United States

The beginnings of the class action in the American legal system date back as far as the mid-19th century, whereas for more than one hundred years (since 1938) it has been possible to speak of the process of shaping the present-day class action model which constitutes an inseparable element of American legal culture as well as a point of reference for the solutions adopted on the European continent.

In federal law, the class action is provided for by Rule 23 of the Federal Rules of Civil Procedure.

The American class is a group made specific in terms of concrete criteria and, at the same time, defined in such a manner that indicating group members by name is impossible (it is “everyone whom the case concerns”). Such a group may appear both on the claimant side, which occurs most frequently, and on the defendant side (e.g. in the case of claims on the grounds of violation of industrial property rights, a patent holder, for example, may sue all parties in violation of the patent).

In the US, the class action is presently, i.e. following the 1966 amendment to Rule 23 of the Federal Rules of Civil Procedure (initially providing for the opt-in model), based on the opt-out model which, no doubt, is the most characteristic feature of the American solution. It means that the effects related to the commencement of a class action and the judgment issued in a specific case affect all the entities falling within the definition of the group (class). The judgment issued is binding for all, even for the parties who had no knowledge of the ongoing proceedings unless a given entity petitioned the court to be removed from the group. Only the group (class) representative who brought the statement of claims (class action) is a party to the court proceedings.

Due to the effects that class action has for all group members, the opt-out model requires the adoption of a specific notification procedure for informing all potential group (class) members of the ongoing proceedings. The manner of notification depends on the number of group members – as a rule, it is both direct contact (e.g. by e-mail) and a media announcement. Notification, however, is not required in cases where the initiator of the proceedings only requests a determination (e.g. the existence of a right or legal relationship) or issuance of a specific order or prohibition by the court. In such cases one cannot exclude oneself from the group, i.e. use the opt-out mechanism.

Preconditions of admissibility for hearing the case in a class action procedure

A federal regulation (Rule 23 of the Federal Rules of Civil Procedure) provides for four preliminary conditions of admissibility of bringing a class action – all of which must be met cumulatively – cf. Rule 23(a) and three auxiliary conditions – at least one of which must be met – cf. Rule 23(b):

The preliminary conditions to be cumulatively met are:

  1. The group (class) must be sufficiently numerous so that the joint appearance of all of its members in the same proceedings is impossible (the numerosity precondition – “the class is so numerous that joinder of all members is impracticable”);
  2. There are factual or legal circumstances shared by the group (the commonality precondition – “there are questions of law or fact common to the class”); what is important, the legal and factual grounds of claims do not have to be identical, it suffices if they are common;
  3. The group representative’s request or manner of defence should be typical for the entire group (thtypicality premise– “the claims or defences of the representative parties are typical of the claims or defences of the class”); therefore, the representative’s (representatives’) legal and factual situation may not differ significantly from the situation of the remaining group members, moreover
  4. The representative is to guarantee a fair and adequate representation of the class, therefore, the representative should have a legal interest in conducting the litigation and possess adequate funds (the precondition of adequacy – “the representative parties will fairly and adequately protect the interests of the class”).

Auxiliary conditions – (at least one be met):

  1. it must be apparent from the circumstances of the case that bringing separate individual actions by or against individual members of the group (who would conduct proceedings against the same opponent in a mutually incompatible manner) would create the risk of contradictory or divergent judgments towards each of those members, or rulings which would ultimately clearly undermine the ability to protect the interests of other members of the potential group (class) that are not parties, or
  2. the factual circumstances concerning the opponent’s act or omission must be generally applicable to the claims of all members of the group so as to make the judgment rendered in the class action decision appropriate in relation to each of them; or
  3. the factual and legal circumstances applicable to all members of the group must prevail over circumstances affecting only the legal situation of its individual members (auxiliary condition of predominance – the questions of law or fact common to the members of the class predominate over any questions affecting only individual members); this condition seemingly overlaps with the preliminary premise of commonality, while in practice it is the absence of the predominance factor that leads to the elimination of a significant number of proceedings from the objective scope of class action – e.g. due to the composition of the group comprised of members from different states (which would necessitate the application of many differing legal systems, including case law, to individual members of the group in a single class action) and, moreover, class action should be the most appropriate way for the resolution of the dispute (auxiliary condition of superiority – a class action is superior to other available methods for the fair and efficient adjudication of the controversy); this condition will in turn be met e.g. when a large number of consumers pursue a relatively small number of relatively small individual claims from the same entrepreneur – then pursuing them all in one group proceeding is the only practical solution, taking into account the proportion of each of these claims to the anticipated costs of individual proceedings; out of the auxiliary conditions specified alternatively, indicated under Rule 23(b), the condition of fulfillment of the criteria of predominance and superiority is, in principle, appropriate in the case of pursuing monetary claims in class action.

Federal law provides for a preliminary examination procedure designed for deciding whether the case may be heard as a class action. To be later heard in the class action, the statement of claims must obtain a certification order. The final assessment as to whether a given statement of claims complies with the class action conditions or not belongs to the court. The court should settle this issue (to the claimant’s request) as early as possible, however, due to the manner in which class action admissibility conditions are formulated, the court enjoys substantial discretion in this regard. In the case of a refusal of certification, individual proceedings concerning the claims of individual members of the group may continue, without any obstacles, but already on an individual basis (although in practice, a refusal of certification often means the termination of the proceedings in general – due to the unfavourable proportion of individual claims of individual members of the group to the costs of conducting individual proceedings). It is also possible to reapply for certification in the same case at a later date, e.g. having completed the missing prerequisites for the class action.

