Class Action Definition, Types of Lawsuits, Advantages, and Sample

A Class Action: What Is It?

In a class action, one or more plaintiffs file a lawsuit on behalf of a larger group of people, referred to as the class. All class members share in any money gained from a class-action lawsuit after paying legal costs, whether in the form of a settlement or a judgment.

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Comprehending a Class Action

Groups of people having comparable legal claims against one or more defendants—who might be clients, staff members, investors, or patients—are represented in class-action lawsuits. If a lawsuit satisfies the requirements outlined in a legal rule known as Rule 23, it may be certified as a class action by the courts having jurisdiction over it.

One of the requirements is the presence of a class of claimants big enough that it would be unfair or impossible to assess their claims separately from the class action. A court order designating class counsel and outlining the class, class claims, problems, or defenses is required when certifying a class action.1

Class Action History

In 1966, American courts enlarged the purview of class action lawsuits and standardized them in order to support the implementation of court decisions that ruled racial segregation in public places and schools to be illegal.1

Advantages of Class Actions

Litigation can progress more quickly and economically with class certification, especially when it comes to lawsuits involving huge businesses. Class actions sometimes be the only way for certain plaintiffs to proceed with their cases since they reduce the expense of filing lawsuits.

In a class action, individuals could also have a better chance of winning their lawsuits against a defendant or defendants. Members have the option to pursue their claims individually and decline any final settlement, even if they are represented as a class.

Class Action Types

Class action lawsuits can be classified as either securities litigation, consumer product liability claims, or civil rights procedures like school finance. With the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995, Congress established new guidelines for securities class-action lawsuits.2

Pre-trial settlements for class action lawsuits that are successful are frequently large. The $7.2 billion settlement came from the lawsuit that the shareholders of Enron brought following the company’s demise.3. The class action lawsuit alleging product responsibility against Toyota for defective brakes is another well-known example. It led to an expensive recall and settlement of more than $1 billion.4

Rather than focusing on financial claims, civil rights class action lawsuits usually entail requests for injunctive relief, or legal remedies. The Supreme Court’s 1954 decision in Brown v. Board of Education, which declared school segregation to be unconstitutional, is among the most well-known civil rights class actions. There may be more legal limitations on these kinds of class lawsuits now than there were in the past.5.

Attorneys generally accept class action lawsuits on a contingency fee basis, keeping a portion of any awards or settlement money awarded to plaintiffs. Over the years, this practice has come under scrutiny since, in certain instances, the sums paid to legal teams often surpass the sums awarded to plaintiffs.

Example: Tesla CEO Elon Musk vs. Shareholders of TSLA

Two class-action lawsuits were filed against Tesla Inc. (TSLA) and its vocal CEO Elon Musk in response to his series of tweets in the summer of 2018, in which he announced his intention to take the company private. His tweets, which startled Wall Street and caused Tesla stock to soar, revealed that he was thinking of taking the producer of electric cars private for a $420 share price.Six

After the sequence of Tweets and a letter to staff in which Musk laid out his thought process, there was silence on the matter from both Musk and the firm. As a result, the Securities and Exchange Commission (SEC) opened investigations into the matter, and investors filed two class-action lawsuits, which USA Today stated claimed the corporation had broken federal securities laws by posting the tweets.

The Tobacco Master Settlement Agreement, which was reached in 1998 and resulted in a $206 billion payout with a $9 billion annual perpetuity, was the biggest class action settlement.7.

In one of the two claims, Musk and Tesla “embarked on a scheme and course of conduct to completely decimate the company’s short-sellers,” according to the plaintiff, Kalman Isaacs, who filed the case in federal court in San Francisco.8

The complaint claimed that the tweets caused the stock to rise $45.47 over the day’s closing price, resulting in billion-dollar mark-to-market losses for short-sellers—those who wager that a company would decline using borrowed shares.

The complaints further alleged that Musk had made misleading claims because he had not secured the funding required to take Tesla private. William Chamberlain claims Musk “materially” deceived investors between August 7 and August 10, asserting that investor approval for the purchase was secured and that the money was in place. The class-action lawsuit is part of a larger legal case that was also filed in federal court in San Francisco.9.

Regarding the tweet, Musk was really the subject of nine lawsuits, which have since been combined into one. Tesla and Musk’s plea to have the case dismissed in 2020 was turned down by U.S. District Judge Edward Chen, and it is currently pending without a settlement. Although Musk was forced to pay the SEC a $20 million fine, the class-action lawsuits are still ongoing.10

How Can a Class-Action Lawsuit Be Started?

Have a lawyer review your case to see whether it is legitimate and if you have a possibility of winning before filing a class-action lawsuit. This will be useful in figuring out whether there are other instances with the same issue, analyzing previous cases of a similar kind to predict the result, if a statute of limitations applies, whether other people have also been impacted, and whether this is the best course of action overall.

Filing the complaint would be the next step. All of the information pertaining to the class action, including the parties involved, the requests, the particular issue, and so on, will be included in the complaint. A judge would then need to approve the class action in light of all the evidence presented.

How Much Money Can You Get From a Class-Action Lawsuit?

In a class-action lawsuit, the amount of money you might get varies greatly. It is contingent upon the quantity of parties involved in the action and the amount the courts determine to be reasonable. The settlement’s revenues are not distributed equitably. A sizable portion goes to attorneys, followed by individuals who were most affected. Depending on a variety of conditions, the amount of money you get may vary from a few hundred dollars to millions of dollars.

How Many Parties Are Required in a Class-Action Suit?

A court is unlikely to proceed with certification of a class-action case unless there are at least a few dozen participants, albeit the exact number is unknown. The more parties involved, the better, but depending on the circumstances, even 20 might be sufficient for a class-action lawsuit.11

A Class-Action Waiver: What Is It?

A class-action waiver is a written agreement that aims to shield a party from having the ability to bring a class action lawsuit. Large firms may utilize class-action waivers in a variety of contracts, including those with customers and employees, to shield themselves from potential class-action lawsuits.

A Class-Action Lawsuit Settlement: What Is It?

Proceeds from winning a class-action lawsuit are known as a class-action settlement. It is the sum of money awarded to each plaintiff in a class-action lawsuit.

The Final Word

Class actions are legal proceedings filed by plaintiffs on behalf of a wider group of people against specific persons or businesses. Class actions aim to compensate plaintiffs for losses they have suffered, typically with financial compensation. In most class actions, hundreds of people are involved, and the settlement is split, if not always equally, among all of them.