Deminor Wiki - Class Actions

Key Characteristics of Anglo-American-style Class Actions

• Representative Plaintiffs: Class actions are initiated by one or more plaintiffs, known as class representatives, who act on behalf of the entire class. These representatives must have claims typical of the group and adequately protect the interests of the class.
• Commonality: The legal issues or facts must be common to all class members. This commonality ensures that resolving these issues in a single action will apply to all members of the class, making the process more efficient.
• Numerosity: The class must be so numerous that joining all members individually is impractical. This requirement ensures that class actions are used only when individual lawsuits would be burdensome and inefficient. Absolute numbers required differ from regime to regime.
• Adequacy: The representative plaintiffs and their attorneys must adequately represent the interests of the class. This involves demonstrating that they can competently pursue the claims and have no conflicts of interest with other class members.
• Predominance and Superiority: The questions of law or fact common to the class members must predominate over any questions affecting only individual members. Additionally, a class action must be the superior method for fairly and efficiently adjudicating the controversy.

Legal Framework

United States

In the U.S., class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. The process involves several steps, including:

• Filing the Complaint: The class representatives file a complaint on behalf of the class, outlining the common issues and the relief sought.
• Class Certification: The court must certify the class, determining whether it meets the requirements of Rule 23. This step is crucial as it allows the lawsuit to proceed as a class action.
• Notice to Class Members: Once the class is certified, notice must be given to all potential class members. This notice informs them of the lawsuit and their right to participate or opt out. This “opt-out” logic is a typical feature of US-style and common law class actions, whereas most civil law systems follow an “opt-in” approach, where affected individuals need to actively join the class to benefit from a positive ruling.
• Discovery and Trial: The discovery process involves gathering evidence from both sides. If the case proceeds to trial, the court will resolve the common issues and determine liability and damages.
• Settlement or Judgment: Many class actions are resolved through settlements, which must be approved by the court to ensure they are fair and reasonable. If the case goes to trial, a judgment will be issued.

European Union

Class (or group) actions in the EU are less uniform, as many member states have implemented their own systems for collective redress, or have, historically, been reluctant to provide such measures for legal policy reasons. However, the EU has been moving towards more harmonised procedures, and easier private enforcement for injured groups of individuals. The Representative Actions Directive (2020/1828/EU) aims to improve access to justice for consumers across the EU. Key points include:

• Qualified Entities: Only qualified entities, such as consumer organisations, can bring representative actions on behalf of consumers.
• Broad Scope: The directive covers a wide range of consumer rights violations, including product liability, data protection, and financial services.
• Cross-Border Actions: The directive facilitates cross-border class actions, allowing consumers from different member states to join together in a single action.
• Opt-In: While there are exceptions, class action mechanisms in the European Union are mostly designed as so-called “opt-in” mechanisms. This means that the action does not automatically represent all individuals affected by the issue in dispute, but rather that consumers seeking to benefit from a positive judgment need to actively join the action (Opt-in).

Types of Class Actions

• Consumer Protection: Class actions are often used to address violations of consumer protection laws. This can, among others, include cases involving defective products, false advertising, and unfair business practices.
• Securities Fraud: Investors can file class actions against companies for securities fraud, such as misleading statements or omissions that affect stock prices and cause investors financial harm.
• Employment: Employees can bring class actions against employers for labour law violations, such as wage and hour disputes, discrimination, and wrongful termination.
• Antitrust: Class actions can be used to address antitrust violations, such as price fixing, market allocation, and monopolistic practices, and collectively claim financial compensation for the harm caused by the anti-competitive behaviour. Such actions often, yet not always, follow after a decision by a competition authority, declaring e.g. a certain cartel or use of illegal market dominance.
• Environmental: Communities affected by environmental harm, such as pollution or hazardous waste, can file class actions against the responsible parties. The growing broader field of “ESG litigation”, often aimed at the reduction of waste, harm done to the environment, and/or carbon emissions, is under constant development with each case that is being filed. Lacking clear legal standards, courts often find themselves in complicated situations where certain highest (constitutional) court case law demands the significant reduction of harmful emissions, yet the direct applicable law remains somewhat opaque on whether and how individuals have a direct private enforcement claim against emitting companies.

Benefits of Class Actions

• Efficiency: Class actions consolidate numerous similar claims into a single lawsuit, reducing the burden on courts and avoiding inconsistent judgments.
• Access to Justice: Class actions provide a means for individuals with small claims to seek justice, as the cost of litigation is shared among the class members.
• Deterrence: By holding companies accountable for widespread harm, class actions deter future misconduct and promote corporate responsibility.
• Equitable Relief: Class actions can result in remedies that benefit the entire class, such as monetary compensation, product recalls, or changes in business practices.

Challenges of Class Actions

• Certification Process: Obtaining class certification can be challenging, as plaintiffs must demonstrate that their claims meet the requirements of commonality, numerosity, typicality, and adequacy.
• Notice and Participation: Ensuring that all potential class members receive notice and have the opportunity to participate or opt out can be complex and costly.
• Settlements: Settlements must often be approved by the court, which involves scrutiny to ensure they are fair and adequate. This process can be contentious and time-consuming.
• Attorney Fees: Class action attorneys in Anglo-American style systems typically work on a contingency fee basis, meaning they receive a percentage of the settlement or judgment. This can lead to disputes over the amount of fees awarded.

Key Cases

United States

• Walmart Stores, Inc. v. Dukes (2011): The Supreme Court ruled against certifying a class of female employees alleging gender discrimination, highlighting the challenges of meeting the commonality requirement in class actions.
• Brown v. Board of Education (1954): While not a typical class action, this landmark case involved a group of plaintiffs challenging racial segregation in public schools. The Supreme Court's decision led to the desegregation of schools across the U.S.

European Union

• Dieselgate (2015): The Volkswagen emissions scandal led to numerous class actions and collective redress cases across Europe, seeking compensation for consumers affected by the company's fraudulent practices. In Germany, Dieselgate was in fact the main reason why the lawmaker implemented the first collective redress regime which allowed consumers to sue carmakers for damages collectively.
• MasterCard Antitrust Case (2014): The UK's Consumer Rights Act allowed a class action against MasterCard for charging excessive interchange fees, affecting millions of consumers.

Conclusion 

Class actions are a powerful tool for addressing widespread harm and ensuring access to justice for individuals with similar legal claims. By consolidating numerous claims into a single lawsuit, class actions promote efficiency, deter misconduct, and provide equitable relief. In suitable cases, often a third-party litigation funder will offer to fully bear the financial risk of the class action, so plaintiffs and class members do not face any financial risks from pursuing and joining the action. However, they also present challenges, including the complexities of certification, notice, and settlements. Understanding the legal framework, benefits, and challenges of class actions is essential for navigating this important aspect of the legal system. Systems vary significantly in different countries, and a legal system’s approach to class actions is often deeply connected to the local legal traditions and cultures, so highly qualified legal and strategic advice from counsel admitted in the respective country is key to the success of such an action.

Reviewed by:  Dr. Malte Stübinger, General Counsel Germany 

Disclaimer: The sole purpose of this article is for general information, and its contents should not be considered as legal advice, as legal frameworks / systems vary from country to country. The article is based on publicly available information and while care is taken in compiling this, no warranty, express or implied is given, nor does Deminor assume any liability for the use thereof.