What Makes a Good Class Action?
Stephen Woodfin
We like to think of becoming involved in a class case as something akin to a professional
marriage. Think hard before you take the plunge.
Over the years, we have developed a simple class action evaluation test. Since it is our
own, homegrown protocol, we call it the Woodfin-Holmes Class Action Test. It has
never failed us. We receive calls from many people wanting to discuss potential class
cases and we always walk through the following four steps.
STEP ONE: Are they doing it?
Although this step looks unnecessary, we can assure you it is not.
This is the “if I could just catch them doing X, I would have a great class action”
prong of the test. Usually when people talk about something like this, they begin with
“I’ll bet they are doing X.”
It is not enough that someone may be doing something. The Federal Rules require
the one bringing the action to investigate the facts. Sometimes determining the facts is
relatively easy; on other occasions, you will need to hire one or more experts to help you.
For instance, before we brought the Honda odometer case, we tested a number of vehicles ourselves and brought in an expert to test others. This was time and money well
spent. The more knowledgeable you are about the facts, the more prepared you are to
move forward.
As part of the first prong of the test, you should try your best to poke holes in your
case. Ask hard questions about why the facts are as they are. Ask your expert how he
explains the facts. Ask him about alternative factual theories that are inconsistent with
your theory of the case. You can be sure your opponents will do their own investigation
and try to spin the facts to their advantage. The more you can anticipate their defenses,
the better off you are.
STEP TWO: Is it against the law?
Should a lawyer be able to tell if a practice is against the law? Not if her experience is
anything like ours. Sometimes a set of facts fail the smell test, but do not rise to the level
of illegality.
This prong deals with the visceral reaction people have to certain practices. It is the
“It just ain’t right” component. A gut feeling that something is not right is not a sufficient basis for a class action.
What law does the practice violate, if any? The answer to this crucial inquiry implicates a number of critical procedural and
substantive issues.
We once looked at a case in which the issue was whether a bank had to pay interest
to its mortgage customers when it received insurance proceeds because of a
total loss to the mortgaged property and the proceeds exceeded the balance on the
mortgage. The banks would routinely hold the excess funds belonging to the
customer for sixty to ninety days, then issue a check for the excess without paying
any interest to the customer. Our immediate reaction was that the bank made
money on the excess during the interim period, which, in fairness, should go to the
customer. Something like that has to be against the law.
Wrong. We found there was a state
statute directly on point that allowed the
bank to refund the money without paying
interest. It would have been a good case if
the bank’s actions had been illegal.
Other examples of this sort of thing fall
into the category of “it’s not as good as it
can be.” There are myriad instances in
which a product performs its basic function,
but could be better. Unless there is
an obvious flaw a manufacturer should
have corrected, you are wasting your time
trying to make the product the basis of a
class action. The law does not require perfect
products and consumers do not
expect them.
The point here is that the law is complex
and no one knows all of it. Within
various sectors of the business community,
there are specific statutes that modify, or
altogether negate, common law. Likewise,
if the target activity is within the province
of one or more regulators, you may find
the regulator has already blessed the practice.
While this may not deal a deathblow
to your case, it complicates it exponentially.
Many courts give great deference to a
regulator’s interpretation of an action.
Some state class action rules require you to
litigate your case at the administrative level
before you can bring it at the courthouse.
You may lose months or years in this
process.
On a more positive note, some statutes
have class action procedures built right in.
These procedures can streamline your
case, providing you a tight, narrow focus
and a well-defined path to class certification.
They may also contain fee-shifting
provisions requiring the losing party to
pay the fees of the prevailing party.
Statutory causes of action also influence
the case’s jurisdictional posture. If the
practice violates a federal statute, then
your case may take on a national character.
A violation in one part of the country
carries the same remedy as a violation in
another part of the country. This is a
tremendous boon for the plaintiff who
otherwise may find himself briefing the
law of many states to determine if the
practice is illegal in each of them and what
remedies apply in each state.
The plaintiff still has to determine if
the federal remedy is adequate for all his
class members. There may be one or
more state statutes that provide greater
relief than the federal statute.
STEP THREE: Are they doing it to a lot of
people?
Another initial misstep is to assume
that because something has happened
once it must happen all the time. If an
insurance company failed to include sales
tax in its adjustment of a client’s property
damage claim, then it must mean that the
company systematically excludes this element
of damage from its estimates.
Maybe, maybe not. It could be nothing
other than an oversight on the part of a
busy adjuster. A few calls to some other
attorneys who handle insurance claims
should give you a better grasp of the
extent of the problem. If two or three of
them have worksheets from the same company
and all of them omit sales tax in the
estimates, then you may have something.
How many people does it take to make
a “class”? No one knows for sure how
many people it takes for a case to become
“numerous,” but if you are wondering if
your group is big enough, it probably is
not. Any class case worth pursuing will
involve a class consisting of hundreds, if
not thousands, of members. If the defendant
has a good challenge on numerosity,
you are in big trouble. Class size bears
directly on the overall potential recovery
and, therefore, is an integral part of the
cost analysis.
Someone reading this may say: “I have
a hundred good claims against Defendant
D. Should I bring my case as a class action
and include all the claims in one action?”
This probably reflects a fundamental misconception
concerning the essence of class
cases. If you have a number of “good”
claims, claims worth pursuing on their
own, against a particular defendant, you
probably do not have a class case. You
may have a “mass action” against the
defendant if you can meet the procedural
requirements, but this is a different legal
animal from a class action.
On the other hand, class actions allow
you to bring all your claims through one
representative client. This approach
allows the strong claims to succeed and
the marginal ones to survive. In addition,
you probably could not find all the
claimants if you attempted to handle the
cases individually.
The paradigmatic class case involves
“negative value” claims, claims not worth
pursuing on their own. To make a case
involving small claims worthwhile, the
class must include many people. “Many”
equals more than ten or twenty, much
more.
STEP FOUR: Does anyone care enough
about the practice to want to end it?
The final prong of the test eliminates
many cases that meet the other parts of the
test. The example that comes to mind is
one an attorney presented to us a few years
ago. He had noticed that when he went
shopping at a certain grocery store, the
store did not zero its scales to account for
the weight of the plastic bag that held his
produce. We asked him if he had calculated
how much this added to his bill and he
said he thought each bag added about one
cent.
If we apply the test, we find: 1. the store
was doing it; 2. it was against the law; and
3. the store was doing it to a lot of people.
Is it a good case?
No. Why? No one cares about paying
a penny extra for a plastic bag for his
apples. This is the sort of case that gives
class actions a bad name. It sounds like a
made up case. Customers do not have a
problem with the practice. If you ever got
the case to a jury, you would see them
looking at the ceiling, their feet, or the
clock on the back wall of the courtroom
once they heard what the case involved.
Do not bring a case like this unless you
enjoy embarrassing yourself, throwing
away your money, and wasting your time.
Often, bringing a class action against a
defendant is like dropping an atomic
bomb. You should not utilize it as a
weapon in your arsenal unless it is the
only way to correct a systemic problem.
To prevail in a class case, you have to
be able to create significant risk for the
defendant. You cannot create risk unless
the heart of the case is something that
people react to strongly, something that
touches people where they live, and
offends their innate sense of justice.
Stephen Woodfin of the Law Office of
Stephen Woodfin has offices in Kilgore,
Texas.
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