an excerpted from TRIAL Magazine Volume 33 No.4, April
By Mark S. Davis & Thomas R. Grande
“The class action is one of the few legal remedies the small claimant has against those who command the status quo.” – U.S. Supreme Court Justice William O. Douglas
The federal class action rule and its state counterparts provide useful vehicles for resolving large numbers of small claims. 1 The class action mechanism does not guarantee justice, but it levels the playing field for those seek to vindicate consumer rights and stop consumer fraud.
Many lawyers equate class actions with massive nationwide litigation involving defective products and thousands of claimants. The typical small plaintiffs’ firm or sole practitioner does not usually consider class action as a practical option for litigation on the local or state level.
But local or state class actions may provide opportunities for small practitioners, and consumers can benefit from class actions in several ways. Local or statewide class actions, in fact, may be the only effective means of providing redress to injured people with small claims.
Many legitimate cases are rejected every day because the cost of pursuing the case is higher than the potential value of the claim. In these instances, aggregation of numerous claims provides the financial justification to pursue litigation.
Cases that may be appropriate for certification as class actions include those dealing with consumer fraud, construction defects, and civil rights. 2 The cases must meet the express requirements of Federal Rule of Civil Procedure 23, but identifying appropriate cases involves more than merely checking technicalities. Attorneys must learn how to identify potential class actions by identifying affected groups.
For example, our firm filed a class action on behalf of a group of low-income homeowners whose houses were built with defective siding. Individual damages were less than $20,000, but the subdivision includes about 200 homes. Similar claims involving defects associated with mass-constructed housing offer opportunities for classwide resolution.
Another example of a limited class action might involve fraudulent loan practices by a local mortgage company. As was the case with subdivision homeowners, individual losses might not justify the cost of litigation, but the defrauded borrowers can effectively recover damages as a group.
Toxic torts that involve physical and economic damages are often appropriate for class action. For example, we recently resolved an action on behalf of subdivision residents with property damage and personal injury claims resulting from severe dust inundation during the grading of hundreds of acres of land located upwind of their subdivision.
Despite the benefits, many lawyers and judges have criticized the class action process. Critics maintain that attorneys are often better rewarded than their clients and that the settlement process is vulnerable to collusion. A significant ongoing debate concerns the proposed amendment of federal rules to allow certification would not be approved for litigation. 3
However, when a case involves small personal injury damages arising out of a common tort, the class action may be the only economically viable remedy for clients. Although the Federal Rules as originally drafted counseled against the use of class actions for “mass accidents,” 4 the utility of class actions to resolve mass tort claims is now well recognized. 5
Small-firm or sole practitioners who are considering local class actions should also consider associating with cocounsel to share resources. Significant logistical problems associated with representing large numbers of people must be worked out. There will be a need for notification, continuing communications with class members, and preparation of the much larger case.
A cocounsel relationship with a larger firm provides an excellent learning experience for the sole practitioner as well as an opportunity to pursue relatively expensive litigation. Also, rules governing adequacy of representation require that class counsel be experienced, qualified, and able to conduct class litigation.
The specific fee sharing and expense sharing arrangements, of course, depend on local rules of professional conduct. Class action counsel should always keep track of all time spent on a case, because the expended time usually provides a solid basis for fee sharing as well as justification for court approval of the attorney fee award. Assumption of responsibility for paying the costs of the litigation also bears a direct relationship to the division of fees.
Typically, group members seeking to vindicate their rights on a classwide basis will approach a plaintiffs’ lawyer to represent them. Proper organization of class representatives and establishment of fee agreements are crucial in ensuring the proper conduct of the case.
Under rule 23, class representatives must have claims that are typical of the class and that fairly and adequately represent the class. When there are many potential representatives from which to choose, typical trial considerations prevail. For example, a potential representative should be evaluated as a witness at deposition and trial. Because representatives may be subjected to intense discovery, a thorough review of the person’s background is appropriate.
The fee agreement must contain several important variations to the standard fee arrangement. Although the court retains ultimate discretion over an award of attorney fees, courts increasingly authorize payment on a percentage basis out of a common fund from which settlements, claims administration, and attorney fees and costs are drawn.
The agreement should explicitly recognize that counsel is being retained to act on behalf of a class of people and that the representative plaintiffs consent to represent the interests of the class. The agreement should provide that the representatives understand and authorize a class action to be filed on their behalf and should spell out in detail their obligations to adequately represent, and to act in the best interests of the class.
The agreement should generally contemplate a group of several representative individuals, rather than only one or two. This ensures that the action will not be compromised by relocation or incapacitation of a class plaintiff.
The agreement also should state that representative plaintiffs consent to class counsel being compensated on a contingent basis and that class representatives will not oppose the fee percentage specified in the agreement.
