Exploring Class Action Litigation: Foundations, Complexities, and the Role of Financial Experts – Part 1

Class action litigation allows groups of individuals with common claims to pursue legal resolution collectively. By consolidating similar issues, class actions streamline the legal process, making it more efficient and accessible for all parties. This mechanism offers a structured approach to resolving disputes affecting numerous individuals or entities, often involving shared legal and factual questions.

For economic and financial experts, these cases present unique challenges requiring specialized analysis to address complex questions of damages and provide insights to assist courts and stakeholders. This two-part series delves into class actions from the perspective of economic expertise, focusing on the legal foundations and the role of damages experts in navigating these cases.

In Part 1, we examine the foundations of class action litigation, including

• the certification process,
• types of relief sought and
• the associated benefits and challenges.

Additionally, we explore how damages experts contribute to these cases, from providing support during the certification stage to aiding in determining class action damage amounts for trial or for settlement valuations.

In Part 2, we will take a closer look into the role of the financial expert and specific methodologies employed and the dynamics of presenting damages in court. We will discuss common challenges in these cases, such as balancing uniformity with individual variations, and explore how experts facilitate settlements and resolutions that are informed and equitable.

What is a Class Action?

A class action is a legal procedure in which one or more plaintiffs—known as class representatives—file a lawsuit on behalf of a larger group with similar claims. The broader group, referred to as the “class,” is collectively represented in court. Class actions are commonly used in cases involving claims such as defective products, securities fraud, deceptive practices or environmental issues. Frequently governed by the Federal Rules of Civil Procedure Rule 23, class actions streamline cases with common legal and factual issues, allowing the court to manage these claims as a group.^[1]

Some key benefits of pursuing a class action include:^[2]

• Cost-Effectiveness: Legal costs and resources are shared across a large group (i.e., among the class) making it more affordable for individuals.
• Efficiency: Consolidating multiple claims into a single action saves time and resources for both the parties in the litigation and the court system, improves judicial efficiency, aids in quicker resolutions and simplifies settlement procedures.^[3]
• Accessibility: Individuals with smaller claims, who might not pursue litigation independently, can seek legal recourse by pooling their claims, a structure often favorable for consumers and employees.
• Uniformity: Class actions provide a single, standardized resolution for affected parties and any settlements or damages awarded are systematically distributed among the class.

Certification Requirements

Certification is a critical stage in class action litigation, as cases must meet specific criteria to proceed. The four main requirements for class certification are:^[4]

• Numerosity: The class must be large enough to make individual lawsuits impractical. When numerous claims are grouped, it streamlines case management. In other words, numerosity addresses the practicality of joining all plaintiff in one case.
• Commonality: Courts require class members share common legal or factual questions. The U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes^[5] emphasized common issues to the class must be central to the resolution of the case.
• Typicality: The claims or defenses of the class representatives (i.e., the named plaintiffs) should reflect those of the class as a whole, ensuring alignment between representatives’ grievances and the broader class. As such, courts consider the outcome of hypothetical individual trials for the named plaintiffs and the absent class members.
• Adequacy: Class representatives and their counsel must protect the class’s interests effectively, avoiding any conflicts of interest with the class members they represent.

Relief and Remedies in Class Actions

Class actions typically seek either injunctive relief, which aims to stop certain practices, or monetary damages to compensate for past harm. Sometimes, both forms of relief are pursued.

In Amchem Products, Inc. v. Windsor, the U.S. Supreme Court’s decision highlighted certification requirements must match the type of relief being pursued. For example, while injunctive relief suits may focus on changing a defendant’s practices, damages classes seek compensation for past harm.^[6]

Case Examples

Notable class action cases illustrate the range of issues these suits can address, and the scope of damages awarded. In the Volkswagen ‘Clean Diesel’ litigation, the claims centered on alleged emissions data manipulation. The case concluded with a settlement of over $14 billion, which included both compensation for affected consumers and funding for environmental remediation.^[7]

Similarly, the Johnson & Johnson Talcum Powder case addressed product liability claims tied to alleged health risks. The litigation resulted in a $2 billion verdict, underscoring the role of class actions in addressing consumer safety concerns and providing significant financial relief to impacted individuals.^[8]

These cases show how class actions can provide efficient recourse for groups of individuals while fostering regulatory compliance and, in some cases, industry changes – benefitting consumers, manufacturers and the court system.

