Few things are of greater concern to corporate legal staffs than the threat of class action lawsuits.
They are worrisome because class actions are a form of claim aggregation. Instead of one or a handful of plaintiffs bringing a claim, state and federal courts permit lawsuits by classes of plaintiffs that can number in the thousands or tens of thousands.
Thomas M. Goutman, chair of the litigation department of White and Williams LLP, explains that the sheer volume of claims in a potential class action makes the consequences of losing financially ruinous to the defendant corporation.
White and Williams has handled class actions throughout the country in such areas as antitrust, security, consumer liability, insurance, toxic torts, pharmaceutical and medical devices, labor and employment, RICO, product liability and banking.
So Smart Business asked Goutman about the impact of class actions.
Can all types of claims be filed as class actions?
Certainly, plaintiffs’ class action attorneys have creatively attempted to force all types of claims into a class action framework. But the Rules in State and Federal Courts provide criteria that judges apply in deciding which cases are appropriate for class treatment.
What are those criteria?
Most jurisdictions require that putative class plaintiffs demonstrate that their claims are sufficiently numerous (“numerosity”), are typical of the claims of other class members (“typicality”), that common elements of their claims preponderate over noncommon elements (“commonality”), and that a class action would be a fair and efficient method of resolving the claims.
Most putative class actions that fail to get certified do so because they fail to meet the commonality factor. In those instances, the defendant has been able to demonstrate that each potential claim involves individual and unique circumstances that make class treatment of those claims simply impossible.
So, just because a case is filed as a class action doesn’t mean it will stay one?
It is filed as a putative class action. Then, typically, there will be a short period of discovery interrogatories, exchanges of documents, dispositions on the issue of whether the class should be certified. Then there will be a certification hearing before a judge, which will be like a mini-trial, where the class representatives will testify, as well as representatives of the defendant and expert witnesses.
Because a lot is riding on the certification decisions, class hearings can be lengthy and involved affairs.
But even if a class is certified, that doesn’t mean that the defendant loses, does it?
No. If permitted by the Rules, the defendant can appeal the certification decision.
But, failing that, more often than not, the case will settle because many defendants will make a business judgment that the financial risks of a jury trial on a class basis are simply too great. For that reason, others have called class actions a form of legalized extortion.
Is a class certification always a bad thing for corporations?
No. In certain circumstances particularly where it is in the corporation’s financial interest to resolve large potential liabilities in an efficient and predictable way obtaining court approval of a nationwide or statewide settlement class may be the best course of action.
Is there any hope for corporations?
Yes. Congress passed the Class Action Fairness Act last year that makes it easier to move cases filed in a state court to a federal court. In most jurisdictions, federal court judges and jurors tend to be more conservative and less apt to certify a class action or award substantial damages once certified.
I would like to think that there is a developing consensus that certain types of cases should not be certified. Examples of these are product liability cases involving claims for personal injury, property damage and medical monitoring … cases where individual issues tend to preponderate over common ones.
Another example is consumer class actions where a necessary element of proof often is a consumer’s individual subjective reliance on allegedly misleading or fraudulent misrepresentations of defendant corporations. Here again, individual issues seem to preponderate over common ones.
In the securities field, there is a greater index of judicial suspicion about the manner in which these sorts of claims are brought. That has led to investigation of plaintiffs’ class counsel.
THOMAS M. GOUTMAN is chair of the litigation department of White and Williams LLP, where his practice involves the defense of corporations in class actions, product liability and toxic tort litigation. Reach him at (215) 864-7057 or [email protected].