Texas Law
Texas Class Action Law
- Class Action Law
Class Action Law
Facing a class action lawsuit is a complex and often expensive undertaking for any business, involving the potential for multimillion dollar verdicts and untold adverse publicity. In most civil lawsuits, a plaintiff files a complaint against a defendant, the parties appear in court and are given an opportunity to present evidence, and any ruling in the case is binding only on those parties. The class action lawsuit is an exception to this general rule. In a plaintiff class action case, a named plaintiff initiates a lawsuit on behalf of numerous other persons who have similar claims, but who are not named in the lawsuit and who never need to appear in court. A defendant class action is a civil suit in which a named defendant is required to represent the interests of other defendants who are similarly situated. The Dalkon Shield, Agent Orange, silicone breast implants, and the Ford Pinto all have been the subjects of class action litigation. Because of the unique and complex nature of class action litigation, many attorneys specialize in handling these kinds of cases. This chapter will discuss some of the characteristics of class action litigation. Information about civil litigation in general may be found in the Process of a Lawsuit Chapter.
History and Purpose of Class Actions
Like much of American civil law, class actions can be traced to the English chancery court system. Prior to the use of class actions, the English courts required that any person, whether plaintiff or defendant, who had a material interest in a case be made a named party in the litigation so that a judgment in the case would be binding on him or her. This process was called joinder, because the parties were joined to the litigation. Joinder was required in these cases regardless of the number of people who might be involved. In many cases, this practice was extremely cumbersome. Cases could not be filed if it was impossible to locate all potentially interested parties. In a case in which there were many parties, all of whom could be located, the case would become unmanageable with so many people directly involved in the litigation.
In the 17th century the English courts established a "bill of peace" that allowed one representative of a group to bring or defend an action on behalf of the entire group. The bill of peace was allowed when there were too many interested persons to be joined in one lawsuit, all the members had a material interest in the issues, and a named representative could sufficiently protect the interests of the absent group members. If these three requirements were met, the judgment of the court would be binding on all members of the represented group, including those who did not personally appear before the court.
The concept of class representation was adopted and developed on a case-by-case basis in the United States. In 1853, the United States Supreme Court reiterated that, for the sake of both justice and convenience, courts should allow a representative to sue or be sued on behalf of all those who were similarly situated, with the resulting judgment binding all members of the group. In 1938, in an effort to provide more uniformity in the conduct of these cases, the Supreme Court adopted Federal Rule of Civil Procedure 23 to govern class action litigation. Many commentators believe the adoption of Rule 23 reflected developments in society at the time. Industrial developments were advancing faster than safety issues, resulting in large numbers of individuals suffering similar injuries. These individuals often lacked the resources, knowledge, or experience to sue individually. Class action litigation was perceived as a way to address these problems. Class actions in state courts developed as an alternative to class actions in the federal system. The Supreme Court discouraged class actions in federal court unless they involved a question of federal law, which made federal courts less accessible for parties. To compensate, the Supreme Court ruled that state courts could handle all types of class action litigation, even if not all class members resided in the particular state. As was the case in the federal system, class actions in state courts initially developed on a case-by-case basis. Gradually, however, states began to adopt rules to govern the litigation. In 1941, Texas substantially adopted the Federal Rule. The Texas statute was revised in 1977 to reflect changes in the Federal Rule.
There are a number of traditional justifications for allowing class action litigation. These include:
- Promoting efficient use of the courts by having one large lawsuit instead of numerous small cases
- Ensuring that persons who are similarly situated receive similar treatment
- Protecting the interests of all class members by ensuring that all injured parties receive compensation (with individual lawsuits, those who sue early may recover at the expense of those who sue later)
- Encouraging private attorneys to prosecute actions that further the enforcement of laws and discourage socially unacceptable conduct
Class Action Characteristics and Procedure
Almost any issue can form the basis for a class action lawsuit. Product liability, personal injury, employment discrimination, disasters, and environmental pollution all have been subjects of class action litigation.
nitiation of a Class Action
The decision to pursue a class action, rather than an individual case, originates in different ways. An individual may initiate litigation, then learn that others are similarly situated, and so seek to have the issues determined on behalf of the entire class. Other class action suits are commenced by plaintiffs' attorneys, who attempt to solicit members to participate in litigation after a disaster, for example. In the event of a fatal plane crash, an attorney may contact the family of one victim and persuade a family member to serve as a representative of all victims' families in a class action suit against the airline. The Supreme Court has held, however, that this type of solicitation is unethical if the case is pursued for the attorney's personal gain. Solicitation is allowed, however, if the attorney can show that the litigation takes the form of political expression. For example, an attorney could solicit members of a particular ethnic group who allegedly suffered discrimination by the same defendant.
