Principles of Government: Class Action Lawsuits

Welcome back to our blog series on “Principles of Government,” where we explain key legal doctrines shaping today’s public discourse. In this article, we examine a legal strategy that has recently drawn attention: class action lawsuits. We will explain this concept in the context of the alleged fertilizer price-fixing cases currently pending in federal courts.

Several lawsuits have been filed alleging that large fertilizer companies engaged in price fixing. If history is any guide, it will not be long before farmers begin receiving letters from law firms suggesting they “sign up” for the case. This bulletin explains how class action lawsuits actually work and what farmers should do when those letters start showing up in the mailbox.¹

The Class Action

When a large number of people or businesses are affected by the same or similar alleged misconduct, a class action lawsuit is often used as the legal remedy. These lawsuits allow one or a few lead plaintiffs to represent a much larger group of individuals in the same position.

In practical terms, instead of 10,000 separate lawsuits alleging fertilizer price fixing, a single lawsuit is filed on behalf of the entire group. One or a few plaintiffs serve as representatives, while the remaining affected individuals are included in the “class” and share in any recovery.  For example, a class action was used a few years ago when Syngenta was sued due to China rejecting U.S. corn shipments due to an unapproved GMO trait.

Rule 23 of the Federal Rules of Civil Procedure sets out the criteria federal courts use to determine whether a case can proceed as a class action. To qualify, four requirements must be met:

(1) the class is so numerous that joining all members in a single lawsuit is impractical;

(2) there are common questions of law or fact shared by the class;

(3) the claims or defenses of the representative parties are typical of those of the class; and

(4) the representative parties will fairly and adequately protect the interests of the class.

Rule 23 also establishes the procedures courts follow in managing and administering class action lawsuits.

The Class Action Process

The first step in a class action lawsuit is identifying one or a few lead plaintiffs who have suffered damages due to the alleged misconduct of the defendant. The law firm filing the lawsuit will seek out a “named” plaintiff to represent the group. In the fertilizer cases, for example, Union Line Farms of Iowa is the lead plaintiff for a lawsuit filed in Colorado, while Fire Creek Farms of New York serves as the lead plaintiff for a separate lawsuit filed in Illinois. These plaintiffs have been identified as having experienced financial losses allegedly caused by price fixing among the fertilizer companies.

Next, the law firm representing the lead plaintiff asks the court to certify the case as a class action. The attorneys argue that many others have suffered the same type of damages from the same conduct, and that a class action is the most efficient and effective way to handle the claims. After reviewing the arguments from all parties, the judge will either approve the case as a class action or deny certification, in which case the lawsuit can proceed only on behalf of the named plaintiff(s).

As mentioned earlier, an Iowa farm is the lead plaintiff in a Colorado federal court, and a New York farm is the lead plaintiff in an Illinois federal court. Why not file in their home states? When the actions of the defendants affect people across the country, the lawsuit is often filed in federal court. Federal courts allow a person from one state to sue a defendant from another state as long as the defendant does business within that court’s jurisdiction. In the fertilizer case, the Colorado court can hear the Iowa farm’s lawsuit because the defendants sell products and conduct business in Colorado. This type of jurisdiction is sometimes called “diversity.”  The law firm representing the lead plaintiff typically chooses the court based on geographic convenience and the court’s experience handling large, complex class actions. In other words, the location of the lawsuit is usually about strategy and efficiency, not where the plaintiff or defendant is physically located.

At some point, the lawsuits filed in different jurisdictions will likely be combined. For example, the Colorado federal case may be consolidated with the Illinois federal case. If the issues and defendants are the same, there is little reason to have separate actions in different courts. Expect, therefore, that multiple class action lawsuits against the fertilizer companies will eventually be consolidated into a single case in one federal court.

