Class Action

You can read our legal definition guide to learn all about what a class action lawsuit is and how it works. Plus, get FAQs on how to join and file a class action lawsuit and what the average settlement payouts are.

What is a Class Action Lawsuit?

A class action lawsuit is a type of legal action where a group of people who have suffered similar harm or have a common legal claim collectively sue a defendant or group of defendants.

It allows individuals with similar claims to join together and pursue legal action as a single representative group rather than filing separate lawsuits.

Class action lawsuits are typically filed when many people have been affected by the same misconduct, such as defective products, environmental pollution, consumer fraud, securities fraud, or employment discrimination.

By consolidating the claims into a single lawsuit, class actions streamline the legal process, promote efficiency, and provide an opportunity for individuals who might not have the resources or desire to pursue a lawsuit individually.

How do Class Action Lawsuits Work?

In a class action, one or more individuals, known as the class representatives or named plaintiffs, file a lawsuit on behalf of themselves and others who are similarly situated.

The court must certify the class, meaning it determines that the claims and interests of the class members are sufficiently similar to warrant treating them as a collective group.

If the class is certified, all members who fit the class definition and meet specific criteria (such as within a specified time frame or geographic location) are automatically included in the lawsuit and bound by the outcome unless they opt out.

If the lawsuit succeeds, the court may order the defendant(s) to provide compensation or take other remedial actions to benefit the class. Class action lawsuits can be complex, requiring significant resources and expertise to pursue effectively.

Typically, attorneys specializing in this law area handle these cases. It’s important for potential class members to stay informed about ongoing class actions that may involve them and to understand their rights and options if they are part of a class action lawsuit.

Class Action Lawsuit - legal definition

How to File a Class Action Lawsuit?

Filing a class action lawsuit involves several steps. The legal process can vary depending on the jurisdiction and the case’s specific circumstances. Here is a general outline of the process:

  1. Identify the Issue: Determine if your case involves a common legal issue that affects a large group of people. This could include product defects, data breaches, or unfair business practices.
  2. Find an Attorney: Class actions are complex legal matters, so it’s crucial to find an attorney or law firm experienced in handling class action lawsuits. Research and consult with attorneys specializing in the relevant area of law and have a track record in class action litigation.
  3. Determine Class Certification Factors: The attorney will investigate to determine if the case meets the requirements for class certification. This involves demonstrating that there is a defined class of individuals who have suffered similar harm and that pursuing a class action is the most appropriate way to address the issue.
  4. File the Complaint: If the attorney determines that a class action is viable, they will draft a complaint outlining the claims, facts, and legal basis for the lawsuit. The complaint is then filed in the appropriate court, along with a request for class certification.
  5. Class Certification Process: The court will review the complaint and the request for class certification. They will evaluate whether the case meets the necessary criteria, such as common legal issues, typicality of claims, adequacy of representation, and the superiority of a class action over individual lawsuits. If the court approves the class certification, the lawsuit proceeds as a class action.
  6. Notification and Opt-out Period: Once the class is certified, the court will determine the best method to notify potential class members about the lawsuit. This could involve sending notices via mail or publishing notifications in relevant media outlets. The notice will inform potential class members about their rights, the lawsuit, and how they can opt out in order to maintain their right to pursue individual claims separately.
  7. Discovery and Litigation: The litigation process begins, including exchanging information and evidence between the parties involved (discovery). Both sides will present their arguments, evidence, and legal defenses, and the case will proceed through motions, hearings, and potentially trial if a settlement is not reached.
  8. Settlement or Trial: If a settlement is reached between the parties, it must be approved by the court. Class members will have an opportunity to object to the settlement terms. If a settlement is not reached, the case may proceed to trial, where the case will be heard, and the court will render a judgment.
  9. Distribution of Damages: If the class action is successful, the court will determine how the damages or benefits should be distributed among the class members. This could involve direct compensation, refunds, product recalls, or other appropriate remedies.

How do I Join a Class Action Lawsuit?