Class Certification
Once the decision is made to pursue a class action, the named representative files a motion to have the court certify the class. The party seeking the class designation has the burden of showing that the prerequisites for certification are met. The request for certification itself often generates tremendous opposition by defendants. Generally, the decision to certify cannot be appealed, although there are some cases in Texas that have suggested that an order denying the motion for certification may be appealed. Once the class is certified, the defendant usually has little choice but to proceed in defending the case. Also, the certification of the class carries tremendous importance in pre-trial settlement negotiations because a certified plaintiff class will have greater leverage in negotiating with a defendant than each individual would have alone. Many business defendants do not want the adverse publicity often attached to being the subject of a class action lawsuit. Thus, most defendants vigorously oppose class certification. This is especially true if the defense feels it may lose the case once the court examines the ultimate issues subject to controversy. There are times, however, when a defendant may wish to encourage certification of the class. If, for example, the defense felt it would prevail on the merits of the case, it would seek to have the class defined as broadly as possible so the judgment in its favor would be binding on a maximum number of potential plaintiffs.
Because the law provides that a class representative may sue or be sued on behalf of a group, class actions may involve a plaintiff class, a defendant class, or both. In most plaintiff class actions, the group seeks certification in order to recover money damages for injuries or to obtain some other relief on behalf of the class members, such as halting pollution or discrimination practices. In defendant class actions, the plaintiff seeks to impose liability on the named defendant as well as on absent defendant members of the class. For example, tenants may sue a named landlord to seek relief from a practice of all similarly situated landlords. These cases are rare, and courts typically are stricter in applying the prerequisites for certification in cases involving defendant classes. Courts pay particular attention to whether the named defendant representative can adequately represent the interests of the absent defendant class members. Requests for defendant class certification are granted infrequently.
Certification in the Federal System
In determining whether to certify the class, courts look to several factors. Federal Rule 23 sets out seven factors the court must consider in determining whether to grant the certification. The court first must determine if there is a class to certify and, if so, the objective factors that will help define the class. Second, the named representative must be a current member of the defined class. In prison litigation, for example, a former prisoner may not initiate class litigation on behalf of those still confined. Third, there must be so many members of the class that joinder is impracticable. Usually in federal cases if there are at least 40 individual members the courts will consider the class large enough to make joinder impractical. The question is not simply one of numbers, however. The court also considers whether the geographic location of the various claimants makes joinder unrealistic. The size of the individual claims is a factor, also. If individual claims are large, fewer members will be needed to justify certification. Federal courts have certified classes with as few as 18 members when joinder was impractical based on all factors. Conversely, courts have refused to certify classes with as many as 840, holding that the number of individuals was not too many to be joined as parties in a traditional lawsuit.
The fourth prerequisite is that the claimants have issues in common. The commonality requirement is met when all class members share at least one issue of law or fact. The fifth requirement is that the claims of the named representative are typical of those of the members of the class. This ensures that the named representative will vigorously fight for those issues.
The sixth requirement is that the named representative can fairly and adequately protect the interests of the class. This factor often is subject to litigation, because the judgment will be binding on all members of the class, including those who never appear in court. In deciding this issue, the court examines a number of factors. First, the court must determine whether the named representative actually has a stake in the litigation. If he or she is motivated by some unrelated reason, such as revenge, greed, or to use the class action to gain a competitive business advantage, the certification should fail. The court also will examine the relationship between the named representative and the lawyer proposing the certification. The named representative and the lawyer should not have a family or financial relationship that might interfere with the attorney's independent judgment about the handling of the case. The court also will examine the competence of the attorney for the named representative. Because class actions are complex, technical, and extensive, the court must be assured that the representative's attorney has the experience and resources to handle the case. Finally, the court will look to the class itself to determine whether there are conflicts over the issues. The existence of conflict will not automatically defeat certification, but it may mean that special certification is required, as discussed below.
