3.3 Class Actions & the Class Action Fairness Act

3.3 Class Actions & the Class Action Fairness Act

A class action lets one or more representatives litigate for a group. Because absent class members will be bound by a judgment they did not personally litigate, Rule 23 and due process require careful screening at certification, protective notice, and judicial supervision of any settlement.

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Rule 23 Requirements

A class action allows one or more representative parties to litigate on behalf of an entire group of similarly situated individuals.

The Four Rule 23(a) Prerequisites (Mnemonic: CANT — Commonality, Adequacy, Numerosity, Typicality)

Before any class can be certified, the named representatives must prove all four threshold criteria under Rule 23(a):

1. Commonality: There are questions of law or fact common to the class. Under Wal-Mart Stores, Inc. v. Dukes (2011), this requires demonstrating that class members suffered the same injury and that their claims depend upon a common contention capable of class-wide resolution.
2. Adequacy of Representation: The representative parties will fairly and adequately protect the interests of the class. The representative must have no conflicts of interest with class members and must be represented by competent, experienced counsel.
3. Numerosity: The class is so numerous that joinder of all members is impracticable. There is no magic number, but classes of 40 or more members generally satisfy numerosity, while classes under 25 rarely do.
4. Typicality: The claims or defenses of the representative parties are typical of the claims or defenses of the class. The representative's claims must arise from the same course of conduct and rest on the same legal theories as the rest of the class.

The Three Types of Class Actions (Rule 23(b))

In addition to the Rule 23(a) prerequisites, the action must fit within one of three categories under Rule 23(b):

• Rule 23(b)(1) - Inconsistent Adjudications / Limited Fund: Class treatment is necessary to prevent inconsistent results that would establish incompatible standards of conduct for the opposing party, or where individual adjudications would as a practical matter impair the interests of non-parties (such as claims against a limited pool of assets). No notice or opt-out is required.
• Rule 23(b)(2) - Injunctive or Declaratory Relief: The party opposing the class has acted or refused to act on grounds that apply generally to the class, making final injunctive or declaratory relief appropriate for the class as a whole (common in civil rights and systemic institutional reform). Monetary damages cannot predominate. No opt-out is permitted.
• Rule 23(b)(3) - Damages Class Actions: Individual monetary damages are sought. The court must make two findings: (1) Predominance: common questions of law or fact predominate over individual questions; and (2) Superiority: a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.
  • Mandatory Notice and Opt-Out: In a 23(b)(3) class action, the court must direct the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. Class members have a mandatory right to opt out of the class; those who do not opt out are bound by the final judgment.

Class Action Fairness Act of 2005 (CAFA)

Congress enacted CAFA (codified at 28 U.S.C. §§ 1332(d), 1453) to expand federal diversity jurisdiction over large multistate class actions. Under CAFA, federal district courts possess original jurisdiction over class actions if:

1. The aggregate amount in controversy exceeds $5,000,000 (claims of all class members are aggregated);
2. The proposed class contains at least 100 members; and
3. Minimal diversity exists—meaning any member of the plaintiff class is a citizen of a state different from any defendant.

CAFA also facilitates removal: any defendant may remove a covered class action to federal court without the consent of co-defendants, without regard to whether any defendant is a citizen of the forum state, and without being subject to the normal one-year removal bar for diversity cases.

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Certification, Class Counsel, and Notice

• Timing: At an early practicable time after a person sues or is sued as a class representative, the court must decide by order whether to certify the action as a class action (Rule 23(c)(1)(A)). The certification order must define the class and the class claims, issues, or defenses, and appoint class counsel. It may be altered or amended before final judgment.
• Rigorous analysis: Certification is not a pleading exercise. The court must be satisfied that Rule 23 is actually met, even if that requires looking at issues that overlap with the merits. In Comcast Corp. v. Behrend (2013), a damages model that could not measure damages attributable to the class's accepted theory defeated predominance.
• Class counsel (Rule 23(g)): Counsel must fairly and adequately represent the class; the court considers counsel's work in identifying the claims, experience, knowledge of the law, and resources.
• Notice in (b)(3) classes (Rule 23(c)(2)(B)): The notice must clearly state the nature of the action, the class definition, the claims or defenses, that a member may appear through an attorney, that the court will exclude members who request exclusion, the time and manner for requesting exclusion, and the binding effect of a class judgment. Notice may be sent by U.S. mail, electronic means, or other appropriate means.
• Issue classes and subclasses: An action may be maintained as a class action with respect to particular issues (Rule 23(c)(4)), and a class may be divided into subclasses, each treated as a class (Rule 23(c)(5)).

Settlement, Voluntary Dismissal, and Compromise (Rule 23(e))

1. The claims of a certified class, or of a class proposed to be certified for settlement, may be settled, voluntarily dismissed, or compromised only with the court's approval.
2. The court must direct notice in a reasonable manner to all members who would be bound.
3. The court may approve a binding proposal only after a hearing and a finding that it is fair, reasonable, and adequate, considering whether the representatives and counsel adequately represented the class, whether the proposal was negotiated at arm's length, whether the relief is adequate, and whether it treats class members equitably relative to each other.
4. In a (b)(3) class, the court may refuse approval unless members who did not opt out earlier get a new opportunity to request exclusion.
5. Any class member may object; payment for withdrawing an objection requires court approval.

Appeals and the Binding Effect of Class Judgments

• Rule 23(f): A court of appeals may permit an appeal from an order granting or denying certification if a petition is filed within 14 days after the order is entered. The appeal does not stay district-court proceedings unless the district judge or court of appeals orders a stay. Plaintiffs cannot manufacture a final judgment to appeal a certification denial by voluntarily dismissing their individual claims with prejudice (Microsoft Corp. v. Baker, 2017).
• Due process: Absent members are bound only if they were adequately represented (Hansberry v. Lee, 1940). For a damages class adjudicated in a state court, absent plaintiffs must receive notice, an opportunity to be heard, and a chance to opt out (Phillips Petroleum Co. v. Shutts, 1985).
• Denied certification: A federal court's refusal to certify a class does not bind unnamed class members who later seek certification in state court (Smith v. Bayer Corp., 2011).
• Federal Rules control: In a diversity case, Rule 23 governs whether a class action may proceed even if state law would bar class treatment of the claim (Shady Grove Orthopedic Associates v. Allstate Insurance Co., 2010).

Federal Jurisdiction Over Class Actions

CAFA exceptions. A district court must decline jurisdiction under the local-controversy exception (more than two-thirds of the class are citizens of the forum state; at least one defendant from whom significant relief is sought and whose conduct forms a significant basis of the claims is a forum citizen; the principal injuries occurred in the forum state; and no similar class action was filed in the prior three years) and under the home-state exception (two-thirds or more of the class and the primary defendants are forum citizens). The court may decline when more than one-third but less than two-thirds of the class, and the primary defendants, are forum citizens, after weighing statutory factors such as whether the claims involve national or interstate interests and whether they will be governed by the forum state's law.