How Class Action Lawsuits Work

Class Action Procedure

Class action lawsuits, like other civil lawsuits, can be filed in both state courts and federal courts. The Class Action Fairness Act of 2005 lays out the criteria for cases that fall under federal jurisdiction: Any class action lawsuit in which claims exceed $5 million, as well as any case involving plaintiffs or defendants from many different states (called diversity jurisdiction). In addition, federal courts can decline to hear cases involving primary defendants that are state governments or state officials, can also decide not to hear cases that include plaintiff classes totaling fewer than 100 people [source: FindLaw].

Rule 23 of the Federal Rules of Civil Procedure gives detailed instructions to judges, attorneys, plaintiffs and defendants for conducting a class action lawsuit. Every state has its own rules of procedure for class actions, but they all closely resemble Rule 23. Here are some of the main requirements under Rule 23:

Certification -- The judge must certify the plaintiffs as a class. For this, it must be impractical for plaintiffs to sue individually, they must share a common complaint, and the defendants must share a similar defense for all plaintiffs. Only 20 to 40 percent of lawsuits that are filed as class actions receive certification [source: Rothstein].
Defining the class -- As part of certification, the judge will define the scope of characteristics of the class. For example: anyone who received silicone breast implants from 1982 to 1993 manufactured by Company X, or anyone who lived within one mile of Alaskan coast during the Valdez oil spill. The judge can also divide the class into subclasses when appropriate.
Notification -- The judge will order that all potential plaintiffs be notified of the class action by mail, newspaper advertisements, even TV commercials, depending on how broad the scope of the class.
Opting out -- If you fall within the defined scope of the class, then you are automatically included in the case and bound by the final judgment. If you prefer to file your own lawsuit, however, then you can opt out of the class action [source: Lawyers.com]
Appointing counsel -- The judge selects representative counsel for the plaintiffs. In most cases, it is the lawyer who filed the case, but it's the judge's responsibility to make sure he or she is experienced in class action proceedings, is highly knowledgeable in the particular subject area, and will fairly represent the class.
Distribution of damages - The judge will develop a plan with the plaintiffs' attorney for distributing any monetary damages won in the case. Even if the case is settled, the judge must approve the settlement. The judge also has a say in how and how much the attorneys are paid.

Class actions are wonderfully efficient in some ways and controversial in others. In the next section, we'll outline and advantages and disadvantages of class actions.