Ethical considerations in class formation pose potential problems for class counsel. For example, is it permissible to solicit clients for a potential class action when no client has contacted an attorney? Unfortunately, rules of professional conduct do not address this issue directly, and there is little clear guidance on how best to proceed.
General guidelines on direct contact of potential clients should normally govern the local practitioner. Does this mean that an attorney must wait for someone to come into the office wanting to pursue a class action? Not necessarily. What is important is that the sole practitioner or small law firm recognize the opportunities for resolution of clams on a class basis and that the client recognize that aggregating claims may be the only economically feasible way of pursuing a claim.
Litigating a class action poses substantial ethical challenges. Clearly, the normal attorney-client relationship is absent. Therefore, some ethical requirements of the traditional attorney-client relationship do not apply.
Because class counsel owes an ethical duty to the entire class – not only to the representative plaintiffs – counsel operates in an environment that is relatively independent of individual client control but more subject to judicial control.
A class representative does not dictate the course of the litigation and does not even have to consent to a settlement. When the interests of a class representative conflict with the interests of the class as a whole, the attorney owes a duty to the class and not to the class representative.
The safeguard is the court, which oversees the litigation and any settlement. Any member of the class, including the class representatives, may object to a proposed settlement. The court resolves those disputes by evaluating whether the settlement is in the best interest of the class members.
Rule 23(a) specifies the general requirements for class treatment: commonality of issues of law or fact, numerosity of plaintiffs, typicality, and adequacy of representative plaintiffs. Although Rule 23 provides several alternate class action mechanisms, 6 certification of local or statewide consumer class actions most likely will be governed by Rule 23(b)(3). 7
To certify a 23(b)(3) class, the court must also find predominance and superiority. This means that common questions of law or fact predominate over individual issues and that a class action is a superior way to reach a fail and efficient adjudication.
Rule 23(c)(2) also imposes an obligation of service by the best notice practicable, including individual notice. The notice must advise each member that the court will exclude the member from the class if the member so requests by a specific date; the judgment, whether favorable or not, will include all members who do not request exclusion; and any member who does not request exclusion may enter an appearance through counsel. 8 The requirements of the individual notice class action are relatively straightforward.
Requirements for common issues of law or fact and for predominance of those issues usually go hand in hand. Read literally, the rule requires only that some – not all – issues predominate. As a practical matter, only those claims that have common questions of liability and causation are likely to survive judicial discretion to certify the class.
Courts have applied varying standards to determine predominant questions of law or fact, but the courts are most likely to look to the practical aspects of trying the case. If defendants can successfully argue that liability or causation requires consideration of factors unique to each class member, certification is highly unlikely.
Attorneys must give careful consideration, therefore, to the precise factual and legal bases of the claims and to the proof required at trial. Otherwise, certification may be denied on the basis of uncommon facts or law. Individual damages issues do not necessarily preclude class certification, 9 but it is imperative to convince that certifying court that the case can be appropriately tried and resolved on a classwide basis.
Numerosity and superiority also go hand in hand. There is no magic number that ensures certification, and courts have certified cases involving as few as 20 plaintiffs.10 Numerosity requires that the court not simply to large numbers but to whether joinder of all members is impracticable in light of class size and other relevant factor, such as the magnitude of claims and the geographic dispersion of class members.11
Typicality generally requires that claims of class representatives and claims of the class s a whole rest on the same legal and remedial theories as claims of individual class members.12
Adequacy of representation requires that the class representatives have no interests that are antagonistic to class members and that class counsel is experienced, qualified, and able to conduct class litigation.13
The wide discretion allowed in certifying class actions provides a substantial basis for judges who are unfamiliar with or hostile to the class action mechanism to reject this approach. However, the court’s equally broad discretionary power to certify subclasses or only parts of a claim – for example, liability – allows attorneys to argue successfully that certification to resolve common issues is appropriate.
Rule 23 provides greater opportunities for direct judicial involvement than any other procedural rule. There are virtually unlimited opportunities for creative judicial involvement, and much of the intervention is in areas normally controlled by plaintiffs’ lawyers.
For example, judges decide the most basic elements of any case – the composition of the class and the identity of the claimants. In addition, judges decide what type of notice is required as well as its form and content.
Although the degree of control of judge exercises depends on the type of case and individual predilection, judicial discretion may even extend to control over communications between counsel and class members. Judicial approval is required for settlement and for payment of attorney fees and distribution of settlement money.
According to Rule 23(c), a motion for certification must be brought as soon as practicable after the case has been filed.14 Attorneys must balance the need to act quickly against the need to craft allegations carefully. Defendants have their best opportunity to derail the class action by defeating the motion for certification.
In the class action process, considerations of proof of liability, causation, and damages cannot await completion of the normal discovery process. These issues must be thought out well in advance. They present the critical issues that astute defense counsel will use in an attempt to defeat class certification.
