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Anticipating Class-Action Litigation: A Playbook for In-House Counsel
By Stephen Carey and Corri Hopkins
Over the past several years, class action litigation has been on the rise. Our law firm alone has seen a significant increase in the number of class actions brought against our corporate clients. And few industries have been immune — banking, healthcare, insurance and technology have all felt the brunt of these increases. While class actions span across industries, they also hit a wide range of claims, including employment, data privacy, chemicals in product formation and securities.
As class-action litigation continues to rise, there are key things in-house counsel should know before their business is served with a complaint, as well as issues they should know about quickly after they have been served. Here’s a breakdown of some important strategies to navigate these often challenging hurdles.
THE BASICS: WHAT IS A CLASS ACTION (AND WHY IS IT A BIG DEAL?)
In a class action, a plaintiff will bring a case on behalf of “all those similarly situated.” This is called the “putative class” and can lead to hundreds, thousands or even tens of thousands of potential class members. More potential claimants, of course, means greater potential exposure — a $500 claim, for example, can mushroom into a $50 million claim if there are 100,000 people in the putative class.
Class actions often also mean more complex and voluminous discoveries. In one recent case, for example, our client produced hundreds of thousands of documents — and that case was by no means the exception.
Some class actions can pertain to core business practices, and preparing the defense often requires the assistance of employees across a company. This can strain business operations as employees are pulled away from their work, especially in preparing for depositions, discovery and trial. Depending on the scope of the litigation, depositions could take place around the country.
The legal issues around class actions are often nuanced, with subtle (and sometimes large) differences across jurisdictions. The procedures — potential legal landmines — differ from typical litigation. Companies therefore can benefit from the advice of experienced counsel who know how to navigate these strange waters.
THE FORUM: WHY THE RIGHT FORUM OR VENUE MAY BE CRITICAL
One of the critical first steps your company will face after it’s been served with a class action complaint is to decide the forum in which the case will be litigated.
Time is of the essence here. If the case has been filed in state court but federal court is your goal, you’ve got just 30 days from the date you were served to remove. No extensions, no exceptions.
There is a lot to consider and much to do in that brief window.
Consulting with experienced class action litigators — and fast — can help your company make key decisions within the deadline.
And the decision may matter. Venue can make a big difference when it comes to defending the class action. Federal class-action case law is more developed than it is in many states, and federal trial judges typically have more experience with class actions than their state counterparts. Federal courts may also provide more continuity and structure compared to state courts. At the federal level, for example, parties will typically work with one judge from start to finish — there’s no guarantee of that in many state courts.
Thanks to the Class Action Fairness Act, federal courts have broader subject matter jurisdiction over class actions. Congress passed the act to, among other things, cut down on what’s known as forum shopping by plaintiffs’ counsel who sometimes view state courts as friendlier. But different rules lead to different issues, which is one reason why consulting experienced outside counsel may be invaluable.
TRICKS OF THE TRADE: STRATEGIES TO USE AND PITFALLS TO AVOID
For companies, there are a number of strategies that can help navigate what can be a pressure-filled environment when a class action is filed.
One strategy is to focus on the individual plaintiff. Until a class is certified, the named plaintiff is the only party on the plaintiff’s side, and that individual may have unique issues that will make it difficult for the case to proceed as a class action. Thus, it is often important to conduct discovery on the named plaintiff — you never know what you may learn.
Another strategy is to leverage arbitration agreements and class action waivers. An enforceable arbitration clause could end up defeating an individual’s ability to represent a class. And federal court decisions denying motions to compel arbitration are typically appealable, meaning even an adverse decision on motions to compel arbitration could slow down the litigation.
One pitfall to avoid is remembering to treat corporate affiliates as separate entities. It can often be to the plaintiff’s advantage to ignore formalities and lump various entities together. Companies should take care to maintain critical distinctions among affiliates. Little things like logos on contracts and marketing materials can make a difference.
FINAL TAKEAWAYS
Class-action litigation is on the rise, and in-house counsel need to know how navigate them. But they don’t have to go it alone. Experienced outside counsel can provide crucial strategic advice and know-how. But companies also need to act fast — the 30-day clock may be ticking.
