Have you ever received a check in the mail for a very small amount—say $0.50—from a law firm you’ve never heard of, located in a state you’ve never even visited? Only after reading the enclosed letter do you learn that you were one of thousands of individuals who were involved in a class action lawsuit, and that the enclosed check is your cut of the damage settlement.
While small sums like these might initially seem insignificant, the reality is that class action lawsuits are big business. Although the numbers are difficult to quantify due to different state and federal reporting guidelines, as well as what can be disclosed according to the suit’s final agreement, this report from the American Bar Association put the total monetary awards at $33 billion—just for the years 2006 and 2007.
With numbers like these in play, in combination with the seemingly endless supply of less-than-stellar companies looking to take advantage of their customers, it’s no wonder that class action lawsuits are on the rise. After all, they’re sometimes the only option for consumers who feel taken advantage of and who can’t find any other reasonable solution for recouping their damages.
Because of the number of class action lawsuits filed each year as well as their relative effectiveness, you may have even considered becoming part of one yourself. If this sounds like you, or even if you just want to know more about the process, we’ve compiled a list of the most important questions related to class action lawsuits, as well as how you can figure out if one is right for you.
As such, let’s drop the gavel and dive right in shall we?
What is a Class Action Lawsuit?
According to the Cornell University’s Legal Information Institute, a class action lawsuit is a “procedural device that permits one or more plaintiffs to file and prosecute a lawsuit on behalf of a larger group, or "class". Put simply, the device allows courts to manage lawsuits that would otherwise be unmanageable if each class member (individuals who have suffered the same wrong at the hands of the defendant) were required to be joined in the lawsuit as a named plaintiff.”
In order to better illustrate this idea, perhaps one of the most famous class action lawsuits in recent memory is that of Erin Brockovich, who successfully sued Pacific Gas & Electric after the residents of Hinckley, CA began to fall ill from hexavalent chromium poisoning. Instead of each resident filing a separate suit against the energy provider, it was more beneficial for them to band together in order to achieve a more effective (and efficient) agreement.
In other words, if each Hinckley resident would have filed suit on their own, achieving a solution would have likely taken much longer and would have cost each plaintiff much more in personal time and legal fees. But by spreading these costs among hundreds of plaintiffs, everyone shared in the burden as well as the benefits.
But even though class action lawsuits can be beneficial, not all potential cases meet the necessary criteria. With this in mind, let’s take a look at what it takes to qualify for a class action lawsuit, and what occurs once this qualification is met.
What Has to Occur Before a Class Action Lawsuit Can be Filed?
As outlined above, the first requirement for filing a class action lawsuit is that there has to be a large number of potential plaintiffs—often totaling hundreds or thousands individuals—all of whom have similar complaints. In other words, if a class action lawsuit were brought against a corporation for defective/dangerous products, someone who wanted to sue for wrongful termination would not be part of the suit.
With this in mind, according to the law, the individuals harmed by the company need to "be so numerous that joinder of all members is impracticable," in order to qualify for a class action lawsuit. While this definition is somewhat vague, most lawyers will advise that anything less than 20 plaintiffs is not adequate to file a class action lawsuit, and anything more than 50 is a strong place to start. If your potential class action suit has between 20 and 50 plaintiffs, then a court may need to decide whether it’s viable depending on factors such as where the plaintiffs are geographically located, and how easy it is to identify those who have been/will be affected by the company’s purported negligence.
Before officially filing a class action lawsuit though, you’ll also need to hire a lawyer to represent you and all the other plaintiffs involved. While it’s true that anyone who practices law can perform this function, class action lawsuits are a very specialized field and as such, it’s highly recommended that you hire a law firm that has an extensive amount of experience in this sector. The good news is that most of these specialists don’t charge any upfront fees, and only collect a portion of the winnings once your case has settled.
How Do Class Action Lawsuits Work?
Once a large number of plaintiffs have been identified, one of them (known as a “lead plaintiff”) will be named and who, along with their legal team, will act as a representative for the hundreds or thousands of other plaintiffs. While anyone who is part of a class action lawsuit can technically be a lead plaintiff, this individual is usually the one who initiated the process by hiring a lawyer and filling the lawsuit, and who will be recognized as such by the court.
