Procedurei Commencing proceedings
Like any other lawsuit, a class action is initiated when a 'named plaintiff' (or certain 'named plaintiffs') files a complaint. However, a complaint filed on behalf of a putative class must also contain (1) a definition of the proposed class, (2) pleading as to why class action treatment is appropriate and consistent with the requirements of the Federal Rules of Civil Procedure, and (3) any other pleadings required by statute or case law for the prosecution of a class action in specific contexts (e.g., to comply with the requirements of the Private Securities Litigation Reform Act of 1995 in securities class actions). Otherwise, the complaint in a federal class action is subject to the same requirements as other complaints filed in federal cases - including the requirement that plaintiffs sufficiently allege a claim upon which relief can be granted.
Failure to meet these requirements may be grounds for a defendant's motion to dismiss the class action complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Such motions are typically decided before the court certifies the class.ii Appointment of lead plaintiff and lead counsel
If the complaint survives a motion to dismiss, then in certain cases it may be appropriate for the court to appoint a 'lead plaintiff' and 'lead counsel', to represent the putative class even before class certification. That typically occurs in securities class action cases, where multiple proposed class actions can be filed by different named plaintiffs. Appointment of a lead plaintiff and lead counsel helps clarify who will then have primary responsibility on behalf of the class for filing an amended complaint (which often occurs following consolidation of multiple cases) and/or seeking certification of the class.
The Private Securities Litigation Reform Act of 1995 (PSLRA) provides specific guidance to courts concerning the appointment of a lead plaintiff and lead counsel in securities class actions. The PSLRA requires the named plaintiff to publish notice of the class action 'in a widely circulated national business-oriented publication' no later than 20 days after filing the class action complaint. Then, no later than 90 days after that publication, the court must consider 'any motion made by a purported class member' even if the individual was not named in the original complaint, and the court must appoint as lead plaintiff the member of the class that the court determines to be 'most capable of adequately representing the interests of class members'.
In appointing lead plaintiff, the court is instructed to 'adopt a presumption' in favour of plaintiffs with 'the largest financial interest' in the class action. This presumption can be rebutted by evidence showing that the presumptive lead plaintiff 'will not fairly and adequately protect the interests of the class', or 'is subject to unique defences that render such plaintiff incapable of adequately representing the class'.
The court-appointed lead plaintiff is then empowered, 'subject to the approval of the court', to 'retain counsel to represent the class'.iii Class certification
Rule 23(c)(1)(A) of the Federal Rules of Civil Procedure requires that '[a]t an early practicable time after a person sues or is sued as a class representative, the court must determine by order whether to certify the action as a class action'. This occurs following a motion for class certification filed by the named or lead plaintiff, which typically is opposed by the defendant.
In recent years, the Supreme Court of the United States has issued a series of decisions regarding class certification in different contexts. The Court has indicated that plaintiffs bear the burden of 'affirmatively demonstrat[ing] . . . compliance' with all of the class certification requirements of Rule 23, and that motions for class certification should only be granted if the district court is 'satisfied, after a rigorous analysis, that the prerequisites of [Rule 23] have been satisfied'. As a result of those decisions, and a greater focus by litigants on class certification, these motions are typically hotly contested by defendants.
To meet the requirements of Rule 23 - and thus demonstrate to a court that class certification is warranted - a plaintiff must satisfy all of the requirements of Rule 23(a) and one of the requirements of Rule 23(b). Those rules are discussed below.Fed. R. Civ. P. 23(a)
All class actions must satisfy the four requirements of Rule 23(a). Rule 23(a) requires plaintiffs affirmatively to demonstrate that the class action meets four prerequisites, referred to in shorthand form as: (1) 'numerosity' (Rule 23(a)(1)), (2) 'commonality' (Rule 23(a)(2)), (3) 'typicality' (Rule 23(a)(3)), and (4) adequacy of representation (Rule 23(a)(4)).
'Numerosity' requires a showing that 'the class is so numerous that joinder of all members is impracticable'. Generally, there is no numerical threshold for determining whether a class is sufficiently numerous. Rather, courts must examine 'the specific facts of each case'.
'Commonality' requires a demonstration that 'there are questions of law or fact common to the class'. This requirement was addressed in Wal-Mart Stores, Inc v. Dukes. There, the Supreme Court found that class certification of a Title VII discrimination case was inappropriate because Wal-Mart had ceded control over employment decisions to regional managers in different geographic locations, so there was insufficient overlap in questions of law and fact among the proposed class.
To satisfy the requirement of 'typicality', the plaintiffs must demonstrate that 'the claims or defences of the representative parties are typical of the claims or defences of the class'. The commonality and typicality requirements are similar in nature to, but less onerous than, the Rule 23(b)(3) 'predominance' inquiry, which is discussed below.
