Introduction:
It takes the same nine months to have quintuplets – might appear to be the way to characterize the advantage of class actions.
However, a class action law suit is not merely a complaint with multi plaintiffs. Rather it is a cause of action on behalf of numerous plaintiffs similarly situated who are not identified by name but rather by a descriptive category. Moreover, the members of the category have not consented to the action nor appointed the moving plaintiff on their behalf.
This type of action is a wonderful modern legal invention which enables law suits to proceed that would otherwise frequently never even be filed. This is true in cases where the alleged damage to a single plaintiff would be insufficient to warrant the expense of the lawsuit, while the cumulative damage to all the members would justify the law suit.
Actually the antecedents of the class action is said to be “group litigation” which existed in England from the 13th century, whereby villages and guilds could serve as plaintiffs for the group. However, it has been in the United States where class actions have really developed as a popular litigation tool. Other countries, including Israel, have emulated the United States in this regard; with many differences.
Israel system:
In 2006, Israel unified its various rules and developments on class actions in one statute. This is not to say that prior to 2006 class action lawsuits did not exist in the country, but rather they stemmed from various other laws:
Objectives of the law:
Since class actions already existed in Israel prior to 2006, the goal of the new legislation was to formalize uniform rules in the matter in order to improve the protection of rights and especially to assure access to the court for that segment of society which would otherwise have difficulty in doing so as individuals.
Types of actions:
Most class action lawsuits are submitted in the securities and consumer field. However, the consumer field is defined broadly to include any lawsuit against a service provider (defined as whoever sells an asset or provides a service as a business, including a manufacturer) regarding a matter between said service provider and a client.
The statute gives a list of subject areas in which a class action can be filed:
a) Consumer protection (even on a B2B basis)
b) Insurance claims (against insurer, agents and even money managers of funds)
c) Banking claims (including against local and foreign commercial banks, mortgage banks, credit card companies)
d) 1988 Restrictive Trade Practices Law (monopolistic practices)
e) Various securities laws including the management of a trading arena as well as ownership, holding, purchasing or selling securities or a unit according to the Joint Investments in Mutual Funds Law
f) Environmental claims and damages
g) Claims against discrimination in products, services and entrance to entertainment places and public places
h) Equal rights protection for the disabled in general and according to the planning and building law as well as regarding subtitles and sign language on television in particular
i) Labor laws and employee discrimination j) Claims against an authority (such as the state or a municipality) for unlawful taxes or collection
k) Spam Advertising
l) Against a company for operating a general pension clearing system, regarding transferring information or money via said system
Indeed the Supreme Court has said: "not on every matter can a class action lawsuit be filed, and whatever was not explicitly permitted is forbidden…" (Bank Yahav for State Employees vs Lior Shapira et al. 2598/08)
Who can file:
Three types of plaintiff can serve as the representative of the class:
a) A person that has a personal stake in the action
b) Public entities mandated with responsibility for the subject in question (e.g. Commissioner of Equal Rights for Disabled, Authority for the Preservation of Nature and Commissioner of Equal Opportunities at Workplace)
c) Non governmental organizations (NGO) which have been active for at least one year to promote a public objective in those areas within their mandate, as well as the Israeli Council of Consumerism which has received specific approval to sue even if an individual person would be able to do so himself
In Bank Yahav for State Employees vs Lior Shapira et al. (2598/08) the Supreme Court ruled that a class action lawsuit may even be filed against a bank because of its failures to a customer, even if the lawsuit is submitted by a creditor (who is a "natural customer" of the bank) who sought an attachment of the debtor's (i.e. customer's) bank account.
Who constitutes a part of the Class:
By statutory definition it is either by opting out or by opting in.
Opt out: everyone who meets the judicially recognized parameters of the class unless a particular member expresses their desire to not be included.
Opt in: after the court defines the parameters of the class, it gives notice to all the potential members to express their willingness to join the class and thus be barred from instituting their own private actions.
Defining the Class:
The certification of a class by the Court is dependent upon a number of pre requisites delineated in the statute:
a) In the case of a person, the representative of the class must have a personal stake in the action
b) All the members of the class share material questions of law or fact that will be at issue in the lawsuit.
c) A “reasonable possibility” exists that the claims of the class will be vindicated. Put another way: their success is possible.
d) Under the circumstances, the most efficient and judicious approach would be a class action.
e) Reasonable to assume that the members of the class will be represented appropriately and in good faith.
f) To the extent damages are being asserted, then the representative must make a showing of personal damage.
Notwithstanding all of the above, a court is empowered to reject certification of the class in those instances where public policy and a cost benefit analysis militate against certification.