Eventually, the matter will be resolved either through a settlement or a trial. Most class actions end in a settlement, but if the parties cannot agree, the case will proceed to trial. If there is a settlement or the plaintiff wins at trial, funds will be awarded to the lead plaintiff and other members of the class. The judge will also determine the legal fees for the plaintiff’s law firms and decide how the funds are distributed among class members. Generally, the available funds are divided based on the amount of damages each plaintiff suffered. In the fertilizer case, the more fertilizer a farmer purchased during the designated period, the larger their share of any award is likely to be. While these awards can be significant, they rarely fully compensate plaintiffs for their actual damages.

At this stage, everyone in the class will be asked to provide evidence and records to document their damages. In the fertilizer case, farms will submit records of their fertilizer purchases to show how much of the settlement or award they are entitled to receive. The law firms and the court use this information to calculate each farm’s share of the available funds. Accurate and complete records are important, because the amount of money each farm receives is generally based on the verified purchases during the designated period. While providing records may require some effort, it ensures that each farm receives a fair portion of the settlement.

Opt-Out

Most class actions automatically include all eligible persons in the class. However, if someone would rather file their own lawsuit or simply does not want to be part of the class, they can opt out. The court usually sends a form that allows class members to opt out. The form must be completed and returned by the deadline specified in the notice.

Remedies

A class action seeks legal remedies from the court. The most obvious remedy is financial compensation for economic damages. But class actions also serve another important purpose: deterring future misconduct. If the class action is successful, it can prevent the defendants from engaging in the same behavior again and signals to others in similar situations that such actions are likely to result in liability and payment of damages.

The Law Firms

While it would be appealing to imagine class action lawsuits arising when a group of aggrieved citizens bands together, the reality is that most are initiated by experienced law firms. These firms play a vital role in the legal system by identifying potential widespread harms, thoroughly investigating the merits of the claims, assessing the likelihood of success, and calculating potential damages or settlement values. They then locate suitable lead plaintiffs willing to represent the broader group. In doing so, plaintiff law firms provide an important service: they enable individuals and small businesses, such as farmers, who might otherwise lack the resources or expertise to pursue complex litigation on their own to seek justice and hold large corporations accountable. Without this mechanism, many legitimate claims would never be brought forward due to the high costs and risks involved.

It will likely come as no surprise that class action lawsuits can be very lucrative for law firms.  For example, in the Syngenta class action settlement, the legal fees awarded were in excess of $500 million dollars.  These fees were divided over many law firms and attorneys who represented individual clients.  But, as is obvious, there is great incentive for law firms to find and litigate large class action suits.

The legal fees must be approved by the judge overseeing the case.  The legal fees are usually 30-40% of the total damages.  It should be noted that the law firms work on contingency and often pay all the costs.  There is a risk that if the lawsuit is not successful that the law firms will receive no legal fees and are out their costs.  However, law firms are careful to take on class actions that are likely to prevail, limiting their risk.

Letters from Law Firms

Even if a person is automatically part of a class action, they may still receive letters from multiple law firms inviting them to “join” the case.  These firms want to identify additional class members, gather evidence, and sometimes recruit lead plaintiffs.

Receiving letters does not mean you need to sign up. If you are already in the class, the law firms representing the lead plaintiff automatically represent you. Ignoring the letters will not exclude you from the lawsuit, nor will it prevent you from receiving your share of any settlement or award.

Think of the letters as part of the law firm’s outreach, they are trying to maximize participation and document damages, which ultimately helps the case. Multiple firms may send letters for the same case because more participation can increase the potential recovery and, in turn, the legal fees.

Conclusion

If price fixing is proven or the parties reach a settlement, most farms across the country will likely be eligible for a share of any payments. For now, there is nothing farmers need to do. Eligible farmers are automatically included in the class and will have an opportunity later to submit fertilizer purchase records to establish eligibility and determine their share of any recovery.

These lawsuits will take many months, if not years, to resolve through settlement or trial. In the meantime, farmers should monitor the farm press and other reliable sources for updates as the cases develop.

¹ It is important to note that the price fixing claims are only allegations, have not been been proven by plaintiffs and are denied by the defendants.