Finally, plaintiffs must show that 'the representative parties will fairly and adequately protect the interests of the class'. Here, the primary inquiry for courts is to 'uncover conflicts of interest between named parties and the class they seek to represent'. Courts also will assess the adequacy of proposed class counsel at this stage. In assessing the adequacy of class counsel, courts must conclude that the representative's counsel is 'qualified, experienced and capable of handling the litigation', and that class counsel will represent the interests of the class as a whole.Fed. R. Civ. P. 23(b)
In addition to fulfilling the requirements under Rule 23(a), 'parties seeking class certification must show that the action is maintainable' under Rule 23(b). The subsection of Rule 23(b) most commonly invoked as a basis for class certification is Rule 23(b)(3), which provides that a class action may be maintained where the prerequisites of Rule 23(a) are satisfied and the court finds that (1) 'questions of law or fact common to class members predominate over any questions affecting only individual members' (known as the 'predominance' requirement under Rule 23(b)), and (2) 'that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy' (known as the 'superiority' requirement).
The purpose of the predominance inquiry is to test 'whether proposed classes are sufficiently cohesive to warrant adjudication by representation'. 'An individual question is one where members of a proposed class will need to present evidence that varies from member to member, while a common question is one where the same evidence will suffice for each member to make a prima facie showing [or] the issue is susceptible to generalised, class-wide proof.'
In determining whether a class action satisfies the superiority requirement of Rule 23(b)(3), courts assess the following non-exhaustive statutory factors listed in Rule 23:
(A) the class members' interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.The class certification order
If the court finds certification is proper under the requirements of Rules 23(a) and (b), the court will then enter a 'certification order' pursuant to Rule 23(c). The certification order is important because it defines the class of individuals that - subject to opt-outs - will be bound by the action as it proceeds. The certification order is also the procedural mechanism for appointing the class representative and class counsel. Such orders may be altered or amended before final judgment. For example, in appropriate circumstances, the court may elect to divide a class into subclasses, which 'are each treated as a class' under Rule 23.Notice of class certification and opting out of the class
Once the class is certified, absent class members - namely, class members other than the named or lead plaintiffs who nonetheless fall within the definition of the certified class - must, in the case of a Rule 23(b)(3) class action, be given notice and provided with the opportunity to 'request exclusion' from the class (commonly referred to as 'opting out'). Those individuals that opt out, normally by providing written notice in the manner prescribed by the court, will not be bound by final resolution of the class action, and may bring a separate case against the defendant based on the same underlying claim at some later date (subject to any applicable statute of limitations).
Affording absent class members the opportunity to exclude themselves from a class action comports with the due process requirements set forth in the Fifth and Fourteenth Amendments to the US Constitution. Under US law, an individual typically is not 'bound by a judgment . . . in a litigation in which he is not designated as a party', and judicial enforcement of such a decision would violate due process requirements. As discussed above, final resolution of a class action will bind absent class members, and preclude future litigation of their claims against that defendant. To comport with due process, this opt-out mechanism ensures that absent class members in a Rule 23(b)(3) class action will not be bound by a final resolution if that class member affirmatively elects to not participate in the case.
The type of notice required to be provided to class members following certification of a Rule 23(b)(3) class action is 'the best notice that is practicable under the circumstances', and where individuals can be identified 'through reasonable effort', individual (or actual) notice is required. Notice may be provided by regular mail, electronic means or any 'other appropriate means'.
Notice must be 'clearly and concisely state[d] in plain, easily understood language'. Notice must, at a minimum, state: (1) 'the nature of the action', (2) 'the definition of the class', (3) 'the class claims, issues, or defenses', (4) 'that a class member may enter an appearance through an attorney if the member so desires', (5) 'that the court will exclude from the class any member who requests exclusion', (6) 'the time and manner for requesting exclusion', and (7) 'the binding effect of a class judgment on members under Rule 23(c)(3)'.
Rule 23 does not set forth a categorical rule for the amount of time absent class members must be given to respond to this notice. That is usually set at the discretion of the court. Generally, federal courts are advised to provide a minimum of 30 days from when notice is first sent; opt-out periods of 60 to 90 days are preferred. Where the class is sizeable, or actual notice is not practicable, those time periods can be significantly longer. As explained above, if a party does not affirmatively request exclusion from the class during this opt out period, he or she will be included in the class and - subject to a potential further round of opt outs in the case of a settlement - bound by the final resolution of the claim.iv Litigation on behalf of the class
After entry of the certification order, provision of notice and the completion of opt-outs, the class action is then litigated on the merits by class counsel acting on behalf of the class. As the case proceeds, the class representative and class counsel control the action on behalf of the class. Other class members do not participate in most phases of litigation, even though such class members will be bound by any final judgment in the action unless the individual elected to opt out of the class.