To join a class action lawsuit, you generally need to meet the criteria of the class defined in the lawsuit and be included as a member of the class. Here are the typical steps to join a class action:

  1. Determine your Eligibility: You must research and determine if you qualify as a class member. Class actions have specific criteria, such as being affected by the same harm or having a similar legal claim as the other class members.
    This requirement details information can usually be found in the class action complaint, public notifications about the lawsuit, or the FAQs page on the official lawsuit website managed by the main law firm handling the case.
  2. Stay Informed: Keep track of class action lawsuits relevant to your situation. You can do this by monitoring legal news, visiting websites that specialize in listing details about active class actions or signing up to receive email alerts or phone calls from law firms or legal organizations.
  3. Receive Notification: If you meet the criteria for a class action, you may receive a notice informing you of your inclusion in the class and your rights as a potential class member. These notices are often sent through mail or published in newspapers, magazines, emails, or websites. The notice will explain how to participate or opt out of the class action.
  4. Review the Notice: Carefully read the notice to understand the details of the class action lawsuit, including the nature of the claims, the relief sought, and the deadline for opting out or participating in the lawsuit. It may also provide instructions on how to submit a claim if the lawsuit is successful and compensation is awarded.
  5. Decide whether to opt out or participate: Depending on the circumstances and your individual preferences, you may have the option to opt out of the class action.
    Opting out means you will not be bound by any judgment or settlement in the class action and can pursue an individual lawsuit if desired. If you choose to remain in the class, you will be included as a class member, and any resolution of the lawsuit will apply to you.
  6. Follow Instructions for Participation: If you decide to participate in the class action, carefully follow the instructions in the notice. This may involve submitting relevant information or documentation, such as proof of purchase or other evidence supporting your claim. You will also be required to sign a statement that says what you are submitting is true.
  7. Seek Legal Advice if Necessary: If you have questions or concerns about your eligibility, rights, or options in a class action lawsuit, it is advisable to consult with an attorney experienced in class action litigation. They can provide guidance tailored to your specific circumstances.

What is the Morris Class Action Settlement?

The Morris Class Action Settlement is a settlement between Bank of America and its customers, who were charged overdraft fees for debit card transactions that were not authorized to be paid by the bank. The settlement was reached in 2021 and is worth $75 million.

The settlement covers customers who had a Bank of America account between July 1, 2014, and July 29, 2021, and were charged overdraft fees for debit card transactions that were not authorized to be paid by the bank. The deadline to exclude yourself from the class suit was November 11, 2021.

Is a Class Action Lawsuit Civil or Criminal?

A class action lawsuit is a type of civil lawsuit, not a criminal legal proceeding. In a class action, individuals collectively sue a defendant or group of defendants for civil damages or other legal remedies. A class action typically seeks compensation or redress for harm caused by alleged wrongdoing, such as product defects, consumer fraud, or environmental pollution.

In a civil lawsuit, the party initiating the legal action (the plaintiff or plaintiffs) seeks to establish that the defendant (or defendants) is liable for the alleged harm and should be held responsible for compensating the affected individuals.

The resolution of a civil case does not result in criminal penalties, such as fines or imprisonment. Instead, it typically involves financial compensation, injunctive relief, or other court-awarded damage remedies.

Criminal cases, on the other hand, include offenses against the state or society and are prosecuted by government authorities.

The objective of a criminal case is to determine whether the accused individual is guilty of a crime beyond a reasonable doubt. If found guilty, the defendant may face penalties such as fines, probation, or incarceration.

What is a Class Action Waiver?

A class action waiver is a contractual provision or agreement that prohibits individuals from participating in a class action lawsuit against a company or organization. It is a clause often found in consumer contracts, such as terms and conditions, employment agreements, or arbitration agreements.

By including a class action waiver, the company seeks to limit its potential liability by preventing customers, employees, or other individuals from joining together as a class to pursue legal action. Instead, it requires each individual to resolve disputes or claims individually through arbitration or in small claims court.

Class action waivers have been the subject of legal debates and scrutiny.

Critics argue that they can undermine access to justice by restricting consumers’ or employees’ ability to hold companies accountable for widespread harm or systemic wrongdoing.

