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Class Action Lawsuit

Updated on May 9, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Class Action Lawsuit?

A Class Action Lawsuit is a legal remedy when a person acts or represents for himself on behalf of a group of individuals in a lawsuit where the nature of the other plaintiffs’ cases is similar. It saves time and cost for both the courts and the plaintiffs hence better suited where the number of damages is not that big while encouraging the defendant to settle.

What Is A Class Action Lawsuit

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As a responsible citizen, it is the role of every person to take a necessary step against all odds, as it could also save the future of civilization. As we all know, the world is dynamic, and there is a risk involved in every situation. To better human lives, laws have been successfully implemented in different cases that give justice to the common people.

Key Takeaways

  1. A class action lawsuit is when an individual act or speaks for a group of people in a lawsuit where the other plaintiffs’ cases are similar. A class action lawsuit is a legal remedy.
  2. In 2017, Samsung suffered through a class action lawsuit when many of its new phones burst. There are numerous examples, such as adverse consequences from surgical procedures, complications from breast implants, adverse effects from contraceptive devices, etc.
  3. Without the development of “class action lawsuits,” many corporate entities and business units might engage in an unusual rise in fraudulent actions.

Class Action Lawsuit Explained

A class action lawsuit is a type of legal action that is implemented by some representative plaintiff or sometimes by a group of individuals, who can be called a class. This group has suffered similar problem or may have similar claims against some common defendants.

In the process, a considerable number of people join together with same type of legal grievance and follow their claims collectively instead of doing it individually.

The representative or the lead plaintiff or class action lawsuit lawyers will file the lawsuit on their own behalf and on behalf of other individuals with similar problem and claim. Typically, they are those people who might have suffered same type of damage or harm resulting from the same incorrect conduct of the defendant.

Such type of cases involving class action lawsuit settlements can include product liability, employment discriminations, violation of consumer protection, environment related violation, etc. It gives access to justice to those who may not have the required resource to do so on their own. It also helps avoid inconsistent outcomes in similar cases and stops unlawful and wrong conduct by holding the defendants responsible and accountable for their actions through financial consequence.

Without the evolution of ‘class action lawsuits,’ there might be an abnormal increase in fraudulent activities by different corporate houses and business units. Again, if the business units proved guilty, then necessary steps could be taken against them apart from providing class action lawsuit claims. The business license can be canceled if fraudulent activities are practiced repeatedly by any organization. The goodwill gets marred if the class members’ compensation is not duly paid. At the same time, the lead plaintiff should abide by the responsibilities keeping in mind the consequences faced by the other members. Thus, with the advent of active ‘class-action lawsuits,’ there should be the emission of fraudulent activities in society.

There should be a common theme or ordinary circumstances where several people got affected due to wrong commitments or damages caused by the usage of any newly launched product.

Class Action Lawsuit

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How To Start?

Starting a class action lawsuit requires a number of steps which are typically done with the assistance of class action lawsuit attorneys. The steps are as give below:

  • Issue identification – First it is necessary to determine if the case or the situation actually involves a common legal problem affecting a group of people. It is only used if a large group of individuals suffer damage due to an inappropriate action or negligence from a common defendant.
  • Seek legal representation – Class action lawsuit lawyers who is an expert in this field and who specializes in class actions will be able to valuate and understand whether the class actionis required or not and give proper guidance regarding the legal process.
  • Class certification –Certification is possible only if the cases meet some common criteria like large number of members, common legal issue, same type of claims and adequate representation.
  • Notification – In the next step, notification is sent to all members regarding the lawsuit and their option to opt out. The members who choose not to opt out will become a part of the lawsuit and is bound to accept the outcome.
  • Evidence gathering – this is an important part of the entire process, in which the required information and evidence is collected which may include documents, interrogations, dispositions etc. This helps in making the case strong on the class’s behalf.
  • Trial and settlement – During class action lawsuit settlements there may be negotiation for settlement. However, it requires the approval of the court because the evidences will be presented to the jury or judge.
  • Settlement distribution – On successful completion of the lawsuit, the court will determine the damage relief and class action lawsuit attorneys will ensure a fair distribution of the damage settlement.

However, the process of class action lawsuit settlements are complex, time consuming and require legal expertise.

When A Class Action Lawsuit Becomes Certified?