The seventh prerequisite for certification in the federal system is that the case fit one of three categories that justify the use of the class action device. This determination establishes that the class action is the most appropriate way to proceed. First, the court determines whether denial of the class action would cause prejudice to class or non-class members. For example, if individuals filed lawsuits after class certification was denied, and the defendant ran out of money after the first few claims were settled, individual members might not be compensated. A defendant also could be prejudiced by the denial of certification, in that a defendant would be required to respond to individual claimants. If the court finds there would be prejudice by denying certification, then the seventh prerequisite for certification is met. The prerequisite also may be met if the suit is for injunctive or declaratory relief. These cases often involve employment discrimination, consumer protection, or environmental issues. Typically, the plaintiff is seeking to halt some practice of the defendant and class action may be the most effective way to do this. If the case is of this type, the seventh prerequisite is met. Finally, the prerequisite will be met in cases in which the sole link between the plaintiff class members is the claim that they suffered similar injuries caused by the same defendant or class of defendants. This analysis requires that the interests the plaintiffs have in common predominate any they do not share, and that the class action is the superior method for handling the claims. If these factors are met, the seventh prerequisite is fulfilled and the court may certify the class.
Certification Under the Texas Rule
Under Texas law, there are four prerequisites to class certification, which are similar in content to the federal prerequisites. First, the class must be so large that joinder of all the parties is impractical. This is the simplest prerequisite to satisfy and seldom is disputed. Like federal court judges, state court judges look at the number of claimants, the location of the class members, the amount of the claims, and the ability of individual members to sue on their own, as well as the likelihood that they would do so.
The second prerequisite under the Texas rule is that the members of the class have questions of law or fact in common. This issue becomes the subject of litigation if a defendant demonstrates that he or she could assert a defense against some, but not all, of the members of the class--the defense is separate and independent from the common issues. Although defendants use this argument to challenge class certification, such challenges seldom are successful. Courts usually determine that the use of the class action will not impair the defendant's ability to assert the appropriate defenses, and that the defendant will not be harmed by having to do so within one large proceeding, as opposed to individual hearings.
The third prerequisite to class certification under Texas law is that the claims or defenses of the class representative are typical of the class. The final factor is that the class representative is able to fairly and adequately protect the interests of the class members. These last two factors incorporate from the Federal Rule the requirement that the named representative have common interests with the members of the class so he or she will be motivated to vigorously fight for the common rights. Because the representative must speak for all absent class members, the court must be assured that the representative shares their interests sufficiently to advocate for them.
If the court determines that these first four prerequisites for class certification are met, under Texas law the court then must determine if a class action may be maintained. In making this determination, the court looks to many of the same factors set forth in the Federal Rule. First, the court must determine whether the denial of the class action would cause prejudice to the class or to non-class members. For example, a class action lawsuit will be held to be proper if there is a possibility that a defendant will run out of money after the first few individual claims are settled so that some individuals are not compensated. A defendant also could be prejudiced by the denial of certification, in that a defendant would be required to respond to individual claimants. A second ground for maintaining a class action is if the suit is for injunctive or declaratory relief, as in cases of employment discrimination, consumer protection, or environmental issues. In these cases, the class is seeking to halt some practice of the defendant that affects the entire group of people and therefore makes class action litigation an appropriate method of adjudication. A third ground for maintaining a class action in Texas is that the objective of a suit is adjudication over specific property. The final, and most common, ground for granting a class certification is that the common questions of law or fact predominate over those the class members do not share and class action litigation is "superior" to other methods available for the fair and efficient resolution of the controversies. This two-part test mirrors factors set forth in the Federal Rule for "predominance" and "superiority." In making this determination, the courts will consider the extent and nature of any individual lawsuits about the same issues that already have been started by or against members of the class. The court also considers the difficulty of managing the case as a class action, as well as the desirability of bringing all parties together in the Texas courts. Finally, the court will consider the interest class members may have in personally controlling the prosecution or defense of separate cases. In the Dalkon Shield cases, for example, the court denied certification of the class on the ground that the injuries and trauma suffered were so great that each injured woman should have an opportunity to present her case to the court.
In addition to the general rules governing class actions, Texas also has special rules governing lawsuits in which a shareholder sues on behalf of a corporation ("derivative" suits). While many of the provisions for these special types of class action suits are similar to the general rules, a full discussion of their specific provisions is beyond the scope of this chapter.
