A class action is a type of lawsuit where a few individuals represent the interest of many individuals who were harmed through similar conduct. The individuals pursuing the class action are called class representatives or lead plaintiffs. The individuals not named in the lawsuit but who are also entitled to potential recovery are called class members.
Class actions are generally filed to resolve legal issues where individual cases cannot be economically justified. For example, a class action may be filed when each individual has sustained damages too small to be able to pay the attorneys’ fees and costs required to successfully bring the action. The class action allows the damages of all class members to be combined in one lawsuit so that the final recovery allows for all class members and the lawyers to be appropriately compensated.
Types of Class Actions
Class action lawsuits tend to focus more on economic losses than personal injuries. Because of this, a large portion of class actions involve companies that manufacture consumer products or provide consumer services.
Many cases involve a product that failed to perform or services that were improperly rendered (or not delivered at all). There also are many class actions involving employers that attempt to cheat workers out of wages, and companies (particularly banks and other financial institutions) that charge unreasonable and even unjustified fees.
Below are some of the most comment types of class actions:
In the U.S., antitrust law consists of both federal and state statutes that are designed ensure that participants in the free market system play by certain rules. They also help prevent the creation of monopolies in which a single company or industry exercises complete control and the power to charge whatever prices it likes.
Antitrust laws are intended to promote fair competition. Three major laws make up the core of federal antitrust legislation: the Sherman Antitrust Act (1890), the Clayton Antitrust Act (1914), and the Federal Trade Commission Act (1914). Together, these laws accomplish three things:
- Helps to prevent the formation of cartels and collusion that result in a restraint of trade;
- Helps to place restrictions on corporate mergers and acquisitions that could inhibit competition; and
- Helps to prevent the formation of monopolies and the resulting abuse of power.
Essentially, antitrust regulations protect consumers as well as small businesses from the greed of large corporations. Small businesses that rely on supplies and services from large corporations are particularly vulnerable to anticompetitive practices. Such practices can cause unreasonable increases in operation costs when corporate violators artificially control the price and supply of commodities and services required to conduct business.
Unfortunately, antitrust laws are frequently violated – and these days, enforcement, at least at the federal level, is lackluster at best. This is why consumers and small business owners often turn to class action lawsuits for remedies.
Shoddy building practices have long been a cause of action in class action lawsuits. Construction defects are defined as design flaws, poor workmanship, and/or the use of defective materials and other factors that cannot be attributed to normal wear and tear. These defects typically result in economic losses as they affect the value of the property. They also can cause injuries, posing hazards to an occupant’s health and safety.
Class actions for construction defects can be complicated because construction projects involve many different contractors, suppliers, and manufacturers. Unfortunately, they are also common for just this reason.
Structural problems can involve framing, interior materials, wiring, plumbing, and even the foundation and the ground itself. Establishing the exact nature of the defects and determining liability may require a professional building inspector.
Normally, a construction defect lawsuit is filed by an individual. Even if a builder offers a warranty, it is typically for a limited amount of time. However, even if the builder does not offer a written warranty, most state laws recognize what is known as an “implied warranty of habitability.” This means that regardless of whether or not there is a warranty on paper, the home or building owner is entitled to recover damages should construction defects make the structure uninhabitable.
In some cases, the purchaser of a building has the option of purchasing a warranty from a third-party insurer. Such warranties remain in force even when the original builder is no longer in business.
A construction defect lawsuit can become a class action when such defects are discovered in a large number of buildings constructed by a single company. An example of this was Chiang v. D.R. Horton L.A. Holding. Chiang was one case among several in which plaintiffs alleged improper use of defective copper pipe used for plumbing, which was prone to corrosion and failure due to environmental and water conditions at the building site.
Members of the Chiang class included homeowners in an area of Ladera Ranch, a community in Orange County sixty miles south of Los Angeles, where D.R. Horton had built several homes. Plaintiffs alleged that the developer had been aware of the water conditions prior to construction of the subdivision. The defendant attempted to strike down the class allegations on grounds that there were no common facts among the plaintiffs. This was reversed on appeal and plaintiffs were ultimately awarded the costs of replacing the plumbing.
More recently, there has been a flood of lawsuits involving stucco, an exterior coating for homes in many parts of the country. These complaints generally allege that the stucco has been applied too thin to meet building codes and that the framing to which it is applied is sub-par. As a result, stucco layers have been cracking after as little as two years, allowing moisture to enter and resulting in the formation of mold and structural damage as well as providing an ideal environment for termites.
Consumer fraud covers a broad area of law. It is defined as any deceptive, false, or misleading business practices that result in financial loss for an individual. It can include the following:
- Credit/Debit Card Fraud:
This is the result of an unauthorized person gaining access to the victim's credit or debit card information. The perpetrator is able to do this in numerous ways, including “phishing” (see below) and “skimming” (using electronic means to steal personal information from the magnetic strip at a point-of-purchase).
