About Class Actions

About Class Actions
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Although it appears that the modern-day class action probably was born sometime during the Middle Ages, there are reports of the application of the procedure dating as early as 824 A.D. During the Middle Ages, a representative lawsuit could be pursued by legal and religious authorities to enforce the duties owed by a member of groups like villages, guilds, parishes and manors to all other group members.

United States Supreme Court Justice Joseph Story usually receives credit for generally formulating the modern standards for class actions in a decision from 1820, West v. Randall: "It is a general rule in equity, that all persons materially interested, either as plaintiffs or defendants in the subject matter of the bill ought to made parties to the suit, however numerous they may be." The United States Supreme Court adopted Justice Story's analysis in 1853 in Smith v. Swormstedt, which allowed all preachers in the Methodist Episcopal Church South to bring a representative suit seeking a declaration of the rights of each sectional group to funds of the Methodist Episcopal Church of the United States.

In 1938, Congress promulgated the first Federal Rules of Civil Procedure making available class action suits for damages in the United States. Eventually, in 1966, Congress completely re-wrote the class action rule to give us the federal rule substantially in the form we have today. Many states have adopted similar class action procedures closely modeled after the federal rule. In 2005, based on its finding that “class action lawsuits are an important and valuable part of the legal system,” Congress enacted the Class Action Fairness Act, which greatly expanded federal court jurisdiction over class actions to provide an effective mechanism for resolving interstate consumer class actions.

Most class actions are litigated on a contingent-fee basis, where the attorneys agree to advance all costs of the litigation and to seek their attorney's fees and expenses solely from any recovery achieved and only as approved by the presiding Court. The United States Supreme Court expressly approved of the benefits that can be achieved through such arrangements in the prosecution of a class action, in 1980, in Deposit Guaranty Nat. Bank, Jackson, Miss. v. Roper, 445 U.S. 326, 100 S. Ct. 1166:

The use of the class-action procedure for litigation of individual claims may offer substantial advantages for named plaintiffs; it may motivate them to bring cases that for economic reasons might not be brought otherwise. Plainly there has been a growth of litigation stimulated by contingent-fee agreements and an enlargement of the role this type of fee arrangement has played in vindicating the rights of individuals who otherwise might not consider it worth the candle to embark on litigation in which the optimum result might be more than consumed by the cost. . . . The financial incentive that class actions offer to the legal profession is a natural outgrowth of the increasing reliance on the "private attorney general" for the vindication of legal rights.

Also in 1980, the Appellate Division, Second Department, of New York State Supreme Court forcefully set out reasons why class actions serve a valuable function to the public, in Friar v. Vanguard Holding Corp., 78 A.D.2d 83, 434 N.Y.S.2d 698:

The class action is seen as a means of inducing socially and ethically responsible behavior on the part of large and wealthy institutions which will be deterred from carrying out policies or engaging in activities harmful to large numbers of individuals. Absent the class action lawsuit, the theory goes, these institutions will be permitted to operate virtually unchecked and continue to engage in "legalized theft" which is perpetuated because the injured potential plaintiffs frequently are damaged in a small sum (often less than $100) since, realistically speaking, our legal system inhibits the bringing of suits based on small claims.

Additionally, in Muhammad v. County Bank of Rehoboth Beach, Del., 189 N.J. 1, 912 A.2d 88 (2006), the New Jersey Supreme Court provided additional compelling reasons why the class action is so valuable in the context of modern day consumer relationships involving many thousands or even millions of customers all subject to substantially the same practices:

In most cases that involve a small amount of damages, "rational" consumers may decline to pursue individual consumer-fraud lawsuits because it may not be worth the time spent prosecuting the suit, even if competent counsel was willing to take the case. . . . Moreover, without the availability of a class-action mechanism, many consumer-fraud victims may never realize that they may have been wronged.

When a consumer goes through the effort of trying to correct a questionable charge imposed by a regional or nationwide consumer provider, that should be a "tell" that the same questionable charge likely has been imposed on many other customers who may not even be aware of the problem. The prosecution of a class action by one single customer may provide relief and recovery on behalf of everyone, rather than the alternative -- relief and recovery on behalf of no one except the few who see the issue and spend their valuable time arguing with the business (sometimes unsuccessfully to the point of complete frustration) to have it corrected. Properly used, the class action can be one of the most powerful procedural and equitable devices for the adjudication and successful resolution of legal claims offered by the modern judicial system.

Furthermore, proper calculation of the total amount of monetary benefits for a successful class action and proper design of the method for distributing these benefits can help to insure the largest distribution of monies to the most class members possible. Mr. Weinstein has structured monetary benefits and plans of distribution in connection with successfully resolved class actions that have sought to maximize the amounts and effectiveness of the distributions, particularly when the identity of class members and current addresses can be determined from the defendant’s records and appropriate follow-up administration. In Broder v. MBNA Corp., 281 A.D.2d 369, 722 N.Y.S.2d 524 (1st Dept. 2001), settlement checks were distributed without the need for claims forms to more than 6 million class members who could be located through MBNA’s records. In Lan v. Ludrof, 2008 WL 763763 (W.D. Pa Mar. 21, 2008), the identity of substantially all class members and current addresses were known at the time of settlement, and more than 99.3% of the net settlement funds were actually paid out without the need for a claim form. In Emilio v. Robison Oil Corp., No. 1412-2003 (N.Y. Sup. Ct. Westchester County), basic claim forms were necessary, but almost 50% of all class members filed claims, and the net settlement fund of approximately $300,000 resulted in payments equal to approximately 75% of the class members’ total calculated contract damages, in amounts ranging from a minimum of $20 to more than $10,000, with a substantial number of claims paid in amounts from several hundred dollars to more than $1,000 - an extraordinary result for a settlement fund of that size. And in Kitamura & Landa v. Trump Parc Condominium, No. 603562-2008 (N.Y. Sup. Ct. New York County), the location of class members was more difficult, but more than 40% of all class members ultimately filed claims forms, and these claimants all received 100% of their calculated damages plus interest.

Nevertheless, some class actions involve a large number of class members whose identities are not found in the defendant’s records, and who simply cannot be located after the best efforts to do so. Additionally, not all class members will file claims when the use of claim forms is determined to be necessary, or cash their distribution checks. In such instances, excess undistributed monies can be treated as “cy pres” funds available for distribution to appropriate designated charities approved by the court. As a result of Mr. Weinstein’s individual efforts in connection with successfully resolved class actions, more than $950,000 of remaining funds has been distributed to approved charities.



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