I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

II. THE BASIC METHOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  2

III. ORIGINS OF CLASS ACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

IV. THE PUBLIC POLICY OF CLASS ACTIONS . . . . . . . . . . . . . . . . . . .  9

V. THE LEGAL ETHICS OF CLASS ACTIONS . . . . . . . . . . . .  . . . . . . . . 10

VI. THE ECONOMICS OF CLASS ACTIONS . . . . .  . . . . .  . . . . . . . . . . 12

VII. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

 In light of recent headlines about multi-million-dollar class action settlements new law school graduates may look to class action work as a good way to make lots of money early in their legal careers.¹ After three years of law school most graduates are eager to start earning a large salary.  And some young lawyers may look at the large class action awards and to the large attorney's fees that they generate as a way to fund other aspects of the legal profession such as pro bono legal work and social litigation.
 However, the way that most class actions are brought to fruition may not fit the recent law school graduates' plans.  Such suits may not be the best way to do good work for clients who deserve quality legal services but cannot afford them.  An understanding of the method and its history may prove that these large awards of attorney's fees are used to pay large bank loans and the losses incurred on cases that do not settle and do not return favorable jury awards.  The seemingly large windfalls may not be available to subsidize other legal work.²
 
 

The generic class action suit involves a named plaintiff who adequately represents the class of plaintiffs that is suing.³  This named plaintiff can be anyone who has suffered a harm that is similar enough to harms suffered by the remainder of the class.⁴  Examples might include anything from one customer that purchased a faulty flashlight, to a small group of women who purchased plastic surgery, to a single shareholder of a large corporation.
The class of possible plaintiffs must be large enough to generate a substantial total group harm.⁵  If there were many separate large harms each might be pursued separately.  With small harms, however, it is not economical for each small claimant to pursue redress.  It is only by grouping their claims that each claimant's proportional share of the legal fees and other costs can be reduced to a reasonable dollar amount.
A class action suit must also involve a common legal or factual issue.⁶  Class actions are a grouping of similarly situated claims.⁷  For example, if a class action were to be brought against a large manufacturer by all of it's separate suppliers the claim would have to involve a thread that was common to each relationship.  If one supplier had a breach of contract claim and another had a tort action the two would not be permitted in the same class action.
The named representative of the class must be typical of the group harmed.⁸  Most often the named plaintiff will have no more of a special relationship with the suit than any other plaintiff.  This is not always the case as there are often "professional named plaintiffs" who appear as the named plaintiff in several class actions.  These individuals may have much more involvement in the suit than the other plaintiffs.  But, in general the named plaintiff has little to do with the suit.
Another important aspect of the named plaintiff is that they need to vigorously pursue the interests of the entire class.  But, when the named plaintiff is only a nominal plaintiff this is not possible.  In fact, the task of vigorously pursuing the interests of the entire class is often left to the attorneys in charge of the suit and the judge that grants certification.  For it is the attorneys who fund the class action and plan the strategies that lead to settlement or favorable jury awards.
As a general rule the initial costs of pursuing the class action are borne by the plaintiff's attorneys.  Class members are rarely asked to pay for the attorney's work before the litigation is commenced.  Rather attorneys, law firms, and banks provide the cash needed to pay those who research the case, file the claim and develop the membership of the class.  These costs may add up to hundreds of thousands of dollars and may not be recovered for some time, if at all.
This fact alone may preclude many recent law school graduates from opening a practice that focuses on class action suits.  Very few banks would lend money for this purpose to attorneys without track records.  If class actions are what recent law school graduates want to practice; joining an existing firm may be the best option.
Finally, there must not be a better alternative to the class action.⁹  This most often occurs with small individual harms from product defects.  It may also be the case where there has been a mass tort¹⁰ and the tort-feaser is looking for a settlement to quantify the liability.  Certification of the class goes a long way in structuring the settlement negotiations for the parties in either case. ¹¹  Each side will attempt to craft the case to its own advantage and the class action is often the best method for doing this.
The certification process involves a properly drawn up class petitioning a judge for certification.¹²  The judge reviews the facts of the case as presented.  The judge then evaluates how each of the specific facts fits within the class structure.  This evaluation determines whether the class structure creates efficiencies within the judicial process.¹³  The judge also ascertains whether the class certification helps to avoid inconsistent decisional law.  That is, does it help to have one judge hear one large group of similar cases rather than have several judges hear several smaller cases?  One decision from one consistent set of facts makes for better case law.¹⁴
The judge also considers the protection of any absent class members when granting certification.¹⁵  Individual class members who were harmed must be identified so that they can be notified of the suit.¹⁶  Upon notification possible class members are faced with the decision to stick with the class or to opt out and pursue the claim on their own.  The decision to participate in the class action remains the individual's decision.
The judge also considers whether the aggregate of small claims helps to foster the 'private attorney general' theory of law enforcement.¹⁷  It is often through private tort actions that legal standards of care are created and enforced.¹⁸  Similarly, the rise in class action tort suits has produced an increase in product testing and safety.¹⁹ Recent law school graduates may ask, "How can we practice 'good' law and still earn a living?"  Working for a larger firm that specializes in class action cases may make it possible to work on law that helps shape the way large companies do business.  This is not necessarily the type of law practice that comes to mind as pro bono or poverty law but it can none the less produce a social benefit.  Large class action settlements and awards can force large companies to behave in a more socially acceptable manner in the future.
 
