As Europe begins to embrace the concept of class action litigation, it is worth looking across the Atlantic and asking: What can Europe learn from the U.S. class action experience?

The Roots of U.S. Class Actions

Like most U.S. legal concepts, class action litigation finds its roots in Europe. The earliest known example of a class action took place in England during the 12th Century. In 1199, a group of parishioners in Nuthampstead brought what has been called a “religious consumer class action” against their rector, arguing that their tithes entitled them to a full-time chaplain. In the centuries that followed, class actions in England continued to emerge and expand.

In the U.S., the rules governing class actions were first codified in 1842 in the second edition of the U.S. Supreme Court’s Federal Equity Rules. By 1938, the Federal Rules of Civil Procedure were adopted, and Rule 23 became the new ground rules governing U.S. class actions. The original structure of Rule 23 required that individuals seeking to share in the benefits of the class had to “opt in” in order to do so. In 1966, however, the revised Rule 23 reversed the system and members of class had to “opt out” or they were automatically included. This seemingly small change opened the door for a wave of new class actions.

Class Actions Today

Most scholars agree that Rule 23’s drafters did not contemplate courts using class actions in mass torts—cases involving a large number of claimants claiming physical injury from a similar harm. But when U.S. courts were flooded in the 1970s and 1980s with mass torts, such as asbestos and Agent Orange cases, courts turned to the class action as an efficient way to manage multiple cases in which common issues of fact predominated. The Agent Orange case, brought by Vietnam veterans, settled for $180 million and heralded a new cottage industry of class action litigation.

Today, class action litigation continues to involve a wide array of claims and injuries, in areas including: product liability, medical liability, consumer fraud, breach of fiduciary duty, antitrust, securities, insurance, employment, and human rights violations. In such cases, the pivotal battle is waged over whether a case can be properly “certified” as a class action under Rule 23. The party seeking certification of a class action must demonstrate that the following requirements of Rule 23 are met:

• Numerosity: there must be a large number of parties in the class. There is no hard and fast rule as to how many members are required—classes with fewer than twenty have been certified, while some with over fifty members have not.
• Commonality: there must be common issues of law or fact. All issues of law and fact do not have to be common, but the “questions of law or fact common to the members of the class” must “predominate over any questions affecting only individual members.” In addition, the court must find that “a class action is superior to other available methods for fair and efficient adjudication of the controversy.”
• Typicality: the representative claimant must have a claim typical of the class’s claims.
• Adequacy: the representative claimant must fairly and adequately represent the class.

The court has the final say as to whether the case will move forward or be certified as a class action.

Recent Class Action Reform

The number of class actions filed each year grew dramatically into the 1990s. Defendants, which more often than not were corporations, became increasingly vocal against the expanding use of class actions. Class actions were also criticized in the popular and academic press. Criticisms include charges that:

• plaintiffs lawyers orchestrated class actions where plaintiffs suffered only negligible damage, but where plaintiffs' counsel could recover significant fees.
• class counsel often settled cases by awarding themselves high fees and the class low-value coupons, often for the product that caused the alleged harm.
• state courts in certain areas were certifying class actions regardless of merit, effectively guaranteeing a class action if a plaintiff filed suit in the right court .
• defendants were forced to settle even frivolous suits because of the potential for massive liability and litigation costs.
• collusion between defendant’s and plaintiff’s counsels.

For instance in 2004, the average settlement amount in securities cases was $24.6 million and the median amount was $6.2 million. In 2005, a study estimated that within a five-year period every U.S. public company faced a ten percent chance of being sued for securities fraud.

In response, Congress enacted the Class Action Fairness Act (“CAFA”) of 2005. CAFA amended the procedures for interstate class actions in an effort to “assure fairer outcomes for class members and defendants.” CAFA applies to most multi-state civil class actions filed on or after the date of enactment, and increases federal courts original and removal jurisdiction over class actions involving plaintiffs and defendants from multiple states. In addition to broadly expanding federal jurisdiction over state-law-based class actions, CAFA sets forth numerous new requirements for settlement notification and court approval, curbs “coupon” settlements and prescribes methods for calculating class counsel attorneys’ fee awards for such settlements.

The long term effects of CAFA are not yet known, though studies have not reported a marked increase in class action filings in federal jurisdiction since the enactment of CAFA indicating that plaintiff lawyers are forgoing the expense of trying to file cases in state courts that are seen as more favorable.

The goals for establishing the class action in Europe seem to mirror some of the original goals of Rule 23—holding big business accountable for its actions. Here in the U.S., the recent reforms certainly have provided better procedural safeguards, yet the proper balance between consumer protection by the class action’s deterrence effect and protection for businesses from abusive class action practices remains elusive.