The Certification Order
Once the court has determined that class action is the appropriate method of resolving the disputes, the judge issues a certification order. The order defines the terms of the lawsuit, defines the class, defines the issues of the case, and appoints the class representative.
In defining the class, the court has several options. The court may certify the class as proposed. If, however, the court determines that there are conflicts between the class members, the court may certify a modified class. The court could modify the class by splitting the group into subclasses, each with its own representative. The court also may choose to certify only certain issues, creating a partial class action on those issues alone, and leaving class members free to pursue remaining issues in individual suits.
In appointing the class representative, the court also has many options. In cases involving a plaintiff class, the plaintiffs typically nominate the representative. In cases involving a defendant class, it is also the plaintiff who typically nominates a defendant representative. In either case, the court has the discretion to reject the nomination and appoint another appropriate representative. This can be particularly important in defendant class cases. Because the defendant class representative is being asked to take on the burden of protecting absent class members from incurring liability, the court must ensure that the representative is capable of handling the tasks. In making this determination, the court will consider the same factors used in selecting a plaintiff representative, but may subject the nominated defendant representative to even greater scrutiny. The court will examine the resources of the named representative, as well as his or her stake in the case.
Defense Motion to Dismiss
As soon as possible after the filing of a class action complaint, most defense attorneys will file a motion to dismiss the case. A court typically will hear such a motion only after resolving the question of certification, but there are a few exceptions. A motion to dismiss may be based on a number of factors. The defense may allege that the plaintiffs failed to comply with procedural requirements, that the complaint does not give enough detail to allow the defense to understand the nature of the claim, that the case was filed in the wrong court, that the named representative cannot represent the rights of the class, and/or that the claim is barred by the statute of limitations. As stated above, if the defendant is concerned that the case may be lost on the merits, all efforts possible should be invested to have the case dismissed at the early stages.
Notice Requirements
Once the case is certified as a class action, the court usually requires the named representative to give notice to the absent class members. In the federal system, in cases in which the plaintiffs are seeking money for damages for injuries, the court may require that each member be given personal notice by first class mail. This can be incredibly expensive because the courts typically require that the representative notify each and every reasonably identifiable member of the class. In federal cases involving declaratory or injunctive relief, courts usually allow greater flexibility in how notice is given. In any event, the court has discretion in controlling the content, timing, distribution, and method of giving notice.
The Texas notice requirement is somewhat less rigid than its federal counterpart. Texas law provides that the court may order the representative to give "the best notice practicable under the circumstances." The statute provides that the court may require the representative to give individual notice to all class members who can be identified through reasonable effort. Notice by publication in a well-circulated newspaper may be sufficient in some instances. In most cases in which individual notice is required, the plaintiff representative looks to the defendant to provide information about potential class members. The court may order this information disclosed as part of discovery, in which case the defendant must comply or face court sanctions. The cost of searching the defendant's records, as well as the cost of notifying the class members, is borne by the named representative. These costs are, however, subtracted from any recovery gained by the class, so each member ultimately shares the burden of proving notice.
Intervention and Exclusion
One of the purposes of giving notice is to allow potential class members to decide whether they wish to be part of the class or to pursue their own cases individually. Because the judgment in the class action binds all class members, even those who do not appear, most courts allow individuals to "opt out" of the class. Typically, members will be included in the class unless they send written notice opting out. Individual class members with larger claims may elect to be excluded from the class and pursue their cases on their own. This arrangement is the most difficult for a defendant, who then is faced with the class action suit as well as a number of individual suits. Most class actions also provide for individuals to join, or intervene, in the case at a later date if they meet the prerequisites of the class.
Pretrial Issues and Settlement Negotiations
As noted above, courts monitor class action litigation more than traditional litigation. Typically, a timetable is set for discovery and presentations to the court. In a large class action case with more than one named representative, the court will appoint a committee of counsel from among those representing the named class members. The court closely monitors and regulates the discovery process, and will impose sanctions for failure to respond to discovery requests.