Keep in mind that the individual named as the lead plaintiff will typically be the one to appear in court, undergo depositions, help with consultation, and more, which means that a great a deal of their time will be taken up in the process. On the other hand, lead plaintiffs will often be given an “incentive award” at the end of the process in order to repay them for their time and effort. These awards are completely at the discretion of the presiding judge and can range anywhere from a few hundred dollars well into the tens of thousands.
Then, the class action lawsuit has to be certified by the court. In order for this to occur, the court will verify that there is sufficient cause for the lawsuit, which is usually related to an injunction (e.g. a formal statement requesting that the defendant stop doing something) and that class action is the best method of managing each party’s concerns. If the certification is related to an especially large lawsuit, each potential plaintiff must be notified via mail or other means (e.g. newspaper ads, TV commercials, etc.), at which point they’ll either need to opt in or out. If a potential plaintiff fails to opt out, they’ll automatically be included in the claim.
Finally, the proceedings will begin. Due to the complexity of a class action lawsuit, they can often drag on for years, which is especially prevalent if the defendant believes that the plaintiff’s claims rest on shaky ground or if there is insufficient evidence of wrongdoing. However, the reality is that most class action lawsuits settle long before reaching a jury, and many times before the two parties even meet in court.
The Pros & Cons of Class Action Lawsuits
Now that you know more about what class action lawsuits are and how they work, let’s take a closer look and some of the associated pros and cons if you’re thinking about becoming involved in one.
- Power in numbers. In other words, class action lawsuits often give you the ability to litigate for damages that might otherwise be too costly to handle on your own.
- Most class action lawsuits end up settling, which means that you could be awarded damages relatively quickly.
- Once an agreement has been reached, plaintiffs will receive a proportional sum of money. In other words, everyone often receives an equal cut of the pie.
- Even if you’re the one who initiates the class action lawsuit, nearly all attorneys in this field work under a contingent fee agreement, which means that legal fees aren’t collected until the class action lawsuit is won or settled.
- Unless you’re a lead plaintiff, you’ll have very little control over the case (e.g. when/if to settle, agreed settlement amount, etc.). In fact, settlements can take many forms outside of money, including credits for future services, coupons, and more, which may not be equally useful for all the plaintiffs involved.
- If you are a lead plaintiff, the class action lawsuit can take up a great deal of your time due to court appearances and other legal requirements.
- According to this 2013 Forbes article, “Even in cases where lawyers actually negotiate a settlement on behalf of the class, abysmal amounts of money flow to the consumers who were the supposed reason for the lawsuit in the first place.” In other words, the amount of money you’re awarded may be next to nothing, and might not even cover your original damages.
- If you decide not to opt out of a class action lawsuit, you’re agreeing to no longer pursue further litigation against the company for the same complaint. In other words, even without knowing what the final result of your class action lawsuit will be, you’ll be waiving a lot of your future rights.
Bottom Line: Should You Become Part of a Class Action Lawsuit if You’ve Been Scammed?
As with most questions in life, the answer to this one is: It depends, and is primarily based on the severity of your damages.
For example, imagine that you recently ordered a free trial of a new anti-aging product, only to find out that you were unwittingly signed up for an autoship program after your trial expired, which ultimately cost you hundreds of dollars over the course of a few short months. You’d understandably be livid about the situation, and would want your hard-earned money refunded immediately.
After contacting the company and attempting to get your money back, they were unwilling to budge though, but they were also unable to prove that you were sufficiently notified of the autoship program when ordering your free trial. Then, after venting your frustration online you end up hearing from hundreds of other customers who complained of the same thing, you realize that a class action lawsuit may be in order. However, in this admittedly simplistic example, keep in mind that the few hundred dollars you lost in the transaction may not be worthwhile after everything is said and done, especially if you’re the lead plaintiff.
On the other hand, if you experienced a severe allergic reaction from this same anti-aging product, causing you to rack up tens of thousands of dollars in medical expenses and to miss a great deal of work, then a class action lawsuit may prove worthwhile as long as other individuals have experienced similar reactions.
Because of the complexity associated with class action lawsuits, it’s best to speak with a legal professional about your specific case and whether or not it will be worthwhile for you to pursue one.