Rule 23 provides the court flexibility in conducting the proceeding. For example, the court may issue orders to 'determine the course of proceedings', to 'impose conditions on the representative parties' or to 'require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly'.
Litigation of class actions is similar to other civil proceedings in federal courts, in that federal procedural and evidentiary rules still apply. This was highlighted in Tyson Foods, Inc v. Bouaphakeo. There, the court considered whether to establish a categorical rule regarding the use of representative evidence to establish class-wide liability (instead of requiring individual proof of liability, which likely would preclude class certification, because individual issues would predominate over common class issues). The court declined to create such a rule, explaining that the permissibility of representative evidence 'turns not on the form a proceeding takes - be it a class or individual action - but on the degree to which the evidence is reliable in proving or disproving the elements of the relevant cause of action' pursuant to Federal Rules of Evidence 401, 403 and 702.v Settlement
This section focuses on procedural aspects of a class action settlement, as set forth in Rule 23(e), and the jurisprudence that has evolved around those requirements.The settlement class
Rule 23(c) requires class certification before any entry of final judgment, including when the court enters a judgment approving a settlement. If the parties want to settle a case before the court has entered a Rule 23(c) class certification order, then courts may resort to use of a 'settlement class' mechanism. This is 'a device whereby the court postpones the formal certification procedure until the parties have successfully negotiated a settlement, thus allowing a defendant to explore settlement without conceding any of its arguments against certification'.Preliminary approval of a settlement
The first step in the class settlement process involves preliminary approval of the proposed settlement by the court under Rule 23(e)(1). For the court to direct notice of a settlement proposal to all class members it must find that it will likely be able to, first, approve the settlement under Rule 23(e)(2) and, second, certify a settlement class (if it has not already done so). The parties must provide the court with information sufficient to enable it to determine whether to give notice under that standard. The type of information that parties may provide at the preliminary approval stage includes details of the settlement, the nature of any compensation to be provided to class members, and any agreements regarding the payment of attorneys' fees and costs to class counsel. Some relevant factors courts consider in granting preliminary approval of class action settlements are whether settlement negotiations occurred at arm's length between capable experienced counsel and whether there was sufficient meaningful discovery.Settlement notice
Following entry of preliminary approval, adequate notice of the settlement must be provided to the class. Rule 23(e)(1)(B) requires the court to direct notice in a reasonable manner to 'all class members who would be bound' by a proposed settlement, voluntary dismissal or compromise. Failure to give adequate notice of settlement is not only a violation of Rule 23, but also may violate due process protections. Settlement notice provides absentee class members the ability to object to the propriety of the settlement, and, in the case of Rule 23(b)(3) class actions, 'the court may refuse to approve a settlement' unless it affords class members a 'new opportunity to request exclusion' (or opt out) from the class settlement.Fairness hearings
Once notice of the settlement has been given, the court will hold a 'fairness hearing', to determine whether the proposed settlement is 'fair, reasonable, and adequate', as required by Rule 23(e)(2). In making that determination the court must consider whether:
(A) the class representatives and class counsel have adequately represented the class;
(B) the proposal was negotiated at arm's length;
(C) the relief provided for the class is adequate, taking into account:
(i) the costs, risks, and delay of trial and appeal;
(ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims;
(ii) the terms of any proposed award of attorney's fees, including timing of payment; and
(iv) any agreement required to be identified under Rule 23(e)(3); and
(D) the proposal treats class members equitably relative to each other.
The objections of any class members to the settlement - which can be presented in writing or orally, at the discretion of the court - will also typically be considered by the court as part of the fairness hearing. Following a fairness hearing, the court may enter a final order and judgment approving the class action settlement, and granting the class plaintiffs' motion for an award of attorneys' fees and costs in favour of class counsel (discussed further below).Settlement claims processing and allocation of settlement funds
Following settlement of a class action, among other requirements, there must be a process for determining how, and to which class members, the settlement funds should be distributed. Most settlements establish a 'plan of allocation', setting forth a formula or some other method of distributing settlement proceeds to members of the class. To determine whether an individual is properly part of the settlement class, absent class members generally must participate in a claims process, which involves executing and submitting documentation demonstrating their entitlement to a share of the settlement funds, and, typically, an individual release of claims against the defendant. The processing of these individual class member claims is often handled by private, for-profit companies retained by class counsel.vi Attorneys' fees and costs
Rule 23(h) specifically authorises courts to 'award reasonable attorney's fees and nontaxable costs', upon motion under Rule 54 of the Federal Rules of Civil Procedure (which sets forth general procedures for claims for attorneys' fees). Rule 23(h) also provides that class members, or the party from whom payment is sought, may object to this motion for attorneys' fees. In both instances, the court must determine the award is reasonable.