Millennial Money: Should I join a class-action lawsuit?

2023-05-09 20:51

When you receive an email or mail notice inviting you to join a class-action lawsuit, or notifying you that you’ve been automatically included, it might give you pause

It might have happened to you a few times in past years: You received an email or mail notice inviting you to join a class-action lawsuit, or notifying you that you’ve been automatically included. But being part of such a lawsuit might be intimidating, especially if you need to opt in, and would mean surrendering the option to sue individually.

In most cases, there’s little downside to joining these lawsuits, which combine many legal claims — often thousands — into one claim against a single defendant, reducing fees for each claimant and potentially earning a much larger payout.

And there have been many opportunities to do so. Following a series of large opioid settlements, 2022 had the most billion-dollar class-action settlements in U.S. history apart from the tobacco settlements decades ago, according to a report from the national law firm Duane Morris. The stakes are high for class-action lawsuits at this level, as they set standards for corporate responsibility in areas such as data privacy, employee discrimination, securities fraud and civil rights.

But in cases where you suffered significant harm, suing individually could secure a bigger payout.

WHY YOU SHOULD JOIN (OR NOT OPT OUT)

In many cases, class-action lawsuits offer such a minor payout to each victim that participation is a matter of principle, not reward. But even if you receive only $10 to $20 as compensation, joining a collective lawsuit can help other customers or employees get justice, and may deter a company from harmful practices in the future.

“It’s really a trial by proxy,” says attorney Russell T. Abney, who defends victims of dangerous drugs and defective medical devices at the law firm Watts Guerra. “The beauty of the class action,” he says, is that it adds up individual cases to a number that’s high enough to go up against a large company.

In most cases, Abney says, plaintiffs of class-action lawsuits pay legal fees on contingency, which means they don’t pay anything unless they win the case. Lawyers taking on these lawsuits will usually receive payment as a percentage of the settlement won from the company.

If you’re part of the “class” of a lawsuit — that is, if you were affected by the certain event or purchase described — you’ll often be automatically included in the lawsuit. And for certain cases, such as those relating to wage violations or defective products , you may have to opt in.

CLASS REPRESENTATIVES DON’T ALWAYS GET A LARGER PAYOUT

If you feel strongly about the outcome of a class-action lawsuit, you can also participate as a class representative, sometimes called a lead plaintiff. In some cases, becoming a class representative could lead to a bigger payout — but that isn’t always the case.

Even though the class representative is the case’s headline, “That person isn’t necessarily going to get any kind of windfall,” says Jennifer A. Riley, a partner at Duane Morris and vice chair of the firm’s workplace class-action group. She notes that some courts in some jurisdictions would be able to grant a service award to plaintiffs representing the case, which are often between $2,500 and $7,500 , but other courts have found these awards inappropriate. And it’s difficult to discern upfront whether such a service award would be granted.

Class-action lawsuits can also take anywhere from a few months to several years, which can be an excessive commitment for many. The Exxon Valdez oil spill, for example, took 17 years to reach a class-action settlement.

WHEN TO OPT OUT (OR NOT JOIN)

If you plan to make a case of your own, it makes sense to opt out of, or not participate in, a class-action lawsuit.

“If you have your own lawsuit, the value of your claim might be much, much higher as an individual than it would have been as a class member,” says Gerald L. Maatman Jr., a partner at Duane Morris and the chair of the law firm’s workplace class-action group. “You’re trying to decide, ‘If I opt out, am I going to do that much better than I’d do in a class action?’ And in certain circumstances, an individual would do better. They’d get the money quicker, and they’d get more money.”

One example: Following the credit-scoring company Equifax’s data breach in 2017, which compromised the personal data of 147 million people, The New York Times reported that some people took Equifax to small claims courts, winning much larger sums than those who received class-action payouts.

Small claims courts — which handle claims under a few thousand dollars to $15,000, depending on your state — generally charge a small fee t o file, making them a relatively low-cost way to seek damages. Typically, plaintiffs represent themselves in these cases, bypassing costly attorney fees.

If you’re considering a larger lawsuit, though, expenses are much higher. Consulting a lawyer can help you determine whether you have a strong case and how it might unfold.

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This column was provided to The Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Dalia Ramirez is a writer at NerdWallet. Email: dramirez@nerdwallet.com. Claire Tsosie, an assigning editor at NerdWallet, contributed reporting to this article.