- Identity Theft:
According to the Federal Trade Commission, this is the most prevalent type of fraud. The consequences to the victim can range from minor annoyance to major catastrophe. A perpetrator can obtain personal information by stealing mail, reading it from forms, and through Internet fraud and data breach (see below). Often, identity thieves operate as part of a syndicate, which makes it difficult for law enforcement to combat these crimes.
- Internet Fraud and “Phishing”:
The term “phishing” (pronounced “fishing”) refers to a relatively new kind of Internet fraud. Perpetrators are literally “fishing” for personal financial information. The earliest and best-known form of phishing is the infamous “Nigerian Prince” email. There are numerous variations of this scam, including email messages that appear to originate from a legitimate financial institution or claim the victim has won a lottery prize or is heir to a fortune.
- Cashier's Check Fraud:
Since a cashier's check is issued by a bank and is a direct obligation of the issuing institution, they are considered relatively “safe.” It is for this reason that cashier's check fraud is attractive to fraudsters.
This scam usually involves the sale of goods through want ads. The perpetrator offers to pay with a “Moneygram.” The victim ships the goods and deposits the check, and it turns out to be fraudulent. The “unexpected windfall” scam is also common. The victim receives a letter stating that they have won a prize or inherited a sum of money. The letter states that the victim must pay a “processing fee” to a third party in order to collect, but a cashier's check is enclosed to cover it – and the check turns out to be worthless.
- Investment Fraud:
Also known as securities fraud, this has countless variations. A few of the more common types of investment fraud include affinity fraud (scams that target specific groups of people); Internet and Social Media fraud; pyramid/Ponzi schemes; pre-IPO investment scams; and “pump and dump” stock fraud. Detailed information about these and others is available from the U.S. Securities and Exchange Commission website.
- Fictitious/Unauthorized Banking:
Any financial institution that operates without a license or a charter is engaging in fictitious or unauthorized banking. The best way to determine if a financial institution is “legit” is to visit the U.S. Treasury Department website, where you can access alerts as well as a list of unauthorized banks.
This means that a business is charging consumers more for a product or a service than is allowed by law. Overbilling can constitute a breach of a contract and may even be part of intentional criminal activity by a syndicate. Unlike false billing, overbilling involves actual businesses selling real goods and services. Overbilling is frequent in the healthcare industry, where it is conducted through the practice of upcoding, which means billing a patient or insurance company for a procedure more expensive than what was actually performed.
- Tax Fraud:
Most commonly, tax fraud takes the form of a phone call or an email from someone claiming to be from the IRS, advising the person of a problem with his/her tax return. Fortunately, this scam is easily avoided. The IRS never contacts taxpayers via phone or email. It’s always through a postal letter and usually certified mail.
- Mail/Telephone Solicitation:
Mail fraud describes any activity intended to steal from individuals using the U.S. Postal Service. Telephone solicitation fraud is similar, except that it employs telemarketing as a tool. A common example of this type of fraud is the “fake solicitation letter” which offers some kind of “work at home” opportunity. Telephone fraud often involves unsolicited calls from people identifying themselves as being from a bank, the IRS, or other institution. It is essentially a form of “phishing” (see above).
- Deceptive Marketing:
Under the Trademark Act of 1946, deceptive marketing, also known as false advertising, is “Any advertising or promotion that misrepresents the nature, characteristics, qualities or geographic origin of goods, services or commercial activities.”
In filing a lawsuit for deceptive marketing, the plaintiff must demonstrate that the defendant made a false statement about the goods or services in question, had intent to deceive and influence consumers, involved interstate commerce, and resulted or could have resulted in an injury or loss. False advertising may be either blatant or implicit.
The U.S. Department of Health and Human Services defines data breach as “a security incident in which sensitive, protected or confidential data is copied, transmitted, viewed, stolen or used by an individual unauthorized to do so.”
A data breach is often the result of a cyber-attack by hackers that may operate individually, as part of an organized crime syndicate, or even a political organization or government agency. It can also be the result of carelessness, such as a failure to destroy or properly dispose of storage media, hard drives, etc.
The Privacy Rights Clearinghouse reports that over 11 billion records have been compromised in nearly 8,700 separate incidents since 2005. Today, most states and jurisdictions have passed laws requiring companies to report incidents of data breach and to take action to remediate the problem and mitigate any possible damage.
A product is considered defective when there is a design flaw, has a problem as a result of the manufacturing process, and/or does not include adequate instructions or warnings. In order for a cause of action to exist, a plaintiff must demonstrate that the product poses an unreasonable risk and/or resulted in an injury or loss.
Discrimination occurs when a person is treated or considered differently based on factors such as skin color, ethnic origins, religious beliefs, sexual inclinations, gender, or age. Discrimination may be direct, in which physical and personal traits are targeted; or indirect, which consists of policies applied to everyone that nonetheless puts some individuals at a disadvantage.
