How Class Action Lawsuits Allow Groups to Sue Together

One Lawsuit, Millions of Plaintiffs—and Billions at Stake

In 2016, Volkswagen agreed to pay up to $14.7 billion to settle a class action over its diesel emissions scandal—one of the largest automotive settlements in U.S. history. That case illustrates what class actions do: they aggregate individually small claims into a collective action powerful enough to hold large corporations accountable. Without the class device, a consumer whose car lost $3,000 in resale value would never sue a multinational automaker. With it, the math changes entirely.

Class action procedure in federal court is governed by Federal Rule of Civil Procedure 23, which was substantially amended in 1966, 2003, and 2018. State courts follow analogous rules, though requirements vary. The Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1332(d), expanded federal jurisdiction over class actions with more than 100 class members and at least $5 million in aggregate claims.

The Four Prerequisites Under Rule 23(a)

Before a court certifies a class, the plaintiff must satisfy four threshold requirements under Rule 23(a). These are non-negotiable. Failing any one of them ends the class action.

• Numerosity: The class must be so numerous that joinder of all members is impracticable. Courts have found classes of as few as 25 members sufficient in some circumstances, though most involve hundreds or thousands.
• Commonality: There must be questions of law or fact common to the class. The Supreme Court raised the bar in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), holding that commonality requires a "common contention" capable of classwide resolution.
• Typicality: The named plaintiff's claims must be typical of the class's claims. The lead plaintiff cannot have unique defenses or atypical factual circumstances that would distract from the class's interests.
• Adequacy: The named plaintiff and class counsel must adequately represent the class. This requires both the absence of conflicts and the competence of counsel.

Rule 23(b): Types of Class Actions

After satisfying Rule 23(a), plaintiffs must fit their case into one of three categories under Rule 23(b).

The Rule 23(b)(3) damages class is the most common and most contentious. It requires that common questions "predominate" over individual ones—a more demanding standard than mere commonality—and that a class action be "superior" to other available methods for resolving the controversy.

Certification, Notice, and Opt-Out Rights

Class certification is not a rubber stamp. Courts conduct a rigorous analysis and frequently deny certification. When a class is certified under Rule 23(b)(3), class members receive notice—typically by mail, email, or publication—explaining their right to opt out. Members who opt out preserve their individual claims. Those who do nothing are bound by any judgment or settlement.

• Rule 23(c)(2) requires the "best notice practicable" to all class members who can be identified through reasonable effort.
• The named plaintiff can receive an "incentive award" for their additional work on behalf of the class, though courts scrutinize these awards carefully after Johnson v. NPAS Solutions, 975 F.3d 1244 (11th Cir. 2020).
• Settlement of a certified class requires court approval under Rule 23(e), which demands a finding that the settlement is "fair, reasonable, and adequate."
• Objectors—class members who oppose the settlement—may appear and be heard, and may appeal the approval order.

Securities Class Actions and the PSLRA

Securities fraud class actions operate under an additional layer of regulation: the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 78u-4. Congress enacted the PSLRA after finding that securities class actions were frequently filed as strike suits to extract settlements regardless of merit.

The PSLRA has significantly reduced frivolous securities filings. However, meritorious cases—like the Enron securities class action that yielded over $7 billion in settlements—still succeed under its framework.

How Class Members Actually Recover

In most consumer class actions, individual recoveries are modest—often a few dollars or a coupon. Defendants pay most settlement funds to class counsel, which courts must approve under Rule 23(h). Critics argue this arrangement primarily enriches attorneys. Defenders respond that deterrence, not compensation, is the point: forcing corporations to internalize the costs of widespread but individually small harms changes corporate behavior at scale.

This article is for informational purposes only and does not constitute legal advice. Consult a qualified attorney for legal guidance.