They argue that class actions are mechanisms for individuals with smaller claims to join together and seek redress, as the costs and risks of pursuing individual claims may be prohibitive.

However, class action waivers have been upheld by courts in certain jurisdictions. The enforceability of a class action waiver depends on various factors, including the specific language of the waiver, the governing law, and public policy considerations.

What are Class Action Settlements?

Class action settlements refer to the resolution or agreement reached in a class action lawsuit. When a class action lawsuit is successful, the parties involved may negotiate a settlement to resolve the claims raised in the lawsuit rather than proceeding to trial.

A class action settlement typically consists of a compromise between the plaintiffs (representing the class members) and the defendant(s). The terms of the settlement may include various elements, such as

  1. Compensation: The settlement may provide monetary compensation to class members affected by the alleged wrongdoing. This can compensation can be made through direct payments, refunds, reimbursements, or other financial remedies.
  2. Injunctive Relief: The settlement may require the defendant(s) to take specific actions to address the issues raised in the lawsuit, such as changing business practices, implementing new policies, or providing additional disclosures or warnings.
  3. Non-monetary Benefits: Apart from financial compensation, the settlement may offer non-monetary benefits to class members. For example, it could include extended warranties, product repairs or replacements, or free services.
  4. Attorney’s Fees and Costs: The settlement may address the payment of attorney’s fees and costs incurred by the plaintiff’s attorneys in pursuing the class action. Once the settlement terms are negotiated and agreed upon, they must be presented to the court for approval. The court will review the settlement to ensure it is fair, reasonable, and adequate for the class members.

What is the Average Payout in a Class Action Lawsuit?

The average payout in a class action lawsuit can vary greatly depending on several factors, including the nature of the case, the number of class members involved, the strength of the claims, the defendant’s financial resources, and the settlement or judgment reached.

In 2021, the median settlement amount was $8.3 million for class action lawsuits, which is a 22% decline from 2020. In some class actions, the individual payouts to class members may be relatively small, especially when the harm suffered by each individual is minimal, or the damages are spread across many people.

This is common in cases involving consumer products, where the compensation may be refunds or discounts on future purchases. On the other hand, there are class action settlements where the payouts can be substantial.

These typically involve cases with significant harm or damages, such as cases related to financial fraud, pharmaceutical injuries, or environmental contamination.

In such cases, the compensation may cover medical expenses, lost wages, property damage, or other substantial losses the class members suffered.

Are Class Action Settlements Taxable?

Class action settlements may have tax implications, and whether they are taxable depends on the nature of the settlement and the specific circumstances involved. Here are some general guidelines:

  1. Compensatory Damages: If a class action settlement includes compensatory damages intended to compensate for a loss or injury, such as reimbursement for medical expenses or lost wages, those damages are generally taxable as ordinary income. They are treated similarly to how the income would have been taxed if it had been received outside of the lawsuit.
  2. Punitive Damages: Punitive damages are intended to punish the defendant for their actions and deter similar behavior in the future and are generally taxable as well. They are subject to regular income tax.
  3. Non-Compensatory Payments: Some class action settlements may include non-compensatory payments, such as refunds, product vouchers, or discounts on future purchases.
    Whether these payments are taxable depends on the specific circumstances. They may not be taxable if they are considered a reduction in the purchase price or a return of a portion of the purchase price. However, they may be subject to taxation if they are considered income or compensation for the class members.
  4. Interest on the Settlement: If a settlement includes interest on the awarded amount, the interest portion is generally taxable as income.

Who Gets the Most Money in a Class Action Lawsuit?

In a class action lawsuit, if a settlement or judgment is reached, the distribution of funds depends on the settlement terms and the case’s specific circumstances. However, the law firm(s) often is the party who receives the largest payment, which could be between 40-50% of the total settlement amount.