It is axiomatic that without a common factual and legal basis to establish liability, a class action will not be certified. The type of legal claims asserted should maximize the probability of certification. For example, if a defective water line was installed in a condominium project by different contractors, it may be better not to name the contractors at all to ensure that a common issue of liability is asserted against the project developer.
Consideration must be given to whether causation and damages are subject to classwide proof. For example, in a recent personal injury class action involving dust inhalation, our pulmonary expert created a computer spreadsheet to establish damages, comparing days of illness and days off work or school among class members. The expert also computed special damages for wage loss and medical expenses based on this model.
Although cases may be certified as class actions for limited purposes, such as liability or punitive damages, it is normally in the plaintiffs’ best interest to aggregate proof of damages. One way to accomplish this is through the use of sampling.
Sampling allows plaintiffs to present damages based on a representative number of individuals from the larger group. A marketing or survey expert is needed to establish the sampling protocol and the margin of error.
For example, in a class action representing victims of human rights abuse litigated in Honolulu, a federal judge divided the class into categories of injury. Discovery was conducted within the categories, and a court-appointed master extrapolated damages to the entire class. Courts are increasingly accepting properly validated sampling methods to prove damages.
The current debate over proposed federal rules amendments allowing certification of settlement classes emphasizes the importance of settlement strategies. Generally, it is in the plaintiffs’ interest to maximize opportunities for settlement.
Frequently, defendants will want to settle the case on a classwide basis to eliminate liability exposure. In a Rule 23(b)(3) action, class members who do not believe that a settlement is adequate have the procedural safeguard of opting out of the class to pursue claims independently.
Settlements involving large attorney fees may draw accusations of collusion between both sides’ attorneys. To avoid this, plaintiffs’ counsel must conduct settlement negotiations at arm’s length from defense counsel, and there should be adequate justification for the court to approve the settlement they reach.
Rule 23(c) provides that a class action “shall not be dismissed or compromised without the approval of the court.” This procedure gives absent class members the protection of court review over any settlement agreement.
Despite their complexity, cost, and controversy, class actions can be used effectively by small firms or sole practitioners to benefit consumers, particularly if attorneys ally themselves with experienced cocounsel. A class action is often the only available mechanism to provide adequate remedies for claimants who have suffered small but significant damages.
2. See A. Barry Cappello & J. Paul Gignac, Avoiding Pre-Trial Pitfalls in Consumer Class Actions, TRIAL, May 1995, at 66.
3. New Class Action Rule Would Make Settlement Much Easier, TRIAL, Aug. 1996, at 12; see also Susan J. Becker, Pro’s and Con’s of Proposed Rule 23 Amendments, LITIG. NEWS, Nov. 1996, at 4.
4. FED.R.CIV.P.23, advisory committee’s note to 1966 amendment, reprinted in FEDERAL CIVIIL JUDICIAL PROCEDURE AND RULES 99(West Pub. Co. 1996)(“A ‘mass accident’ resulting in injuries to numerous persons is ordinarily not appropriate for a class action because of the likelihood that significant questions, not only of damages but of liability and defenses of liability, would be present, affecting the individuals in different ways. In these circumstances an action conducted nominally as a class action would degenerate in practice into multiple lawsuits separately tried.”).
5. See H. NEWBERT & A. CONTE, NEWBERG ON CLASS ACTIONS 17.01 (3d ed. 1992); NATIONAL CONSUMER LAW CENTER, CONSUMER CLASS ACTIONS (3d ed. 1995); THOMAS A. DICKERSON, CLASS ACTIONS: THE LAW OF THE 50 STATES (1998).
6. Rule 23(b)(1) provides a two-part alternative test for class certification (risk of inconsistent adjudications or adjudications that might bind nonparties or impair their ability to protect their interests). Rule 23(b)(2) provides injunctive and declaratory relief where the party opposing the class has acted in a manner generally applicable to the class. Neither rule requires individual notice nor specifically provides for class opt-outs.
7. An action bay be maintained as a class action if, in addition to the prerequisite of subdivision (a), “the court finds the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.”
8. FED.R.CIV.P.23(c)(2) (“In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.”).
9. See, e.g., Blackie v. Barrack, 524 F2d 891 (9th Cir. 1975); NEWBERG, supra note 5, 3.10-3.12 and 4.22-4.26.
10. NEWBERG, supra note 5, 3.03 – 3.06.
12. Id. 3.13
13. Sosnav. Iowa, 419 U.S. 393 (1975).
14. FED.R.CIV.P.23(c)(1)(“As soon as practicable after the commencement of an action brought as a class action, the court shall determine by order whether it is to be so maintained. An order under this subdivision may be conditional and may be altered or amended before the decision on the merits.”).
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