How does a class action work?
Get Legal Help Today
Secured with SHA-256 Encryption
UPDATED: Jul 16, 2021
It’s all about you. We want to help you make the right legal decisions.
We strive to help you make confident insurance and legal decisions. Finding trusted and reliable insurance quotes and legal advice should be easy. This doesn’t influence our content. Our opinions are our own.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about legal topics and insurance. Our goal is to be an objective, third-party resource for everything legal and insurance related. We update our site regularly, and all content is reviewed by experts.
In a class action case, one or two named plaintiffs “stand in” for the entire group of similarly aggrieved persons or firms during the course of the litigation. The named Lead Plaintiffs represent in addition to themselves, a large “class” or number of individuals and/or businesses is a similar situation to them. The individual interests of the named Lead Plaintiffs and all those similarly situated are at stake.
The results in the class action case bind BOTH the named plaintiffs (just as they would in ordinary litigation) AND all other persons who were included in the class. Usually, potential class members have the option, after receiving notice, of excluding themselves from a class or class settlement, and pursuing the case on their own.
The class procedure allows individuals and small businesses to bring meritorious cases that would have been too expensive and inefficient to litigate individually. For example, if you bought 100 shares in an Initial Public Offering of Company X at $10 per share, and because Company X had used a fraudulent prospectus the shares went down to $4 per share, would it be worth your while to sue for your own $600 loss ($10 – $4 = $6 x 100 shares = $600)? On the other hand, as there would have been hundreds of other shareholders who also lost $6 per share at the same time, a class action is an effective method to obtain redress.
When a class case settles, the judge presiding over the case must approve the fairness and propriety of the settlement.