 

In the beginning, group litigation did not represent a mechanism for the small, unsophisticated legal player to gang up on the large economic giant.²⁰  The opposite was in fact true.  Class actions started as a tool to modernize the manorial and parochial systems during the beginnings of the agricultural revolution.²¹  Often it was the oppressor who was using the litigation to further the oppression.²²
Efficiency was assumed when a landlord sued his tenants to enforce a new lease agreement.²³  Each tenant would be bound prospectively by the new legal decision.  This was accepted because there was a commonality to the subject at hand.²⁴  Each tenant had roughly the same relationship with the lord of the manor.  In this way the early class actions were almost legislative.²⁵  The decisions affected only future relationships.
There is also an example of the class action being used to enforce a death tax upon an entire parish.²⁶  The rector in one particular area sued his congregation for not bringing their dead to his cemetery where he would perform the service and extract the death tax.²⁷  Again, the elements of efficiency and commonality were met in this example.  Every parish member would eventually have to be buried and the legislative nature of the decision forced payment of the tax only prospectively.
Class actions in America followed this English line of cases until the rise of associations and corporations (circa 1850's)²⁸.  The class action was then used to enforce relationships between shareholders and corporations.²⁹  The class action was not used very often and a strong body of case law did not develop until the rise of industrialization.³⁰
With the rise of a mass production economy the disparity between the powerful producer and the weak consumer increased (circa 1890's to present).³¹  Consumers increasing bore the cost of industrialization through unlitigated torts.³²  Harms were left unaddressed.³³  Class actions were rediscovered as a mechanism to aggregate a large numbers of small harms together into one larger claim and thus make it economically possible to pursue.
Plaintiff's attorneys would do this by first certifying the class.³⁴  Again the judge mandated that the similar interests of the class be served while the individual interests of each class member were also respected.  Federal Rule of Civil Procedure 23 was the framework on which these decisions rested.  Early interpretations of the rule were liberal and classes were generally certified.  This resulted in a major backlash.³⁵  As a result courts began to restrict the use of class actions and the groups that were allowed to use them.³⁶
The advent of the mass tort³⁷ pushed the pendulum back the other way.  In the late nineteen-seventies courts began again to use class certification in a more liberal fashion.³⁸  The class action was again seen as a means of inducing socially and ethically responsible behavior from large and wealthy institutions.  Large awards and settlements were seen as deterrence to policies or activities that were harmful to large numbers of individuals.  This view of class actions policy is especially robust in situations where stopping the entire class action certification would put an end to the litigation and the enforcement.  Finally, the Supreme Court has noted that Rule 23 of the Federal Rules of Civil Procedure provides for class actions that may enhance the efficiency of private actions by permitting small consumers to combine their limited legal resources to achieve a more powerful litigation posture.³⁹
 
 

The class action can be said to offer a great advantage to the plaintiff class in settlement negotiations.  "Class litigation achieves organization of a large group of litigants who would not find it rational to press their claims without collective action."⁴⁰  With the added clout of additional claimants plaintiffs' attorneys can negotiate for and obtain larger settlements.
Once there is a settlement agreement the court must approve the details of the deal.⁴¹  The court acts as a guardian to all the class members present in order to protect their separate interests.  The court also insures that absent any statutory language specifically awarding fees the attorneys get paid only if there is a monetary award.  The court must approve both the form and the content of any settlement agreement.  The court also establishes the settlement date and allows for dissent and debate.  In sum, the court has an additional role in class action suits.  Not only does the court preside over the settlement or possible trial but it also acts as a guardian of the rights of both present and absent class members.
 
