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What are class action settlements?
The mechanics behind class action litigation
and settlements are relatively simple: a small group
of plaintiffs pursues damages against a defendant
on behalf of a much larger group whose interests
they represent. If the suit settles before or during
trial, or if the defendant is found to be guilty, all
members of the class are entitled to compensation.
This compensation is distributed on a simple or
prorated basis or, depending on the complexity
and size of the class and the existence of sub-
classes, by more complex distribution methods
that calculate damages by tiers or factors. Class
proceedings have been part of the American judicial
system since the mid-19th century, but they only
came to public prominence in the Civil Rights Era,
with blockbuster rulings becoming instruments for
sweeping reform that altered the legal status of
millions of people.
In more recent decades, especially since
the 1960s and an amendment to the Federal
Rules of Civil Procedure , the class action process benefits and controversy: while legal teams often
1
has broadly taken a different turn. It is now used end up charging tens or even hundreds of millions
primarily to secure settlements for consumers of dollars in fees for successfully litigated cases, the
and investors who have been victimized by constant threat of class action suits unquestionably
illegal actions or misrepresentations on the part provides a much more intensive form of protection
of corporations. The Class Action Fairness Act for organizations than is possible from regulatory
of 2005 codified the implications of this shift . agencies like the FCC or SEC acting alone.
2
Two major consequences have ensued from this Most important, in any case, is that class
corporatization of class action. First, more class actions have proliferated in the past few decades
actions than ever are being filed on behalf of to the extent that they deserve the attention of
organizations in virtually every industry, major and businesses disciplined enough to pursue them.
minor. They encompasses such critical sectors as That is to say, enough class action suits have
health care, telecommunications, and the financial been brought in enough sectors to virtually ensure
services industry, and such relatively unknown that most businesses, especially those with
or innocuous-seeming ones as potato farming multiple locations or units, have been entitled to
and cathode ray tubes. Second, a specialized compensation in relation to some aspect of their
legal industry solely focused on bringing class operations. It takes organization, consistency, and
action proceedings has developed, breeding both more than a little patience to secure a share of the

1 These are the codes that guide the judicial processes of U.S. district courts; Federal Rule 23 is the rule that specifically treats the litigation of class proceedings. Al-
though they are diverging more with tensions between the state and federal trying of class actions, most states have class action codes that replicate the provisions
of Rule 23.
2 Cf. e.g. McCall and Austin 2012.

© 2018 SIB Fixed Cost Reduction • PAGE 2