("India Abroad," Jan 18, 2002)

Class actions are the individual consumer's best friend in today's impersonal market. By permitting the aggregation of thousands of claims, they empower even one person to litigate against intimidatingly big corporate wrongdoers. By providing a realistic remedy to small claimants, they deter frauds aimed at picking huge numbers of small pockets. By enabling one victim to represent all victims (and rewarding him when successful), they encourage consumer vigilance and deterring corporate fraud. Thus, class actions foster the integrity of the market and give teeth to many statutes which would otherwise remain election-year platitudes.

The Need For Class Actions

Class actions serve a critical need where a wrongdoer's conduct - typically, a large corporation or conglomerate - affects a large number of people. This is especially (but not always) so where the damage to an individual victim is relatively small.

For example, a phone company advertises its wireless service to be as reliable "as a land line". Thousands trust the advertisement and subscribe for that service. But they find the service far from reliable, experiencing frequent dropped calls and frequent inability to make or receive calls. Adding insult to injury, the phone company bills them for repeat calls which had to be made because calls kept getting disconnected involuntarily, and fails to issue credit even when demanded. Thousands of subscribers are damaged in small amounts -- dimes or dollars. Or, to take another example, an insurance company offers, in prominent print, ostensibly easily available credit insurance coverage. But simultaneously, in small, inconspicuous print, it hides the precise terms of the coverage being extended, and then, rejects claims because the insured had not been paying for the appropriate type of insurance. Thousands have been bilked paying premiums for coverage they thought they had, but didn't.

In such cases, the central issue is the misconduct of the wrongdoer, although the damages are not always minuscule. A widespread practice of a major business itself could be impugned: For example, an insurance company re-classifies a business operation as "more risky" and raises premiums for workmen's compensation insurance. The business owner is not given any opportunity to contest this re-classification, but has to pay the higher premiums to stay in business. The damages in such cases - e.g., continued higher premiums - could be significant, but the insurance company's practice could affect thousands.

In such circumstances, what can the individual do (apart from going on that long-forgotten pilgrimage)? The answer: Bring a class action.

What Is A Class Action

A class action is a lawsuit where one victim represents all other people similarly victimised. Deceptive advertising, consumer fraud, price-fixing, and securities fraud are typical examples.

Obviously, such a proceeding partakes a semi-public character, where rights of persons not before the court can be decided. Hence, the suing victim (plaintiff) needs the judge's permission to represent the others. For this purpose, the judge reviews the similarity of the claims, the suing victim's fitness to represent others, and the ability of his lawyers. If satisfied on these counts, the judge permits the representation.

In most cases, the judge also orders the plaintiff to notify all victims about the proceeding and permits those who so desire to "opt out" of the class -- i.e., not participate in the class action. Such victims may then sue on their own, and are not bound by the outcome in the class action. Of course, this notice increases the cost of litigation. But it informs all victims about the lawsuit, and gives them an opportunity to be heard.

The class action then proceeds like any other case (for the most part). However, its outcome binds not only the suing victim, but the entire class.

Extremely significant, once a case is commenced as a class action, it cannot be settled or dismissed without the court's approval. This prevents defendants facing major liability on a class-wide basis from simply buying off the vociferous victim. It also prevents miscreants from using the device as a blackmailing technique.

The suing victim's attorneys finance litigation expenses. They recoup these expenses (and attorneys' fees) if there is a recovery, but only upon the judge's approval in a public hearing after notice to the class. Thereby, litigation expenses are spread over the entire class.

While only the suing victim bears the hassles of litigation, all consumers benefit from his efforts. Recognizing this, several courts have ordered incentive awards to successful suing victims. These awards have the salutary effect of encouraging consumer vigilance.

Consumer Fraud Cases

Consumer fraud cases are ideally suited for class actions. First, damages to consumers caused by today's giant businesses are typically dispersed amongst thousands, if not millions. Fraud by such entities affects thousands in essentially the same manner. However, few victims - often, none -- would have lost amounts sufficient enough to justify litigation; hence, all consumers face the prospect of gulping down their losses. Class actions enable the losses to be accumulated in one action, thereby making the losses large enough to justify litigation.

Second, consumer fraud cases are usually labor-intensive and time-consuming, requiring independent investigation into public filings, advertisements, press releases, and study of specific business and industry practices. Like white-collar crimes, they involve a staggering number of documents which have to be sifted through, analyzed, stored, and used effectively. Given the complexity of class action procedure as well as of substantive state laws, this requires lawyers specializing in the field; often, it also calls for the assistance of experts from other fields. Moreover, the defendants, happily sitting atop ill-gotten millions, enthusiastically dispense a minuscule part of that booty to hire the best lawyers that money can buy and ensure an exhausting duel at every step of the way. Result: the costs of litigating these cases are unthinkably high for the individual consumer.

Hence, consumer frauds are most commonly litigated as class actions. Since the major issues defining liability are the same (for example, whether defendants lied, and how those lies affected the consumer), all victims usually constitute a "class".

The Benefits

Such unified litigation of innumerable claims benefits all concerned. Defendants do not have to litigate the same issues repeatedly in different courts, sometimes all over the country. Courts do not have to deal with innumerable lawsuits on the same subject, which would be an administrative nightmare. And victims get their day in court. Victims of banks' deceptive billing practices on credit card balances, car rental companies' misleading practices resulting in charges for unwanted insurance, and mortgage companies' practice of wrongfully charging "recording fees" when the recording was done by someone else, may never have seen the courthouse but for class actions. The systemic effect of class actions is clear: It has made the U.S. consumer protection laws the most effective in the world. Consumers in the U.S. have an alternative to fretting in helplessness or chasing fossilized bureaucracies. Class actions give them the procedural key to enforce their substantive rights. And perhaps most important, the potential for huge liability acts as a deterrent against misconduct even for giant corporations.

So, if you have been victimized, but thought your loss was merely one of thousands or too small to bother, you may be mistaken! You may be able to recover your loss, and also do some social good in the process (What could be better?). Call to see if you can do something about it. Initial consultation is free.

Krishnan S. Chittur, LL.M. (Bom.), S.J.D. (Harvard)