The following is a general breakdown of how the money in a class action lawsuit may be allocated:

  1. Class Members: The primary purpose of a class action lawsuit is to provide compensation or relief to the class members who the defendant’s actions have harmed.
    If the settlement or judgment includes monetary compensation, the class members typically receive a portion of the funds. The amount allocated to each class member will depend on various factors, such as the extent of the harm suffered and the individual’s participation or membership in the class.
  2. Attorney’s Fees and Costs: Class action attorneys typically work on a contingency fee basis, meaning they only receive a payment if the case is successful, often taking a percentage of the settlement or judgment.
    The attorney’s fees and costs incurred in pursuing the lawsuit are typically deducted from the settlement funds before distribution to the class members. The exact amount of attorneys’ fees and expenses can vary and may be subject to court approval.
  3. Administrative Costs: Some class action settlements may allocate a portion of the funds to cover administrative costs associated with managing the settlement process. This can include costs related to identifying and notifying class members, processing claims, and distributing the settlement funds.
  4. Cy Pres Award: In certain cases, if it is not feasible or practical to distribute the entire settlement fund to the class members, the court may approve the allocation of remaining funds to charitable organizations or causes related to the lawsuit’s underlying purpose.
    This is known as a cy pres award and is intended to benefit a cause or group that shares a connection with the class members’ interests.

Do Shareholders Get Paid in Class Action Lawsuit?

In class action lawsuits involving shareholders, the shareholders may be eligible for compensation if they are part of the class and suffered harm due to the defendant’s actions. Shareholders can be included as class members in cases such as securities fraud, breach of fiduciary duty by corporate officers or directors, or other violations of securities laws.

If a settlement or judgment is reached in a shareholder class action lawsuit, the compensation for shareholders can take different forms, including the following:

  1. Monetary Compensation: Shareholders may receive a portion of the settlement funds as monetary compensation for their losses. This can include a pro-rata share of the settlement based on the number of shares owned or the extent of the harm suffered.
  2. Restitution or Recovery: Shareholders may be eligible to recover some or all of their investment losses as part of the settlement. This can involve reimbursement for the decline in the value of their shares or the amount they overpaid due to fraudulent or misleading statements.
  3. Enhanced Corporate Governance or Policy Changes: In some cases, the settlement may include provisions for improved corporate governance, changes in company policies, or enhanced shareholder rights. These changes aim to address the issues that led to the lawsuit and provide long-term benefits to shareholders.
    It is important to note that not all class action lawsuits involving shareholders result in monetary compensation for individual shareholders. The availability and amount of compensation depends on various factors.

Can You File a Class Action Lawsuit Against the Government?

It is possible to file a class action lawsuit against the government under certain circumstances. However, suing the government can be more complex than suing a private entity due to various legal principles, immunities, and procedures that may apply.

Below is a list of a few considerations regarding class action lawsuits against the government:

  1. Sovereign Immunity: Governments typically have sovereign immunity, protecting government agencies from most lawsuits. However, many jurisdictions have waived this immunity to some extent, allowing individuals to bring certain types of claims against the government. These waivers vary by jurisdiction, so it is important to consult the applicable laws and regulations in your specific jurisdiction.
  2. Statutory Exceptions: Governments may have specific laws or statutes that permit class action lawsuits against them for certain types of claims. These statutory exception laws often outline the procedures, requirements, and limitations for bringing such lawsuits regarding past government employees.
  3. Constitutional Claims: Governments can be sued for constitutional violations, such as civil rights infringement or due process violations. In some cases, individuals may bring a class action lawsuit to challenge the constitutionality of a government policy, practice, or law.
  4. Administrative Claims: Before filing a class action lawsuit against the government, it may be necessary to exhaust administrative remedies, such as filing complaints or appeals with specific government agencies or boards. This requirement can vary depending on the type of claim and jurisdiction.
  5. Class Certification: To proceed as a class action, the court must certify the class, which involves meeting specific criteria, such as numerosity (a sufficiently large number of class members), commonality of claims, typicality of class members’ claims, and adequacy of representation.
    The court will assess whether a class action is the most appropriate and efficient way to handle the claims against the government, which includes determining whether the lead plaintiff(s) have been harmed in the same way as the members of the class action suit being filed.
Written by Aaron R. Winston
Last Updated: June 26, 2023 1:35pm CDT