When several class action lawsuits were charged against a single product/service or any miss commitment, the lawsuit became a class action called ‘Lead Plaintiffs.’ Thus, the person who faced the damages could ask the court to certify the case as a class action. However, to approve the case as a class lawsuit, there are certain criteria that the plaintiffs have to show as proof. Again, under the following circumstances, a class action lawsuit can be certified as a ‘Class action suit’:

  1. A legal claim against the defendants should be filed in a court and there should be an attorney or group of attorneys.
  2. Several (more than one) people should have experienced similar losses and damages from the particular product. For an example of class action lawsuit, in case of side effects from any pharmaceutical product, there should be a similarity between the side effects, or else in case of any discriminations the type of injury should be shown as evidence, and proper inspection should be made against it before jumping to any conclusion.
  3. A primary plaintiff should be self-sufficient to represent its class. There should not be any ambiguity or conflict between other class members. Lead Plaintiff’s primary feature could be called a ‘class action suit’ when they would reject damages compensation and coupons for all other class-action lawsuits.

Examples

It has emerged when more than one consumer faces joint damage or loss while using a particular product. In other words, when several people face similar injuries or trouble after using a product (generally newly launched) and the different lawsuit has been claimed by different users.

  • Some common examples of class action lawsuits are damages caused by the usage of electronic gadgets, i.e., Mobile phones, electric heaters, geysers, etc.
  • In 2017, Samsung launched an upgraded Mobile handset named Note7, but some of the models burst at several places worldwide due to its manufacturing defect. The consumer claimed the damages caused by the blast, and the Mobile Company has to bear all the losses of the consumer’s property.
  • Several instances include side effects from pharmaceutical product damage caused by tobacco products, side effects from surgery, breast implants, or a contraceptive device, etc.
  • Other cases include fraudulent activities in corporations like the presentation of misleading financials to investors, siphoning off money from the business, miss-utilization of wealth, etc. Again, an employer making false commitments to its laborer’s employees regarding compensations, benefits, etc., can be treated as a ‘class action suit’ by the employees.

When Is A Potential Class Action Lawsuit Rejected?

The general procedure followed by a court in case of a ‘class action suit’ is that all the people who have suffered were informed via mail if they want to raise their voice? Unless the people opt out of the case, the class action lawsuit remains very much active, and every person remains attached to the case.

Class members with zero evidence cannot participate in the class-action lawsuit. However, the lead plaintiff has a big role to play; they consult with the attorney and decide if the defendants’ compensation should be granted or not? Other members who have suffered only have the option to vote for the Primary Plaintiff.

How to Divide the Class Action Lawsuit Salary?

After the class members have proved the case and if the defendants proved to be guilty of fraudulent activity, the salary amount is being asked to pay the defendants to the suffering people. The amount generally equals the total damages of all the class members and certain extra charges. The attorneys take a certain percentage of the money as a fee, and the lead plaintiff takes another part of the amount. The rest is generally divided by the other class members.

Class Action Lawsuit Vs Lawsuit

The above are two different legal proceedings with some significant differences.

  • In the former, a group of individuals bring a lawsuit on their own behalf or other people who have suffered similar damage but in case of the latter, an entity or an individual brings claim against another individual or entity and seeks resolution.
  • The size of the group of people who have suffered damage in case of the former is usually very large, with similar claims, whereas for the latter, is usually a sinle plaintiff against one defendant.
  • In a class lawsuit, the entire process is streamlined and the numerous claims are consolidated into a single case. But for a plain lawsuit, each case is handled separately which amy result in effort duplication.
  • In case of the former, the members are included in the class action unless they wish to out-out. But for the latter the individuals have the choice of whether to go for legal proceedings or not.
  • Regarding the damage and settlement process, if the class lawsuit is successfully resolved, then the damage or the settlement of class action lawsuit claims are distributed among the members based on certain criteria. But for a regular lawsuit, there is no sharing of damage claim. The entire settlement goes to the individual who has filed the case.

Frequently Asked Questions (FAQs)

What lawsuit had the highest settlement?

A $206 billion settlement was reached in 1998 between Philip Morris, RJ Reynolds, and two other tobacco corporations, at least partially covering the costs of treating illnesses brought on by smoking.

What Is a Settlement in a Class-Action Lawsuit?

The money from winning a class action case is a settlement. The class-action lawsuit is made up of the compensation given to the participants.

What dangers come with participating in a class action lawsuit?

Here are some of the most significant drawbacks of class action litigation.
Very little compensation
Limited Participation, 
Slow Progress, 
No Individual Claim, and 
Absence of Non-Monetary Recompense.

This has been a guide to what is Class Action Lawsuit. We explain how to start it with examples, differences with lawsuit & when is it certified. You may learn more about Corporate Finance from the following articles –

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