The certification stage also involves the following: 1) determination of the composition of the group by the court, 2) identification of claims of individual members of the group, as well as 3) appointment of a class counsel chosen by the representative of the group – in the person of one or more attorneys of the party to the proceedings, representing the interests of the group – with the task of representing the group’s interests during the proceedings. Sometimes the appointment of a “lead plaintiff” and/or “lead counsel” may also take place before the certification procedure (this is the case, for example, in securities class actions under the Private Securities Litigation Reform Act of 1995).

In principle, at the federal level, a class action is admissible in any matter that is subject to consideration by a (federal) court. This is because no sectoral exclusions are provided for in this case (e.g. as regards individual categories of claims). However, restrictions in this respect sometimes result from individual state regulations but are usually quite narrowly defined and may apply to, for example, certain categories of administrative (including tax) proceedings.

The class action mechanism is also allowed by state regulations. The different states have regulated separate procedural requirements that a case must meet in order to be considered as a class action. Significant systemic differences relate to the prerequisites for the admissibility of group proceedings, the objective scope, or the rules for notifying group members of the proceedings.

Most states are dominated by the opt-out model characteristic of the federal system, however, some have allowed an opt-in model. The exception is the state of Mississippi – the state’s law does not provide for class action at all. In Virginia, on the other hand, only precedent law operates in this area – and to a very limited extent. However, no statutory regulation exists here.

Costs and manner of financing the proceedings

American law contains no regulations that would allow the successful party to demand reimbursement of the incurred costs from the unsuccessful party. The principle is that each party covers their own expenses incurred in connection with the proceedings (the so-called American rule). Therefore, the American rule is the opposite of the rule known to the Polish legal system, according to which it is the ‘loser who pays’.

However, for those class actions which involve suits for money damages, it is common, by way of exception to the American rule, to apply the so-called ‘common fund’ approach (common fund doctrine), assuming that, until the case is concluded, all costs of the proceedings shall be borne by the claimant’s attorney, representing the interests of the group members. Then, but only in the case of a positive outcome (because in the case of a loss, the ‘fund’ is not created at all), this attorney may petition the court for remuneration in the appropriate amount (usually 25-35%), paid from the sum of money awarded from the opponent. The amount awarded is precisely that ‘common fund’ which, in the case of class action claims other than claims for payment, is obviously missing. This, in turn, substantiates the application of the American rule in these other cases on general principles. This is because the basic condition for adopting the common fund doctrine is the creation (existence) of the fund.

In turn, in the event of the conclusion of group proceedings, a settlement usually also covers the question of distribution of the costs of the proceedings between the parties (including the costs of legal representation by professional representatives). If a settlement has been concluded in a case for payment, then, similarly as in the case of awarding a sum of money by a court judgment, a ‘common fund’ is created from which the remuneration of the representative and other costs of the proceedings already incurred can be covered. In American law, financing class actions by third parties is inadmissible.

The type of relief (legal protection) that can be obtained (court decision)

As a rule, the class action aims at awarding monetary compensation (damages) to a group (class) as a whole. In principle, each type of compensation is admissible, however, if the damage is precisely individualised (e.g. non-monetary damage – emotional damage), complying with conditions for class action admissibility may pose difficulties.

What is of relevance is that American law allows for the so-called punitive damages in cases of perpetrators’ reprehensible actions. Nevertheless, in recent years, the federal Supreme Court case-law has aimed to impose limitations on the value of punitive damages and requires to take into consideration such circumstances as a degree of fault and disproportion between the actual damage and punitive damages so that the awarded compensation is reasonable and proportionate to the wrong committed.

If a settlement with the defendant is concluded in the course of a class action, it must be approved by the court.

Practice and significance of the institution. Development trends

The degree to which the institution of class action is used in the US is reflected by famous American litigations related to product liability, e.g. against tobacco companies (for example proceedings where claims were based on the misleading marketing and advertising – a class action of Marlboro Lights and Cambridge Lights cigarette brand smokers against Philip Morris Inc.).

The class action is also readily used in pursuing claims resulting from the non-observance of competition law (antitrust law), especially compensatory claims arising from price cartels for, in such cases, the individual pursuit of small amounts (resulting from the inflated price) would be entirely uneconomic.

At the same time, the institution of a class action has become widely criticised in the US. There are voices that the only people actually benefitting from class actions are attorneys who represent the group; this is due to the construction of remuneration established as a percentage of the damages awarded globally. Sometimes, the class action is even referred to as a ‘legalised blackmail’ due to the fact that the majority of these cases end in [out of court] settlements. As a rule, entrepreneurs are willing to pay the agreed damages instead of risking entanglement in lengthy and costly litigation threatening the reputation of their enterprise.

It is also worth mentioning that in 2005 The Class Action Fairness Act was passed, which extended the jurisdiction of federal district courts in mass class actions involving an ‘interstate’ element (cases in which any member of the group represented on the claimant’s side is a resident of a state other than that in which at least one of the defendants is domiciled), increased the protection of rights of individual group members, and introduced certain limitations in the scope of legal representatives’ fees.

The popularity of the class action institution is also illustrated by the fact that in recent years contractual provisions regarding the waiver of the right to participate in class action (class action waiver) have been appearing in contract practice (including arbitration agreements).