A Short Introduction To Class Actions

Most people are familiar with the basic concept of a class action . . . a large group of people suing over a common wrong. Class actions are especially well suited for a number of different situations, including mass torts, securities and investment fraud, consumer frauds and certain types of employment discrimination cases.

Class actions are an essential part of our system of justice. Class actions are one of the most most effective and efficient tools for regulating the conduct of the marketplace. What do I mean by this? For example, let's say that a certain long distance company heavily promotes a special long distance calling plan and enrolls six million accounts to this plan. Then let's say that after about six months, the company arbitrarily changes the billing method which ends up costing most consumers three dollars a month in additional charges. That's worth $18 million a month to the long distance company, or an easy $216 million a year in profits. Many consumers would never know the difference, and if only half complain (and get credit), the company has still stolen over $100 from its customers.

Obviously, nobody's going to bring a lawsuit over $3 a month. But a class action permits a defrauded customer to correct this wrong, not just for herself, but for all other customers who have been cheated in the same way.

Does this really happen? You bet it does. Day in and day out. Banks, utilities, phone companies, credit card companies, any business that has millions of customers can "earn" literally millions of dollars in extra profits by just charging each customer a few cents extra. Not only are corporate executives are under tremendous pressure to show growth in corporate earnings, but most have some sort of bonus or stock option plan which rewards them with millions of dollars for profit or stock price increases. The temptation is simply too great to resist for many of our greedy and overpaid "captains" of industry. All we need to do is look at the cases of Enron and MCI and other such companies.

The above is just meant to show one example of how class actions benefit individuals and provide an effective way of regulating the marketplace.

The essence of a class action is that the named plaintiffs bring a lawsuit on behalf of all members of the class. The claims of all members of the class are litigated together in one lawsuit.

The Four Elements of A Class Action Lawsuit

There are four conditions that must be met in order to qualify as a class action: numerosity, commonality, typicality and adequacy of representation. I explain what each terms means below.

Numerosity simply means that there are two many people in the class to include each person individually in the lawsuit. There is no magic number, but generally the minimum number of people necessary for a class is somewhere around 25 to 40.

Commonality means that the members of the class have similar claims, usually stemming from the same facts or circumstances.

Typicality is closely related to commonality. It means that the claims of the class representatives are typical of the claims of the rest of the class members. Usually, if there is commonality there is typicality.

Adequacy of representation means that the proposed class representatives will protect the interests of class members as a group. This is important because if the class action is certified, the members of the class are bound by the results of the class action. What this means is that class members cannot bring their own lawsuits, they must live with the results of the class action.

Next: Why Class Actions and Capitalism go together like soup and sandwiches, and why "capitalists" hate them.