What is the Structure of a Class Action Settlement?

Learn about what is a class action lawsuit, how it differs from traditional lawsuit, incentive prizes, due process requirements, advantages and more.

What is the Structure of a Class Action Settlement?

A class action lawsuit is a type of legal action that allows a group of people to sue a defendant or several defendants on behalf of all members of the group. This differs from a traditional lawsuit, in which one party sues another party and all parties are present in court. The rules for class action lawsuits vary between states and countries, but they are more common when complaints involve at least 40 people who have been injured in the same way by the same defendant. Incentive prizes are a relatively modest payment made to class representatives as part of a collective agreement.

The amount that a court awards to group lawyers for attorneys' fees will take into account the amount that will be paid to the group, and returning any part of the class compensation to the defendant may result in lawyers receiving a disproportionate share of the settlement consideration. If the action provides for settlement in coupons, the portion of a lawyer's fees to the group's lawyer that is attributed to the award of the coupons will be based on the value that the redeemed coupons represent to the members of the group. Due process requires, in most cases, that a notice describing the class action be sent, published, or transmitted to class members. Mass actions can pose special difficulties for both plaintiffs and defendants and the court.

Lawyers should help their clients structure agreements that have a reasonable prospect of being approved, taking into account any collective settlement history of the judge hearing the case, the jurisprudence on the approval of collective agreements in general, and any warning signs that can lead to disapproval of proposed collective agreements. Class action lawsuits ensure that all plaintiffs receive relief and that plaintiffs who file an early application do not settle the merits. The courts that review proposed class action agreements are responsible for ensuring that the funds committed to paying the claims of the members of the group actually reach them or, at a minimum, support a third party whose mission includes protecting similar categories of people against damages. Whether a class action lawsuit is superior to individual litigation depends on the case and is determined by the judge's decision on a class certification motion.

Most class action lawsuits over the past decade have focused on stock market fraud and financial services. In general, class action lawsuits seem to be a viable instrument that could overcome rational apathy and guarantee redress. Germans in the United States can file class actions for events in Germany if facts relate to US.