The prevalence and arguable abuse of the class-action device has generated regulatory scrutiny. To address such perceived abuses, the U.S. Congress adopted in 2005 a law known as the Class Action Fairness Act (CAFA). Among other things, CAFA made it easier for parties to direct class action cases to federal courts — which have been perceived as more attractive forums for parties seeking more rigorous application of the requirements for class treatment and related issues — as opposed to state courts. Specifically, CAFA gives federal courts jurisdiction over cases with at least $5 million in controversy, 100 or more plaintiffs, and at least one plaintiff who is a citizen from a different state from any defendant.
Putative class cases can also be, and regularly are, settled on a class-wide basis (subject to judicial supervision), either before or after a court certifies a class for litigation purposes. Courts
are materially more willing to certify a class for settlement purposes than for litigation purposes. Because class-wide settlements bind absent class members, their provisions must be approved — and can be modified by — courts, who are tasked with ensuring that substantive and procedural requirements have been met. The potential abuse of the class action settlement device, in the face of insufficient supervision by courts, has been and remains the subject of various proposals for reforms.
Multidistrict Litigation
Distinct from the class action device, U.S. federal law contains a mechanism — the multidistrict litigation, or MDL process — in which individual civil cases filed in federal courts across the country can be consolidated for certain purposes into a single federal district court for pretrial purposes.
MDLs are typically created when there is a sufficient volume of individual civil actions involving similar issues, parties, or claims - ranging from circumstances where a handful of such cases are consolidated to MDLs where thousands of similar cases are housed. MDLs may involve circumstances in which a large number of plaintiffs file lawsuits against a single company or several similarly situated companies regarding the same or similar alleged conduct. While the cases in the MDL are similar (and may individually be class actions), they are not the same as class actions because plaintiffs can claim relatively different injuries from one another.
A specialized federal panel called the Judicial Panel on Multidistrict Litigation (JPML) decides whether a set of cases should be combined into an MDL. The panel consists of seven federal judges appointed by the Chief Justice of the U.S. Supreme Court, and they meet periodically to decide which cases should be consolidated. The panel can act on its own initiative or in response to a motion from the parties involved. The panel decides whether a MDL will be created, in what jurisdiction it will be located, and what judge will oversee it.
When a MDL is created, the assigned MDL district court judge manages all pretrial motions and proceedings, including civil discovery and, in most circumstances, pretrial dispositive motions. Indeed, that is the logic underlying the MDL process: to make pretrial proceedings more efficient from a systemic perspective. Once the pretrial phase concludes, the remaining cases are typically remanded to the originating courts for trial as appropriate. In some circumstances, the parties may waive the right to have a case remanded.
Given the broad geographic scope and diverse nature of MDL plaintiffs, the court typically appoints a Plaintiffs’ Steering Committee. This committee works alongside defense counsel to manage strategy, handle pretrial motions, and coordinate other procedural matters.
If the cases do not settle during the pretrial phase, they often proceed to so-called bellwether trials. In these trials, both sides select specific cases that will serve as “test” cases to predict how the remaining cases might be resolved. The outcomes of these bellwether trials often play a significant role in shaping settlement negotiations for the rest of the cases in the MDL. However, not all MDLs involve bellwether trials — they are part of the broad case management discretion accorded to MDL judges.
Rules for commonality of claims/class certification
Because class actions are an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only, class treatment is not awarded as of right. Rather, a putative class representative must affirmatively demonstrate that the class action complies with the relevant portions of Federal Rule of Civil Procedure 23 (or its state- law analogues), with those requirements varying depending on what type of relief (damages, injunctive measures, or otherwise) is sought.
Broadly, Rule 23(a) requires plaintiffs to show that (1) the proposed class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims and defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. These prerequisites are often referred to as numerosity, commonality, typicality, and adequacy.
Numerosity requires examination of the size of the class; in some U.S. jurisdictions, a class of around at least 40 individuals is presumed to be sufficiently numerous. Commonality requires the plaintiff to show that the putative class has at least one question of law or fact in common. This is a low bar. Typicality requires a showing that the class representative’s claims are sufficiently similar to those of other class members. Adequacy addresses, among other things, potential conflicts of interest between the class representative and the absent class members.
If a plaintiff can satisfy all these requirements they must also comply with at least one subsection of Rule 23(b)(1), (2) or (3). Rule 23(b)(2) and (b)(3) are the two most used. Rule 23(b)(2) applies when a defendant has taken action or refused to act on grounds that apply generally to the class as a whole and the plaintiff is seeking final injunctive or declaratory relief that would affect the entire class of individuals (e.g., actions vindicating civil rights).