The court may approve submitting a lawsuit as a class action even if the abovementioned pre requisites are not fulfilled, in the event that the court finds that these can be filled by adding a plaintiff or attorney or replacing one of those, or any other way the court finds appropriate.
Remedies:
Although it is a truism that each case is different, when a court grants economic compensation for damages, the methodologies include:
a) Payment of a specific amount to each member of the Class who was damaged
b) Payment of a lump sum to the Class with a formula provided for allotting shares in the recovery
c) Where the above is impractical, the court is free to fashion a form of relief designed to serve justice even if not specific to the members of the class directly (e.g. creating a fund for future born disabled)
Resignation or Withdrawal
To prevent the representative of the Class from cutting a private deal or benefitting some members of the Class at the expense of others etc., the representative cannot withdraw or even agree to a compromise without judicial approval. Furthermore, even the Court itself cannot agree to a settlement or compromise without appointing an expert in the field to provide guidance and input to the Court.
Fees for the Representative and the Lawyers
Bearing in mind that each individual member of the Class is not personally signing off on any settlement, the settlement agreement must be publicized prior to its approval by the court. Each of the members of the class, the government legal advisor and various public entities are entitled to petition the court to amend an agreement on the grounds that it not sufficiently beneficial to the public.
In theory, the court will approve a settlement when it finds the settlement to be appropriate, fair and reasonable while taking into consideration the members of the class. On the other hand, the court will also consider the impact the decision will have on the defendants and public policy in general. The court is entitled to approve the settlement, fully or in part and make amendments that it finds necessary. Sometimes a settlement is proposed by the parties even prior to certification of the class. In such situations the court will check if there are essential questions of law or fact shared by the members of the class, and that ending the procedure with a settlement agreement is the most fair and efficient way to resolve the dispute.
Unless otherwise decided and explained in writing by the court, the court must nominate experts in the field of the lawsuit to examine and voice an opinion based on the advantages and disadvantages of the settlement for the members of the class, while taking into consideration all of the circumstances and any other matter the court brings to its attention.
Israel has a unique way of encouraging certain class actions. There is a fund administered by the Department of Justice which will help finance the costs of class actions deemed by the Ministry to promote public policy goals. Despite the fund being a direct result of the 2006 law, it was only established in 2010 with an annual budget of 1.3 million N.I.S (equal to approximately $350,000 USD)
The preliminary criteria for funding are: (a) no previous convictions and proper management, (b) additional funding resources to enable execution of the process till the end, (c) when an organization: ability to persevere with the legal proceeding, when an individual: not defined as bankrupt and (d) when an organization: previous attempt to rectify the situation which is the claim of the suit as well as experience with handling law suits, when an individual: not political.
The funding shall not exceed 90% of the actual cost, however the fund may decide to allow up to full funding of the cost of a specialist witness, but in no event shall include legal fees, unless under special circumstances.
In the event the representative plaintiff won his case or had his request approved and a settlement agreement was reached, he must return the full amount granted to the fund with the addition of linkage, insofar as the amount does not exceed the amount ruled in his favor. There are other events which would require the return of the monies, for example fraud in its procurement, misuse of the funds, etc.
In 2011, nine out of twenty five requests were approved for funding.
Other countries:
Austria:
Although there is no statutorily recognized class action, the Austrian Supreme Court has permitted actions on behalf of thousands of consumers when brought by consumer organizations. The prerequisite is that the claims of all the plaintiffs are predicated on the same law and facts.
France:
Even though France too permits actions on behalf of numerous consumers, it is more restrictive than Austria. Specifically, each plaintiff must be named individually.
Italy:
Like Austria it permits consumer organizations to file suit on behalf of classes of consumers. Many cases have been brought against banks for overcharging.
Switzerland:
It does not recognize any form of class actions. The rationale stems from both philosophical objection to people being represented without their consent; as well as concern that defendants will be “blackmailed” into settling to avoid the exorbitant costs of litigation.
Canada:
Perhaps because of its geographic proximity to the United States, class actions are recognized under provincial laws as well as in the Federal Court of Canada. However, there has been confusion about situations where members of a class in one provincial law suit are encompassed by a competing claim in another province; and whether opt out provisions would apply. Nonetheless class actions are popular with judgments reaching billions of dollars.