The number of environmental lawsuits filed in the U.S. began to increase rapidly in the early 1970s. Environmental class action lawsuits typically involve pollution caused by industrial activity. The plaintiffs in such lawsuits may be members of an affected community, a public agency, or the government itself.
Fair Credit Reporting Act
The Fair Credit Reporting Act (FRCA) was enacted in 1970 as an amendment to the Federal Deposit Insurance Act. Its primary purpose is to protect the privacy of consumer credit information while ensuring that the content of the credit reports is fair and accurate. A consumer whose rights are violated under the FRCA may be entitled to statutory and punitive damages, attorney's fees, and court costs.
Fair and Accurate Credit Transactions Act
This is an amendment to the Fair Credit Reporting Act, passed in 2003, regulating the way consumer account information is stored. It requires banks and other institutions to take all possible steps to protect that information from identity thieves. Failure to do this can result in liability for the company responsible.
Telephone Consumer Protection Act
The Telephone Consumer Protection Act (TCPA) was signed into law in 1991 as an amendment to the Communications Act of 1934. It restricts the use of “robo-calling” and regulates the use of messaging technology. Under the law, entities using such equipment must provide identification and contact information in their messages and offer recipients a way to “opt out” of receiving such communications.
Wage and Hour
Laws governing the wages that an employer must pay and hours for which workers must be compensated vary from one state to another, and also are controlled by federal law. These laws also govern child labor as well as breaks during the workday. Employers in violation of these laws can be held liable for damages as well as retroactive pay.
Types of Recoveries in Class Actions
Compensation in a class action can consist of monetary and/or non-monetary recovery. Monetary recovery is compensation in the form of cash. Sometimes, the class action settlement or judgment specifies a certain amount of money to be paid to each eligible class members.
In other cases, the settlement or judgment consists of a lump sum that is divided among the claimants. The money can be distributed equally or in proportion to each individual plaintiff's losses.
A non-monetary settlement can take several forms. In some cases, the defendant will offer class members coupons or vouchers good toward future merchandise or services, or rebates on purchases. For example, if a particular make and model of automobile has a defective starter, the manufacturer may offer free replacements at its dealerships.
Another form of non-monetary recovery may consist of an agreement on the part of the defendant to cease and desist from engaging in certain behaviors. A company performing an aggressive telemarketing campaign may agree to change its marketing tactics and offer consumers more convenient ways to opt out of receiving such calls. A financial institution might have to stop charging certain fees or provide new or different services to clients. A company that has been creating a nuisance (such as noise) or environmental hazards may be required to control the nuisance or clean up their pollution.
Class Action Certification, Notice & Settlements
Before a lawsuit can proceed as a class action, a judge must first "certify" it. This means the judge must first determine that the following exists: (1) the number of class members is so large that it’s impracticable to join all of them as named plaintiffs in the single lawsuit; (2) the issues involved among all class members share common questions of law or fact; (3) the claims or defenses of the proposed class representatives are similar to those for the rest of the class; and (4) the proposed class representatives will adequately protect the interests of the entire class.
In addition to the above requirements, the judge must also find that at least one of the following applies: (1) separate lawsuits by or against the class members would create the risk of inconsistent rulings, or that a ruling with respect to individual class members may be dispositive of other class member claims thereby substantially impairing or impeding their ability to protect their interests; (2) the party against whom the class seeks relief has acted or refused to act on grounds generally applicable to the class so that injunctive or declaratory relief as to the entire class is appropriate; or (3) common questions of law or fact predominate over class member-specific questions, and that proceeding by way of class action is superior to other available methods for resolving the dispute.
The judge generally will hold a hearing to determine whether the facts and law justify the lawsuit proceeding as a class action. After analyzing the evidence and law, the judge will make a decision on whether to certify the lawsuit as a class action or whether to deny class action status. If the judge certifies the class action, then the next step is notifying the potential class members that a class action lawsuit has been approved and that the potential class members need to choose whether or not to participate in the class action.
The notice to potential class members can take many forms. In today’s time, the notice can occur by mail, email, television, radio, newspaper, social media, or any combination. The law requires the notice to be in a reasonable form to properly notify eligible class members how to participate in or avoid joining the class action. This decision is known as “opting-in” or “opting-out” of the class action lawsuit. Most times, the potential class members are considered to be part of the class action unless they “opt out”.
If a potential class member chooses to opt out, then he/she will have no interest in the recovery that the class action might receive through settlement or verdict. They also will not receive the benefit of positive court rulings and decisions. On the other hand, opting out of the class action generally means the individual will not be bound by any negative court rulings or verdicts.
If the named plaintiffs and defendants in a class action are able to reach a proposed settlement, the resolution must first be approved by the court. This helps to make sure the settlement is fair for all class members, most of whom do not know they are even part of a class action. One of the biggest criticisms of class actions is that lawyers can receive high fees while class members receive relatively little compensation. By requiring the court to approve the proposed class settlement, this helps to minimize the risk of unjust class settlements.