 

Due to the large number of possible litigants modern class action law often runs afoul of the Model Rules of Professional Conduct.⁴²  To whom does the attorney owe allegiance?  According to one judge the conflicts come to a head during the settlement phase of litigation.⁴³  Early settlement is one of the most favorable options for attorneys but may not be so favorable for the entire class.  This point is really driven home by the fact that in many class actions the attorneys front the advance money for the class and the attorneys are hurt if settlement does not happen quickly.⁴⁴
Another possible ethical question is the rule against solicitation.⁴⁵  This rule is brought to life by the "ambulance chaser" played by Danny Devito in the film "The Rain Maker".  But, this seemingly strong rule against solicitation has had little impact on the efforts of class action lawyers in their attempts to develop class membership.⁴⁶  As it stands efforts by attorneys to collect class members will be allowed so long as the efforts are not egregious.⁴⁷
Finally, perhaps, the most dangerous breach of ethics within the class action must be discussed.  That is, the possible collusion between the plaintiffs' lawyer and the defendant (defense counsel).  This situation occurs when the defendant convinces the plaintiffs' attorney to settle for an amount that is less than the projected outcome at trial.  The defendant and plaintiffs' attorney then split the difference.  Both the plaintiffs' attorney and the defendant are better off to the determent of the class action litigants.  This example of ethical breach is best prevented by strict judicial review of proposed settlements.⁴⁸
 
 

There are three main theories on how to calculate the amount of fees the plaintiffs' attorney should recover in the case of class actions.  They are the lodestar method, the contingency fee basis, and finally the market rate of return method.  Each method has its strengths and weaknesses.  Because attorney's fees have the potential to act as a major driving force behind an attorney's motives in representing the class members, particularly in the case of settlement, these methods of fee calculation deserve special consideration.⁴⁹
The lodestar method has been around for the better part of 30 years and has been used to calculate fees in many different situations.⁵⁰  In its simplest version lodestar is reasonable hours multiplied by a reasonable rate.⁵¹  The lodestar method offers the most predictability for the plaintiffs' class and the defendant.
The method does have criticism.  Lodestar tends to promote 'make work' for the attorneys.  Plaintiffs' attorneys are rewarded for work done not for work that needs to be done.  This promotes waste in an effort to increase reasonable hours.
Lodestar does not offer a valid comparison to the potential class member as applied to the decision of opting out of the class.  If a potential class member stays within the class they will pay their proportional share of the lodestar fee.  If they opt out they will most likely pay a contingency fee.  A valid comparison of predicted costs is not available in this situation.
Finally, lodestar does not promote early, advantageous, settlement, as the plaintiffs' counsel has to document time spent in order to collect under lodestar.  If an early settlement would be possible in the absence of lodestar it is not available when the plaintiffs' attorneys must justify their fee by the hours spent on the case.⁵²  This waste of legal time is beneficial only to the plaintiffs' attorney.  Wasted time could be better spent on other class action litigation.
The second method used to evaluate fees is the contingency method.  This method borrows directly from the field of personal injury law where the plaintiffs' attorney takes a fixed percentage of any recovery.  This method works best when the courts maintain discretion to keep fees reasonable and inline with other types of contingency fee arrangements.  Under the contingency method it is understood that any excess that an attorney may recover above the actual cost of winning the class action will be used to defray the cost of class actions that are brought, not settled and subsequently lost.  This is congruent to the theory of contingency fees generally.
In any event, the courts must maintain an independent duty to protect the class.  This situation is most pronounced when part of the settlement is in cash and part of the settlement is 'in kind'.⁵³  The class members take their percentage of the settlement in the form of vouchers or coupons and the attorneys take their percentage in the form of cash.⁵⁴  As noted earlier, the court must monitor this situation for collusion between the defense and the plaintiff's attorney.⁵⁵
Under the contingency fee method the court may also consider the experience of plaintiff's counsel when allowing fees.  It may also consider the difficulties of the case.  This consideration allows flexibility in awarding fees.  Some class actions are much more intensive than others.⁵⁶  Courts may also consider the time actually spent on the case as justification for reducing the percentage of the fee recovery.  If the courts retain the power to modify the contingency percentage then the fee structure can be made to properly fit the amount and quality of work performed.
Under the third method of fee arrangement market forces are used to determine the proper fit.  A majority of recent court decisions have held that the percentage method of fee recovery is the ideal way to fund class action litigation.⁵⁷  This recent acceptance is in light of the fact that plaintiffs' attorneys are now biding for the opportunity to represent the class.  This open market biding will help drive the cost down to the opportunity cost of the attorneys involved.⁵⁸  Allowing the attorneys to set their own reasonable fees will allow market forces to drive the price down.  Class members represented by the named plaintiff could then seek out the best counsel for the price that they were willing to pay.  Competition would then ensure that cases that are "absolute wins" would return the most to the class and questionable class actions would cost the class more.  The market system would remove part of the monitoring burden from the judge.
 
 

In close, large class action settlements may be attractive to recent law school graduates.  This might not truly reflect the economics of the situation, as the economics of the class action settlement are more congruent to the economics of the typical contingency fee arrangement.  Legal ethics also play a large role in class action settlements.  The class action attorney has to protect the interests of the entire class.  Recent law school graduates must realize that the history of class litigation has shifted toward more public policy oriented goals.  If shaping those ends is important to recent law school graduates then working for a large firm that specializes in plaintiff class actions might be the right choice.