Class Action Q & A’s

  • What is a class action?
  • What types of cases can be brought as a class action?
  • How are the lawyers compensated in a class action lawsuit?

What is a class action?

A class action is a procedural device that permits one or more persons to get together and sue for a class of persons when the issues in dispute are common to all members of the class and the persons affected are so numerous as to make it impracticable to bring them all before the court.

Class actions enable numerous persons with small stakes to litigate related claims that would be prohibitively expensive for any one or a few of them to prosecute alone, with the result, therefore, that without the device like the class action they would refrain from suit and literally make the wrongdoer the beneficiary of the very massiveness of his wrong. Class actions also provide plaintiffs with strength against the multi-million dollar defendant. The Supreme Court of the United States has recognized that a legitimate aspect of class action litigation is to provide plaintiffs with a more powerful litigation posture.

Thus, by allowing individuals to pursue redress of wrongdoing in a cost effective manner, class actions enable civil justice to be done even in cases between adversaries of otherwise unequal economic means and bargaining power.

Resolution of the class action binds all members of the class that has been certified by the court.

What types of cases can be brought as a class action?

There are a variety of claims that are typically brought as class actions including claims based on (a) violations of the federal securities laws, (b) violations of fiduciary duties (c) violations of antitrust laws, and (c) consumer fraud .

(a) Violations of the securities laws

Securities claims are often brought as class actions under the Securities Act of 1933 (the “1933 Act”) and Securities Exchange Act of 1934 (the “1934 Act”) against corporate insiders and their outside professionals. Typically, class actions are brought on behalf of purchasers of securities during a specified Class Period during which, it is alleged, misrepresentations or omissions by defendants caused the price of a security to be artificially inflated. In some of those actions, accountants may be named as defendants, along with the issuer, officers and directors, underwriters and other involved in the process of issuing securities or making statements (either in press releases or documents filed with the SEC) that affect the value of the securities in the open market. Courts have held that actions for violation of the federal securities laws are particularly well suited for class action treatment. Securities fraud actions normally involve hundreds of claimants whose individual damages are too small to justify independent litigation.

(b) Violations of Fiduciary Duties in Connection with Mergers and Acquisitions

Class actions can be brought to remedy conduct by officer and directors of corporations for breaching their fiduciary duties. These actions are brought under state law and include “derivative actions” where the claim is brought on behalf of the corporation. In other cases, the claim arises in the context of a merger or acquisition where shareholders are offered inadequate or unfair consideration for their shares.

(c) Violations of Antitrust Laws

Antitrust class actions are brought under federal and state antitrust statutes on behalf of consumers who have been damaged by price fixing, predatory pricing, tying or monopolistic practices of large companies.

(d) Consumer Fraud

Class actions for consumer fraud arise from the unfair business practices of companies including improper practices in advertising, marketing and sales of goods or services. Examples of consumer fraud actions include falsely advertising the capabilities and functioning of equipment, products and/or services.

How are the lawyers compensated in a class action lawsuit?

Lawyers in class actions are usually compensated on a contingent basis, which means that the attorneys only get paid out of any recovery amount they obtain. As a result, investors and consumers with small losses can easily afford to bring class actions to assert their rights.