Class Action - U.S. Federal Class Actions

U.S. Federal Class Actions

In the United States federal courts, class actions are governed by Federal Rules of Civil Procedure Rule 23 and 28 U.S.C.A. § 1332(d).

Class actions may be brought in federal court if the claim arises under federal law, or if the claim falls under 28 USCA § 1332(d). Under § 1332(d) (2) the federal district courts have original jurisdiction over any civil action where the amount in controversy exceeds $5,000,000 and

• any member of a class of plaintiffs is a citizen of a State different from any defendant; or
• any member of a class of plaintiffs is a foreign state or a citizen or subject of a foreign state and any defendant is a citizen of a State; or
• any member of a class of plaintiffs is a citizen of a State and any defendant is a foreign state or a citizen or subject of a foreign state.

Nationwide plaintiff classes are possible, but such suits must have a commonality of issues across state lines. This may be difficult if the civil law in the various states lack significant commonalities. Large class actions brought in federal court frequently are consolidated for pre-trial purposes through the device of multidistrict litigation (MDL). It is also possible to bring class actions under state law, and in some cases the court may extend its jurisdiction to all the members of the class, including out of state (or even internationally) as the key element is the jurisdiction that the court has over the defendant.

Typically, federal courts are thought to be more favorable for defendants, and state courts more favorable for plaintiffs. Many class actions are filed initially in state court. The defendant will frequently try to remove the case to federal court. The Class Action Fairness Act of 2005 increases defendants' ability to remove state cases to federal court by giving federal courts original jurisdiction for all class actions with damages exceeding $5,000,000, exclusive of interest and costs. It should be noted, however, that the Class Action Fairness Act contains carve-outs for, 'inter alia', shareholder class actions covered by the Private Securities Litigation Reform Act of 1995 and those concerning internal corporate governance issues (the latter typically being brought as shareholder derivative actions in the state courts of Delaware, the state of incorporation of most large corporations).

The procedure for filing a class action is to file suit with one or several named plaintiffs on behalf of a proposed class. The proposed class must consist of a group of individuals or business entities that have suffered a common injury or injuries. Typically these cases result from an action on the part of a business or a particular product defect or policy that applied to all proposed class members in a typical manner. After the complaint is filed, the plaintiff must file a motion to have the class certified. In some cases class certification may require discovery in order to determine its size and if the proposed class meets the standard for class certification.

Upon the motion to certify the class, the defendants may object to whether the issues are appropriately handled as a class action, to whether the named plaintiffs are sufficiently representative of the class, and to their relationship with the law firm or firms handling the case. The court will also examine the ability of the firm to prosecute the claim for the plaintiffs, and their resources for dealing with class actions.

Due process requires in most cases that notice describing the class action be sent, published, or broadcast to class members. As part of this notice procedure, there may have to be several notices, first a notice giving class members the opportunity to opt out of the class, i.e. if individuals wish to proceed with their own litigation they are entitled to do so, only to the extent that they give timely notice to the class counsel or the court that they are opting out. Second, if there is a settlement proposal, the court will usually direct the class counsel to send a settlement notice to all the members of the certified class, informing them of the details of the proposed settlement.

In federal civil procedure law, which has also been accepted by approximately 35 states (through adoption of state civil procedure rules similar to the federal rules), the class action must have certain definite characteristics (often referred to by the acronym CANT):

1. Commonality—there must be one or more legal or factual claims common to the entire class (in some cases, it must be shown that the common issues will predominate the proceedings over individual issues, such as the amount of damages due to a particular class member),
2. Adequacy—the representative parties must adequately protect the interests of the class,
3. Numerosity—the class must be so large as to make individual suits impractical (in other words, that the class action is a superior vehicle for resolution than numerous individual suits), and
4. Typicality—the claims or defenses must be typical of the plaintiffs or defendants.