Rule 23(b)(3) applies to suits seeking money damages. In such cases, plaintiff must show that (1) common questions of law or fact predominate over any individualized inquiries, and (2) that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Predominance requires the court to examine whether the class can use common evidence to make a prima facia showing of the essential elements of its claims. If the evidence to make such a showing will vary from class member to class member, predominance will not be met. Superiority involves consideration of four factors: (1) whether class members have an interest in controlling their own litigation; (2) whether litigation already exists concerning the controversy; (3) the desirability of concentrating claims in one judicial forum; and (4) potential problems that could arise in managing the case as a class action.
Judges have considerable discretion in balancing and applying these tests, and litigation on these factors (and their various sub-elements) is hotly contested, involving expert testimony and standalone briefing.
Class member participation (opt-in/opt-out)
U.S. class actions can be pursued on an opt-in or opt- out basis, meaning once a class is certified, members can either choose to join (opt in) or are part of the class by default and need to actively choose not to participate (opt out). Opt-out classes make up the bulk of U.S. class action litigation. The relevant rules and precedents provide that absent class members must be accorded adequate notice of the action and, in class suits that seek predominately money damages, an opportunity to opt-out of the litigation. This notice and opportunity to opt-out is provided at least once, shortly after the action is certified for class treatment under Rule 23(a) and (b) and, if the parties reach a post-certification settlement, may also be required before the Court approves the settlement agreement and enters judgment. Actual notice is not required; rather, reasonable steps must be taken to contact putative class members, subject to court approval. If absent class members do not opt out, they will be bound by the outcome of the litigation.
A party’s options to appeal in the United States will vary between the federal and state systems.
In the U.S. federal system, parties are subject to the final judgment rule, meaning that they typically must wait until a case is complete before they can appeal the trial court’s decisions. A court’s decision to grant or deny class certification is generally considered a non-final judgment that may not be appealed as of right. However, a party aggrieved by a court’s class certification decision may seek discretionary interlocutory review pursuant to Federal Rule of Civil Procedure 23(f). A party seeking such review must seek permission from the appellate court to have their appeal heard, and in doing so must explain why their appeal should be successful. Federal appellate courts have broad discretion to grant or deny a petition seeking interlocutory appeal of a class certification decision, and may consider factors such as whether the appeal implicates new or unsettled questions of law, whether the district court’s decision was erroneous, and/or whether the denial of class certification would effectively terminate the litigation. There is no as-of-right stay of litigation while interlocutory appellate review is pursued; a stay of proceedings must be requested and granted by either the trial or appellate court. In lieu of or in addition to seeking interlocutory review, a party may also move for decertification of a class or for reconsideration, both of which would be reviewed by the original trial court.
In the state court system, the appellate rules vary widely by state. Some states have similar appellate processes as the federal system and do not provide appeals of class certification decisions as of right. In other states, decisions on class certification may be appealed as of right under certain circumstances. One example is California, where an order denying class certification would be appealable as of right but an order granting class certification could only be challenged via interlocutory appeal
Class action plaintiffs in the United States may receive outside funding or financial assistance to file and maintain their lawsuits. Such assistance might come from financing provided by a third-party litigation finance company, which is typically a private firm that obtains funds from investors and then receives a portion of the court’s award or settlement if the plaintiffs win. If the plaintiffs are not successful, then the third-party funder typically receives nothing. Whether plaintiffs have received outside funding or financial assistance does not by default need to be disclosed throughout the course of litigation. Some courts have taken steps to require disclosure, and in some circumstances, defendants can obtain this information through discovery. Concerns have been raised that litigation funding may improperly influence plaintiff decisions and strategy in litigation.
In other circumstances — or in conjunction with outside litigation funding support — a plaintiffs’ lawsuit might be funded by their own attorneys on a contingency basis. The United States has a notably large and sophisticated plaintiffs’ class action bar that pursues and funds its own class action lawsuits, based on its own assessment of the expected risks and rewards of any given case. Class action plaintiffs’ counsel recoup their “investment” of time and expenses if and when a case settles or proceeds to judgment. In the former circumstances, the fee award is subject to court supervision and approval, based on a number of factors. In the latter, the fee award is usually a portion of the plaintiffs’ recovery, as determined by their retainer agreement and subject to other considerations (such as whether the substantive legal claims at issue provide for fee-shifting, different than the normal “American Rule,” a legal principle that states that each party to a lawsuit pays their own attorney fees).