India:
Like the US and Canada, India has been receptive to class actions. They have been termed “public interest litigation” and focus on disadvantaged segments of society rather than generally classes of plaintiffs similarly situated and damaged. Court imposed remedies have sometimes exceeded mere monetary payments and included ongoing judicial supervision and the creation of guidelines for conduct and behavior where the legislature has failed to act. Sometimes the government of India serves in effect as the representative of the class e.g. as occurred in the Bhopal Gas/Union Carbide disaster.
United States:
Both federal law as well as most states have adopted uniform rules on class actions. An acronym (CANT) has been coined to describe the four prerequisites:
1. Commonality—the members of the class must have a common legal or factual basis to their claim; and typically these common features must be deemed to outweigh any individual aspects of the members such as the amount of damages due each one.
2. Adequacy—the representative for the class must be determined to be appropriate to sufficiently represent and protect the interests of the other class members.
3. Numerosity—the number of potential class members must be so great as to make the option of individual law suits unviable.
4. Typicality—the claims or defenses must be typical of the plaintiffs or defendants.(in other words: a plaintiff's claim is typical if it arises from the same event, practice, or course of conduct that gives rise to the claims of other class members, and if his claims are based on the same legal theory.)
Hong Kong
Hong Kong currently allows multiparty proceedings, however the losing party must pay their opponent's legal fees. Jeff Maddox, a lawyer who had advised on capital raising in Hong Kong, New York and Singapore stock exchanges was quoted as saying: “There’s less than a three percent chance of getting sued after a listing here compared to a 20 to 25 percent chance in the U.S.”.
After the losses by thousands of investors by failed Lehman Brothers Holdings Inc., it was recommended already in 2009 to allow class actions. This month (May 2012), the securities regulator proposed introducing civil liability for banks working on initial share sale prospectuses, may also allow class action lawsuits to help investors seek damages. The city’s Law Reform Commission is recommending legislation to allow a representative to sue on behalf of a group with a common complaint.
Comparisons
Israel’s approach is clearly more akin to US, Canada and India; than it is to the European countries.
The Israeli Courts have identified a number of advantages in the class action:
a) “protection of individual ‘s interests…by adjoining the individual suits to one class action makes their claims worthwhile” (Supreme Court in Rami Tetzet et al vs Avraham Zilbershatz et al (4556/94)
b) “a deterrence value. Law violators know that those hurt by their actions have a course of action against them” (Rami Tetzet supra)
c) “the efficiency and savings in resources of the parties and the court associated with the class action” (Rami Tetzet supra)
d) “additionally achieved is uniformity in court decisions on similar matters and therefore also preventing increased lawsuits” (Rami Tetzet supra).
On the other hand, the courts are cognizant of the negative aspects of class actions:
"The class action instrument conceals dangers as well. It may harm an individual who was not aware of it and may even be driven by improper motives. It may lead to unjustified compromise, cause waste of resources, harm the economy in general… In order to filter fruitless claims, a number of distilling methods have been implemented which are governed by the preliminary request to approve a lawsuit as a class action. The first stage of the request to approve a class action is meant to prevent exploitation of the class action instrument by inappropriate plaintiffs or suits which are not appropriate to be heard as class actions due to their intricacy or complexity.” (Supreme Court in Accadia Software Systems Ltd. vs The State of Israel 2395/07)
Israeli courts have not been as generous as its American counterparts. For example: In Litvin vs Bella Shlomkins Ltd. (4398-09-08) The District Court accepted a class action lawsuit filed against Bella Shlomkins, a local club by partygoers after being exposed to smoke and obliged the court a comprehensive compensation of 90,000 NIS which will be transferred to the Israel Cancer Association
And there have been many instances where proposed classes have been rejected: In Zolotrovski Tali vs Security Focus Ltd. et al. a Tel Aviv regional labor court denied a request to approve a class action as such against a security company claiming it has deprived its workers' rights. The court ruled that there is a new collective bargaining agreement that the employees of security companies are governed by and therefore their rights are enforced by the union.
Recent development
The most recent Supreme Court decision regarding class actions was given just a few days ago (May 28th, 2012), Gadish Provident Fund et al. vs Analyst Ltd. et al. (2718/09) in which the Supreme Court reversed the District Court's ruling and decided to permit a group of institutional investors to file a class action lawsuit claiming deprivation of minority shareholder rights. Judge Beinish ruled that when the court believes that essentially the lawsuit is appropriate to be heard as a class action, the court should consider the possibility to overcome the partial incompliance with the preliminary criteria to file as a class action and make use of the authority vested in the court by the legislature. It was therefore decided that the lack of uniformity among the members of the group is not enough to deny the request and therefor returned the case to the District Court to try it as a class action and divide the members of the group into sub groups.
Bottom line: It takes class to get action