Most class actions, like other cases, are settled before trial. Under both the Texas and Federal Rules, a class action case may not be settled or dismissed without the approval of the court. It is unique to American law and to class action litigations that the parties are not free to end the litigation without the approval of the court. As guardian of the interests of the class, the court must ensure that any settlement reached is fair, reasonable, and in the best interest of the parties, including absent class members. The burden is on the proponent of the settlement to show that it meets these requirements. The court may require that the proponent give notice of the proposed settlement to the members of the class. Although individual members of the class may object to a proposed settlement, the court still may approve it if the judge finds the agreement meets the requirements outlined above.
Attorney Fees
Although not governed by the rules, it is the practice of the courts to award attorney fees to the successful party in a class action. Courts today typically follow formulas for determining fees. They require attorneys to regularly produce detailed records of work done on the case, broken down by the various classes of legal workers (such as senior partner, junior partner, associate, and paralegal) and the work done by each. The court then determines the "normal billing rate" for each of the attorney levels, and multiplies the number of hours by the billing rate. The court may modify these fees to take into consideration certain contingencies. For example, if the case involved highly technical knowledge or skill, or if the attorney's performance was exceptional, the fees may be increased. Courts also compensate attorneys who take on risky cases that are perceived to redress improper conduct or that may have some larger societal benefit.
Historical Use and Abuse of Class Actions
Public reaction to the use of class actions has varied over time. Following the 1966 amendments to Federal Rule 23, class action lawsuits began to be used frequently. They were viewed as a method of bringing justice to the disadvantaged. Because of this, courts liberally construed the law and, in close cases, erred on the side of the class. This led to some abuse of this litigation device. Courts were not as careful as they should have been in monitoring the cases, settlements often were over broad, and attorney fees were frequently and liberally granted to counsel for the class. As a result of misuse and abuse of the class action device, society developed a bad impression of class action litigation.
The result was a backlash against the use of class action litigation. Defendants began to vigorously oppose all use of the class action device. Teams of defense attorneys specialized in assisting defendants in prolonging the certification process, dragging out pretrial discovery, and generally doing everything possible to make the class action difficult for and unattractive to plaintiffs.
The result was extensive litigation over the structure of the lawsuit, without ever reaching the underlying merits of the case. Courts began closely monitoring requests for class certification, frequently denying the motion to certify a class. Attorney fees were closely scrutinized and often drastically reduced, thus discouraging plaintiffs' attorneys from taking on class action representation.
In the early 1970's, attitudes toward the use of class actions again shifted. Plaintiff attorneys began exercising greater restraint in initiating class actions. Plaintiffs became more realistic in defining the participating class and in selecting the issues for litigation. Plaintiffs also recognized that often there were good reasons to forego the use of class actions and sue individually. The expense of notice requirements and pre-certification litigation caused many plaintiff attorneys to reconsider the desirability of using the class action device. Judges also were more careful in monitoring class action questions. In particular, courts more closely scrutinized requests for certification of a class, more carefully examined settlement proposals for fairness, and paid closer attention to requests for attorney fees. Judges also used procedural tools to more precisely define classes and the issues to be included in the litigation, frequently modifying cases to provide for subclasses or sub-issue litigation. As a result, although most defendants continued to oppose certification, such opposition no longer was automatic. Defendants even acknowledged that the class action device could be beneficial in certain cases. These changes have led to more effective and efficient use of the class action device for both plaintiffs and defendants.
Despite these reforms, class action litigation remains a complex and prolonged process. Businesses may need to invest countless time and financial resources in defending class action claims. In addition to the direct costs of the litigation, class action litigation can bring extensive adverse publicity to the target company or to individual products or procedures. For these reasons, companies should respond quickly when faced with complaints that could give rise to class action litigation. Prompt response to and resolution of individual complaints may foreclose the possibility of class action litigation completely. If faced with a class action lawsuit, a business should act quickly to review the issues with counsel and determine how to proceed. Early response and preparedness are critical when faced with a potentially damaging and costly public trial. Even more important, businesses can prevent the possibility of class actions through frequent review of company practices and procedures and prompt correction of any improper policies or practices. This is one area in which prevention can far outweigh the substantial price of the cure.
Resources
Herbert B. Newberg & Alba Conte, Newberg on Class Actions, (Shepard's/McGraw-Hill, Colorado Springs, CO, 3d ed. 1992) is a multi-volume treatise containing several sections on defending class actions. It is updated annually.
Thomas A. Dickerson, Class Actions: The Law of 50 States, (Law Journal Seminars-Press, New York, NY 1988), is a single-volume treatise that also is updated annually.