Class Action Lawsuits: Rule 23, Certification & CAFA 2005

$900 Per Lawyer, $2 Per Class Member

The gap between attorney fees and individual class member recoveries in consumer class actions has been a target of critics for decades. A 2010 RAND Institute for Civil Justice study of 41 class action settlements found that attorneys received $424 million while class members collected $752 million — a roughly 1:2 ratio — but individual recoveries averaged less than $35 per class member while attorney fees averaged millions per case. In a notorious 2003 settlement involving GM truck fuel tank fires, class members received coupons for $1,000 off a new GM vehicle while attorneys collected $9.5 million in cash. Class action law's central tension — between aggregating too-small claims that would never be individually litigated and ensuring the device actually benefits injured people — runs through every procedural debate.

Class actions derive their force from Federal Rule of Civil Procedure 23, which governs every federal class action and has been adopted in some form by nearly all states. Certification under Rule 23 is the most important hurdle; without it, the case proceeds (if at all) as an individual suit.

The Rule 23 Certification Requirements

A court may certify a class only if it satisfies four prerequisites under Rule 23(a) and one of three additional requirements under Rule 23(b).

The 2011 Wal-Mart Stores, Inc. v. Dukes Supreme Court decision dramatically tightened the commonality requirement. The Court (5-4) held that 1.5 million female Walmart employees did not share a common question sufficient for class certification where Walmart's decentralized pay policy allowed individual managers discretion — there was no common discriminatory policy generating a common answer for the class.

Rule 23(b) Class Types

After satisfying 23(a), a class must also qualify under one of three 23(b) categories:

• Rule 23(b)(1): Incompatible standards or limited fund cases — used for mass bankruptcy distributions, limited insurance pools, or where inconsistent individual judgments would harm non-parties.
• Rule 23(b)(2): Defendant acted or refused to act on grounds applicable to the whole class — primarily civil rights and injunctive relief cases. Class members have no opt-out right.
• Rule 23(b)(3): Common questions predominate over individual questions, and class action is superior to individual litigation. The most common type in consumer fraud, securities fraud, and product defect cases. Requires individual notice to class members and opt-out rights.

The 23(b)(3) predominance requirement — stronger than the 23(a) commonality threshold — requires that common issues be central to the litigation, not merely present. Individual damages calculations have traditionally not defeated predominance, but the Supreme Court's 2013 Comcast Corp. v. Behrend decision held that damages models must match the theory of liability.

The Class Action Fairness Act of 2005

Congress passed CAFA in 2005 to address widespread use of state courts — particularly plaintiff-friendly jurisdictions — to certify nationwide class actions. CAFA grants federal jurisdiction over class actions involving:

• At least 100 putative class members
• Aggregate claims exceeding $5 million
• At least minimal diversity (one class member and one defendant are citizens of different states)

CAFA also created the mass action provision (100+ plaintiffs seeking joint trial) and the coupon settlement reform provision. The practical effect: most large consumer class actions now litigate in federal court, where judges — often skeptical of class device overreach — apply more rigorous scrutiny at certification. Defense counsel routinely remove state court class actions to federal court using CAFA jurisdiction.

Coupon Settlements and Their Critics

Coupon settlements — where class members receive vouchers or discounts rather than cash — drew Congressional ire because attorneys collected cash fees while class members received uncertain, restricted value. CAFA §1712 now requires federal courts to apply one of two approaches to attorney fee awards in coupon settlements:

• Fees based on the value of coupons actually redeemed (not the face value of all coupons issued), or
• A lodestar (hours × rate) calculation independent of coupon value

Redemption rates for class action coupons are typically 2–15%, meaning the "total value of the settlement" announced in press releases vastly overstates actual benefit to class members. CAFA's redemption-rate requirement has reduced (but not eliminated) abusive coupon settlements.

Cy Pres Distribution

When cash settlement funds remain undistributed — because class members cannot be located, don't claim their shares, or individual shares are too small to distribute — courts apply cy pres doctrine ("as near as possible") to distribute remaining funds to charitable organizations whose mission approximates the interests at stake in the litigation.

A data privacy class action might distribute unclaimed funds to digital rights organizations. A consumer fraud settlement might direct residual funds to consumer advocacy nonprofits. The Supreme Court agreed to address cy pres abuse in Frank v. Gaos (2019) — a case where Google's settlement sent all $8.5 million to cy pres recipients with zero cash to class members — but dismissed the case on standing grounds without reaching the merits, leaving lower courts to develop the law.

The objector role — class members who formally challenge a proposed settlement's fairness — provides a check on collusive settlements. Federal courts must hold a fairness hearing before approving any class settlement, and objectors may appeal approval. "Professional objectors" — attorneys who routinely object to settlements and negotiate dismissal of objections for payment — have themselves become a reform target.

This article is for informational purposes only and does not constitute legal advice.