I Received a Class Action Notice – Opt-Out or Stay In?

So you received a postcard or other notice in the mail that a class action lawsuit has been filed and you are probably a member of that class. Refer Class Action 101. You were identified as using a product or service, overcharges for cell phone service, an improperly labeled cosmetic, an airline ticket with an inappropriate license charge, excess banking fees, any one of numerous transactions or purchases made daily. The notice could arrive in your email, or you see an advertisement on television or radio, in a newspaper, or for some reason, the defective fishing rod class action notice keeps popping up on your screen every time you go online to plan a fishing trip.

You have been identified as a potential class-action lawsuit member, litigation you never knew about. Hey, wait, I never asked to be part of a lawsuit. I barely remember using that rental car agency. I bought that cheap radio for my nephew ages ago. The notice is telling me about judges in some distant federal court and lawyers with fancy addresses on the 35th floor in cities I have never visited telling me about my rights and all sorts of deadlines. 

And my right to ‘opt-out’ and sue the global giant on my own? Huh?

What are Opt-Out Rights?

When plaintiff class action lawyers file the lawsuit they define the class of individuals they seek to ‘certify’ as a ‘class,’ such as purchasers of the same product or service. Once, and if, a court then certifies the class it then usually orders that notice to potential class action members, the unnamed masses appearing in court through ‘class action representatives,’ to provide them a time period to decide whether:

• To remain in the class as a member, and be represented by class counsel and the class representatives and to be bound by the court’s later judgment, whether good or bad;
• To intervene individually in an action (think of crashing a party) and to select your own attorney; or 
• To “opt-out” (I don’t want to be in this lawsuit or be a class action member) and be free to pursue your own remedies such as an independent lawsuit, or do nothing at all, I just don’t like lawsuits, leave me alone, please.

And sometimes you might receive a second ‘opt-out’ regarding the settlement. A class member might have originally decided to stay in the class defined by the lawyers but are now do not think the settlement is fair or reasonable. To be fair to class members, judges sometimes provide you an opt-out option to refuse the settlement and proceed with your own remedies.

Why Does Opt-Out Even Matter?

Class actions permit representatives to litigate claims on behalf of themselves and absent, sometimes unknown, members of the class not individually before the court. But decisions of the court in a class action binds all members of a certified class unless they opt-out. If harmed in a small amount, it usually makes more sense to allow the representatives litigate in a class action on your behalf. Why sue over $150 when a class action is taking care of everything? If your injury is large, such as the side effects of a prescription drug, your injury or loss could be substantial and hence opting out to pursue your own remedies might make sense.

Another issue to consider is the statute of limitations. Class action filings ‘tolls’ the statute of limitations, the date you must file a lawsuit by or forever lose your right to sue until the court rules on certification (think automatic daily extensions until the court decides whether to certify the class). But if you opt-out, you lose this ‘tolling’ protection, and your claim reverts to the original statute of limitations date.

Class actions have a res judicial effect on class members. This means if you don’t opt-out and the court determines the class action is not ‘actionable’ the defendant is off the hook, and you can’t sue on the claim anymore. Wait, --- I thought the class was certified. How can it not be actionable? Answer: When a class is certified, the court is not making a ‘merits’ determination exists, only whether proceeding as class action makes sense. (Again, see Simpluris article Class Action 101, click here for more information on this subject).

But if you opt-out at the certification stage, you do not have a chance to evaluate or determine whether you want to participate in the proposed settlement. 

From a procedural due process point of view, if you receive the notice and do nothing, it is deemed your rights are protected. If you never received the notice that was supposedly sent to you in most cases the result is the same, which many commentators believe to be unfair.

Time to Opt-Out

Sometimes lawsuits are filed as a ‘test case,’ meaning the attorney wants to challenge existing law or settle a muddled area of law. Am I affected by that ultimate ruling? Recent cases had held that unnamed class members, over whom the court has no personal jurisdiction, are not bound by a class-action judgment where they had no right to “opt-out” before the decision was made. However, if a class action involves money damages certification must occur prior to any merits determination. This prevents ‘one-way intervention,’ preventing unnamed class members from opting out of a lawsuit after the merits are decided adversely to their interests. But note, all class actions are not the same. In many class actions not involving money, such as a case seeking only injunctive relief, class members are not entitled to individual notice and have no ‘opt-out’ rights.

The Judge and Opt-Outs

Class actions can be slow, laborious proceedings. The certification process can take months, sometimes years. Defendants can move to decertify a case at any time. And then there is the settlement process, sometimes in two-parts, preliminary and later final approval. Unlike most individual actions, attorneys must obtain court approval of settlements as class members have not participated in settlement decisions. The court is the guardian of the class members interests. Attorneys negotiate for an extended period, not only on the amount of money but how to instruct class action administrators like Simpluris to evaluate each claim and determine how much each class member is to receive. The court can then provide class members a second chance to opt-out of the settlement. The preliminary approval process can be contingent on the opt-out rate. If too many class members say, ‘the amount I am to receive is an insult, I am going to sue on my own,’ the court could then refuse to approve the settlement, essentially the court says that ‘if the customers are unhappy, I am not giving the settlement final approval.’

A high volume of opt-outs sometimes leads courts to revisit certification or the settlement- possibly eliminating any class-efficiency benefits. How many opt-outs is too many? A general rule of thumb is that if five (5%) percent of class action members opt-out then the class action settlement, or even the certification and hence the lawsuit, is in trouble. However, studies show generally less than one (1%) percent opt-out. And it depends on the type of case. Opt-out rates are inherently larger in employment cases, less in consumer cases.

Attorney Restrictions During the Opt-Out Period

Defense attorneys usually desire that the class action fails as it means a large financial payout for their client. But they can’t care too much. In the case of Kleiner v. First Nat. Bank of Atlanta, the Eleventh Circuit Court of Appeals upheld monetarily sanctioned defense attorneys $50,000 and disqualified them from further participation in the case for trying to convince class action member to opt-out, and hence subvert the settlement. These defense attorneys knew that more opt-outs reduce class size and, therefore, the potential total recovery, lessening the value of a class action. But it also disturbs the court’s interest that class action help achieves judicial economies of scale.

How Do I Decide Whether to Opt-Out?

Thinking rationally a class member opts-out because an individual lawsuit presents a better potential benefit than class-action participation but present substantial uncertainty. But remaining in a certified class provides a degree of certainty. The opting-out claimant may not find competent counsel to handle their case individually. And there is no guarantee that an individual claim would yield a greater return. Like any decision, humans crave certainty. By not opting-out at least you know the result. 

Hopefully, we have made your decision-making process easier. Simpluris is always here to help.