On July 4, the United States celebrated Independence Day, which reminded us of the Declaration of Independence from 1776 that marked the establishment of the United States. This prompted us to reflect on the numerous distinctive legal achievements of the United States, inspiring us to explore the phenomenon of class action. Originating from across the Atlantic, this legal institution has found its place in continental European jurisdictions, sparking discussions within the professional community about its potential incorporation into Serbia’s legal framework.
This article kicks off a series of articles on class action. In the first installment, we delve into the historical development of this institution and its peculiarities within the United States’ legal system. In the second installment, we will examine the need for a similar institution within Serbia’s national jurisdiction from the perspective of de lege ferenda.
Historical Development of Class Action
Class action emerged due to the idea of representative litigation in Anglo-Saxon law. Representative litigation can be defined as a procedure in which the plaintiff/defendant represents the interests of third parties who are not involved in the proceedings but share a common interest with them, in addition to their own.
The roots of a modern class action can be traced back to the early 14th century in the practice of English courts, with the Channel Islands case considered the first example of a class action. It is believed that the idea of the class action was born in that case, but it was not confirmed until three centuries later in the case of Brown v. Vermuden in 1676, which established an exception to the traditional procedural doctrine of necessary party, requiring all interested parties to be present in the proceedings.
When it comes to the relevant case law of American courts, the first class action case is considered to have occurred in 1820 in the case of West v. Randall. In this proceeding, Judge Joseph Story expressed the opinion that an exception to the necessary party doctrine should be recognized when it is practically impossible to have all interested parties participate or when discussing a matter of general interest where individuals can sue on behalf of the whole.
Although class action originated in the early judicial precedents of English courts, it continued to develop exclusively within American case law from the 19th century onwards, making it one of the symbols of American legal tradition today.
Following the articulation of the concept of class action in American court case law, legislative regulation ensued. Class action was first regulated by the Federal Rules of Equity in 1843. It was revised in 1912, with Rule 48 being replaced by Rule 23 of the Federal Rules of Civil Procedure. Rule 23 of the Federal Rules of Civil Procedure was amended in 1966, marking the beginning of the era of modern class action, which still applies today in a slightly modified form.
Key Features of Class Action Litigation
As class action is a form of representative litigation, it has necessitated the development of specific rules that deviate from the framework of bilateral litigation proceedings.
Rule 23 of the Federal Rules of Civil Procedure begins by regulating the class certification, where the court determines the permissibility of a class action, consisting of three phases.
In the first phase, the court determines whether (i) the class members are so numerous that it is impracticable for all individuals to participate in the proceedings, (ii) there are questions of law or fact common to the class, (iii) the claims or defenses asserted by the representative parties are typical of the claims or defenses of the class, and (iv) the proposed class representative can fairly and adequately protect the interests of the class. These conditions must be cumulatively met to proceed to the second phase of the preliminary proceedings.
In the second phase, the court examines whether (i) separate actions by class members would create a risk of inconsistent judgments establishing incompatible standards of conduct for the party opposing the class or would make it difficult for other class members to protect their interests, (ii) the party opposing the class has acted on grounds entirely consistent with respect to the class, rendering the claims asserted identical for all class members, or (iii) a common legal or factual question of the class overwhelmingly overshadows any questions affecting only individual class members, and there is no more efficient method for resolving the dispute than a class action. Meeting only one of these conditions is sufficient to proceed to the third phase of the preliminary proceedings.
In the final phase, class members are notified of the lawsuit’s existence. The notice must include, among other things, information that class members can opt out of the proceedings, and if they exercise this right, the effects of the judgment will not extend to them.
The Emphasized Role of the Court in Class Action Proceedings
Given the adversarial nature of American litigation, the court generally plays a passive role. However, such an approach was unsustainable in the case of class action, primarily because it involves deciding on the interests of absent parties who may not even be aware of the ongoing proceedings. Consequently, the court assumes three critical roles during class action proceedings: evaluating class certification, approving settlements and disposition of the claims, and determining attorney fee awards.
Court Costs of Class Action Proceedings
The general rule in American litigation procedure is that each party bears its own court costs. However, depending on the type of proceeding, specific rules regarding cost recovery are established. In the case of class action, the common fund doctrine is applied based on the idea of fairness. It holds that if a particular value is obtained for the class through the individual efforts of plaintiffs, it is fair for the costs of the proceedings to be paid from the common fund. In addition, American legal tradition recognizes the contingency fee arrangement, which stipulates the payment of attorney fees only if the represented party succeeds in the case, typically as a percentage of the awarded amount. In practical terms, these two rules mean that attorneys finance the litigation and can receive compensation only if they achieve benefits for their clients, effectively assuming the economic risk of the proceedings.
In class action proceedings, there is a distinct type of litigant known as the class representative. In American legal tradition, any party, including private entities, can bring a class action lawsuit, a right not exclusive to organizations, as is the tendency in European jurisdictions. Although the class representative is not the primary litigant, one of the conditions for class certification is for the court to determine that the appointed class representative can adequately represent the class. The adequacy of the class representative involves assessing two conditions: a) the absence of known or apparent conflicts of interest between the representative and the class, and b) the representative’s sufficient competence in the issues that are the subject of the proceedings. Everyday practice has shown that attorneys play a crucial role in the proceedings, driven by financial considerations, instead of the class representative, as attorneys ultimately stand to gain greater financial benefits than individual class members.
Effects of Judgments in Class Action Proceedings
For a considerable period, case law grappled with the question of whether, and under what conditions, a judgment should bind class members who do not participate in the proceedings. The landmark case of Hansberry v. Lee in 1940 is widely considered the most significant precedent in this aspect of class action regulation. In this case, the Supreme Court posited that the binding effect of a judgment in a class action represents a permissible exception to the general rule that a judgment can only bind those who participated in the proceedings. Today, it is largely undisputed that a judgment rendered in a class action lawsuit binds all class members unless they have exercised their right to opt out. However, this principle has exceptions. Class members are allowed to be released from the binding effect of the judgment if they initiate separate proceedings and demonstrate that their interests were not adequately represented in a class action.
By Jovana Velickovic, Partner and Head of Dispute Resolution, and Nikola Ivkovic, Associate, Gecic Law