The Role of Financial Experts in Class Actions

Financial and economic damages experts play an essential role in establishing and quantifying financial harm on a class-wide scale, or rebutting such claims, particularly in cases where certification depends on demonstrating collective financial impact. These experts develop economic models early in the case to estimate aggregate losses, helping courts assess whether the damages justify a class action approach.

For example, the “commonality” requirement for certification often relies on experts’ models to determine if damages calculations can be applied uniformly across the class, as emphasized in Comcast Corp. v. Behrend.^[9] If a class is certified, financial and economic damages experts continue to contribute after certification by providing detailed analyses, which inform settlement values or awards. According to the Federal Judicial Center’s Reference Manual on Scientific Evidence, expert reports are critical for courts in making fair, data-driven decisions on damages.^[10]

The role of a financial expert in class action matters is varied and includes, for example:^[11]

1. Assisting with certification and economic damages assessments
2. Quantifying or rebutting class-wide economic damages
3. Addressing challenges and meeting court standards
4. Valuing settlements and assisting in distribution planning
5. Testifying in court

These contributions are vital throughout the litigation process, informing decisions and ensuring that outcomes align with the evidence presented. Each of these areas will be discussed in more detail in our next installment, Class Action Part 2.

Conclusion

Class actions remain a significant legal tool for addressing collective claims efficiently and equitably. While they involve complexities and challenges, the benefits of resolving common disputes through a structured process are clear. Financial experts play a pivotal role by providing analysis that supports key aspects of these cases, from certification to final settlement.

In our next post, Class Action Part 2, we will explore the role of the economic and financial expert including methodologies, challenges and courtroom dynamics that shape their role in class actions.

If you have questions about class action litigation and for more information on the services VERTEX offers regarding these complex legal proceedings please contact Adam Rhoten or Cristal Brun.

References

1. Weil, Lentz, and Evans. Litigation Services Handbook: The Role of the Financial Expert. Sixth Edition, Chapter 14.2
2. See U.S. Senate Judiciary Committee’s Class Action Fairness Report.
3. See U.S. Senate Judiciary Committee’s Class Action Fairness Report.
4. “Rule 23-1. Class Actions.” U.S. Courts, Court of International Trade, www.cit.uscourts.gov/sites/cit/files/Rule%2023.pdf; “Rule 23. Class Actions.” Legal Information Institute, Cornell Law School, www.law.cornell.edu/rules/frcp/rule_23.
5. “Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338.” Casetext, Thomson Reuters, June 20, 2011, https://casetext.com/case/wal-mart-stores-inc-v-dukes-2.
6. “Amchem Prods., Inc. v. Windsor, 521 U.S. 591.” Casetext, Thomson Reuters, June 25, 1997, https://casetext.com/case/amchem-products-inc-v-windsor.
7. In re Volkswagen, 895 F.3d 597 (9th Cir. 2018). “Volkswagen to Spend up to $14.7 Billion to Settle Allegations of Cheating Emissions Tests and Deceiving Customers on 2.0 Liter Diesel Vehicles.” United States Department of Justice, Office of Public Affairs, 5 April 2024, www.justice.gov/opa/pr/volkswagen-spend-147-billion-settle- allegations-cheating-emissions-tests-and-deceiving.
8. In re Johnson & Johnson Talcum Powder Products, 903 F.3d 278 (3d Cir. 2018). Hurley, Lawrence. “U.S. reme Court Rebuffs J&J Appeal over $2 Billion Baby Powder Judgment.” Reuters, www.reuters.com/legal/government/us-supreme-court-declines-hear-jj-appeal-over-2-billion-baby-powder- judgment-2021-06-01/
9. “Comcast Corp. v. Behrend, 569 U.S. 27.” Casetext, Thomson Reuters, March 27, 2013, https://casetext.com/case/comcast-corp-v-behrend-8.
10. “Reference Manual on Scientific Evidence: Third Edition.” The National Academies Press, September 28, 2011, https://nap.nationalacademies.org/catalog/13163/reference-manual-on-scientific-evidence-third-edition.
11. Weil, Lentz, and Evans. Litigation Services Handbook: The Role of the Financial Expert. Sixth Edition, Chapter 14.4, pp. 14.6-14.16.