Class Actions: A Brief Comparison of Federal and California Practice

Introduction

Attorneys who appear in both state and federal courts must be familiar with the differences between the two systems.  While some rules have harmonized over time,^[1] other procedures are entirely distinct.  As a matter of competence, lawyers who practice in state and federal courts should stay familiar with these differences.  As a matter of strategy, when a party has the option to litigate in either forum, the differences may present a tactical edge.

This article, comparing class action procedure in federal and state actions, is one of a five-part series of articles highlighting particular differences in California versus federal civil procedure.  Other articles in this series examine differences in punitive damages, the jury system, citation to unpublished authorities, and evidentiary privileges.

Class Actions Generally

Class actions are procedural vehicles to resolve disputes among parties so numerous that joinder of all of the members into a single action would be impractical.  Under both state and federal law, cases may proceed as class actions when they involve questions of law or fact that are common to the overall class.  A class must be represented by a person or people who can adequately protect the interests of all class members, and who possess a claim “typical” of the class. 

These requirements may be summed up as: “numerosity,” “commonality,” “typicality,” and “adequacy.”

Federal Prerequisites

In federal actions, the relevant requirements are set forth in Rule 23, subdivisions (a) and (b) of the Federal Rules of Civil Procedure (“FRCP”) (emphasis added):

(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:

(1) the class is so numerous that joinder of all members is impracticable;

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

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

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

(b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied and if:

(1) prosecuting separate actions by or against individual class members would create a risk of:

(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or

(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;

(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or

(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

FRCP 23 includes additional rules concerning the administration of a class action, notice requirements, requirements for class counsel, and restrictions on settlement.

California Prerequisites

In contrast with the meticulous requirements outlined in FRCP 23, California’s statutory authorization for class actions is succinct and broad.  The Code of Civil Procedure permits class actions “when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.”^[2]

The California Rules of Court provide additional instructions as to the administration of class actions.^[3]

Comparison of California And Federal Standards

The relative brevity of California’s law on class actions can be traced to earlier practices within the state.  Before California adopted its own class action rules, California courts looked to FRCP 23 for guidance.^[4]  As California has developed its own class action procedures and common law, Rule 23 has become more akin to a gap-filler than a primary source of direction.^[5]  California courts now look to federal precedent for assistance when there is an absence of state law.^[6]  California state courts “are urged to exercise pragmatism and flexibility in dealing with class actions.”^[7]

There are at least four significant differences in how California courts and federal courts handle class actions.

First, while California still requires “numerosity,” there is no minimum number of plaintiffs to satisfy this requirement.^[8]  In contrast, federal courts have frequently viewed 15 members or less as too small, based on a reading of dicta contained in the 1980 Supreme Court opinion, General Telephone Co. of the Northwest v. Equal Employment Opportunity Commission.^[9]

Second, in securities fraud actions, federal plaintiffs are permitted to proceed using a “fraud on the market” theory.^[10]  California, on the other hand, requires actual misrepresentations to each class member.  “(T)o permit common law claims based on the fraud-on-the-market doctrine would open the door to class action lawsuits based on exceedingly speculative theories.”^[11]

Third, at the class certification stage, federal courts assess whether damages can be established on a class basis.^[12]  California state courts have approached this issue more flexibly, finding that “differences in the amount of individual damages do not by themselves defeat class certification.”^[13]  Thus, in California, “[a]s a general rule if the defendant's liability can be determined by facts common to all members of the class, a class will be certified even if the members must individually prove their damages.”^[14]

Fourth, challenges to class settlements differ between state and federal practice.  California and federal law require court approval of a proposed class action settlement.  Federal class members who object to a settlement have standing to appeal a judgment approving the settlement.^[15]  An objection, however, is not enough in state court.  California class members who object to a proposed settlement must intervene in the action, or file a motion to vacate a judgement approving the settlement.^[16]  Otherwise, the class member will not have standing to appeal.

Conclusion

Class action procedures in California state and federal courts are very similar, with a few differences that have developed since California codified its own statute and rules.  At least at the class certification stage, state and federal courts apparently have similar class certification rates.^[17]  Therefore, for litigants considering either forum, the potential jury pool may have a more significant effect on the action.