations, such as in the securities or antitrust context. Huge damages awards can be made by juries to penalise businesses, which act in part to regulate commercial activity. Many claims are driven by claimants’ lawyers who stand to make large profits from contingency fees awarded as a proportion of those damages.
Recent decisions by the US Supreme Court have changed the face of class action litigation, increasing, in some circumstances, the burden on putative class action plaintiffs, both at the pleading stage as well as the class certification stage, but also reinforcing the continued viability of the class action mechanism.
- In a landmark decision, the Supreme Court in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011) unanimously reversed the certification of an approximately 1.5 million member class, composed of female Wal-Mart employees asserting gender discrimination claims. While the Court divided on the grounds for reversal, a five-member majority held that the plaintiffs’ claims for back pay did not qualify for class treatment because they did not satisfy the commonality requirement. In doing so, the majority adopted a stricter requirement than had previously been understood to apply to assessing commonality. Following Wal-Mart, it is now clear that plaintiffs must allege a “common contention” that is “of such a nature that it is capable of class-wide resolution - which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” The Court also increased the burden of proof on plaintiffs at the class certification stage.
- In the securities law context, the Supreme Court declined in Amgen v. Connecticut Retirement Plan and Trust Funds, 133 S. Ct. 1184 (2013), to permit a defendant to challenge class certification on the grounds that the putative class would not be able to prove materiality, an essential element of the securities law claim. The Court reasoned that, for purposes of class certification, “materiality can be proved through [objective] evidence common to the class” and thus “materiality is a ‘common question’ for the purposes of” a class action. The case demonstrates that class certification remains a preliminary stage that must be viewed as distinct from the merits stage of federal class action litigation and that a defect in the merits case (which is not resolved through a motion to dismiss) cannot necessarily be used to defeat class certification.
- In Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), however, the Supreme Court reinforced the strict requirements for maintaining a federal class action by reversing the certification of a class consisting of more than two million potential plaintiffs (in that case, current and former Comcast cable subscribers), reiterating the Court’s view that trial courts asked to certify a class must conduct a “rigorous analysis” of not only the pleadings in the case but also, where necessary, the merits of the claims, including whether damages could ultimately be established on a class-wide basis. The Supreme Court, extending its landmark rejection of class certification in Wal-Mart v. Dukes, set aside the lower court’s certification of the class because plaintiffs failed to provide sufficient evidence that damages were susceptible to determination across the entire class, and thus did not establish the requirement that common issues predominate over those affecting only individual members. Though the case was presented in the antitrust context, it is expected to be applied in cases involving different theories of liability.
In the wake of a series of high profile Supreme Court cases, including Amgen and Comcast, the focus will now be on the application and interpretation of the Court’s opinions by the lower federal courts.