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Class Actions & Derivative Suits

Class Actions 101: A New "Viral" Class Action?

By Casie Collignon and Paul Karlsgodt – November 20, 2012


As our society becomes more dependent on social media, it only makes sense that social media would influence the landscape in which class action lawsuits are formed, litigated, and settled. But have social media really created a brand-new kind of “viral” or “virtual” lawsuit? In this edition of Class Actions 101, we discuss some of the basic concepts of the “viral” lawsuit and the “virtual” tools made available by the widespread popularity of social media. There is no doubt that social media are the new frontier for all types of mass actions, and keeping up with the latest and greatest trends may be the class action litigator’s biggest hurdle yet.


“Viral” Class Action

The term “viral” or “virtual” class action is often used in reference to John True et al. v. American Honda Motor Co., Inc., No. 5:07-cv-287-VAP-OP (C.D. Cal.), in which Honda settled a class action lawsuit that provided Civic hybrid drivers the option to get either a discount off the purchase of a new Honda or a cash payout if they could prove that they complained about the mileage problem to Honda. One class member, who thought that the class settlement was unfair, opted out of the settlement and went “viral.” She filed a small claims court action and turned to social media to encourage other class members to do the same. She set up DontSettleWithHonda.org, opened a Twitter account, and posted a video on YouTube to share information about what is now called a “small-claims flash mob” case establishing new precedent for righting the wrongs toward the public and opening the floodgates for small claims lawsuits.


Another example of a “viral” class action can be seen in a recent wave of small claims court cases filed against AT&T. After one individual successfully sued AT&T in small claims court over the speed throttling of his unlimited data plan, many more followed. This surge of small claims against AT&T was driven not by a disgruntled class member as it was in the Honda case but by an Internet startup that posted a blog entry claiming to have created a successful step-by-step blueprint for any qualifying individual to sue the company for alleged data throttling.


Although efforts to take individual lawsuits or opt-outs viral have not always been successful—in Honda the individual suit was ultimately unsuccessful—these cases illustrate the potential of using social media to create “virtual” or “viral” actions that use traditional individual action procedures, such as small claims court, to create a mass litigation effect. They raise the question of whether social media may indeed be creating a practical alternative avenue for getting relief to the masses without using traditional procedures available for class or mass action models.


Is a “Viral” Action Really a Class Action?

Efforts to drum up support for individual lawsuits using social media are not class actions in the literal sense, which is why they are sometimes referred to as “virtual” class actions. However, they can have a direct impact on class action litigation if, as in the Honda case, they are used to encourage class members to opt out of a class action settlement. In addition, aggregation of claims, however it is accomplished, serves as an alternative to class actions as a vehicle for mass dispute resolution. Social media have the potential to increase the relevance and impact of this alternative procedure by increasing the ability to reach mass numbers of potential claimants. In other words, what make the concept of “viral” class actions new are developments in technology, not developments in the law, because modern social media now permit rapid communication with a large group of potential plaintiffs, which is one of the precise goals of traditional mass litigation.


There are clear differences between class actions and mass aggregation of individual claims. Outside the class action context, each plaintiff has to affirmatively bring a claim and play an active role in the litigation. However, various procedures have developed in other contexts—for example, in asbestos, tobacco, and other mass tort litigation—to create economies of scale by consolidating significant portions of the proceedings, such as discovery. From the defendant’s standpoint, the resolution of a class action means a judgment that binds all claimants with the same or similar claims. The same is not true in cases involving mass individual claims, where there is a separate judgment in each case, and only the individual who brought a claim is bound by that judgment.


Are “Viral” Actions Threatening to Replace Traditional Class Actions?

Although one can point to several recent anecdotal examples of opt-out litigation involving social media, there are no indications that social media are being used to generate a significant amount of litigation that would effectively take the place of class actions. At this point, the few examples simply illustrate how technology could be used as a substitute for class action litigation in some contexts.


Absent some drastic change in U.S. class action law, it is unlikely that “viral” class actions will ever be a serious threat to class action litigation as we know it. This is especially true whenever a litigant has a colorable claim and can find an attorney interested in pursuing it. Pursuing individual actions, however well-organized, requires a level of individual involvement that most individuals do not have the passion or energy to pursue. However, there are at least two situations in which “viral” class actions could conceivably be used with increasing frequency in the future as an alternative to class actions.


One way that “viral” class action activity may occur in the future, exemplified by the Honda case, is in rounding up groups of potential claimants to opt out of an existing class action settlement. This is a potential risk whenever there is both sufficient outrage over a business practice and perceived unfairness about a class action settlement that individual litigants are moved to pursue relief on their own. Organized opt-out campaigns can also occur as a result of entrepreneurial behavior by attorneys who see organizing and representing groups of opt-outs as a way to cash in on existing class action litigation. This kind of organized opt-out activity, which has long been accomplished through grassroots networking at the local level, could now conceivably be done with greater impact using social media.


Another potential use of “viral” class actions as an alternative to traditional class actions is in situations where class actions cannot be pursued for one reason or another. For example, outside the United States, especially in parts of Europe, aggregation of assigned claims to a single consumer association or for-profit aggregator has evolved as an alternative to a formal class action procedure. Social media can streamline the process of locating and educating potential claimants or assignors about a particular mass litigation effort.


Even in the United States, there are situations where legal or practical barriers to class action litigation may force claimants and their attorneys to find creative alternatives to pursue mass litigation. One key area to watch is litigation involving consumer contracts that contain arbitration clauses. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court upheld a type of clause commonly referred to as a class arbitration waiver, which is a clause in many consumer contracts that requires arbitration of any disputes and prohibits the arbitration from proceeding on a class-wide basis. Although the precise contours of the Concepcion ruling are still being debated in the lower courts, many commentators and practitioners believe that the decision will significantly curtail class action litigation, especially in many consumer cases where a consumer agrees to standard terms and conditions as part of the purchase of a product or service. Although they haven’t become commonplace yet, “viral” class actions, consisting of efforts to solicit and coordinate individual arbitration proceedings, are a potential development in response to the increasing use of class arbitration waivers in consumer contracts.


“Viral” Tools to Organize—and Defend—Mass Litigation

Any social media tool can be used to generate interest in mass litigation. (This article does not address the many ethical considerations that any attorney should consider before using social media in advertising or generating publicity, but much has been written on the topic.) Common examples of social media are Facebook, Twitter, YouTube, and case-specific websites or blogs like those that were used in the Honda and AT&T cases described above.


There are a variety of more general websites that mirror online dating services. For example, one site advertises the benefits of matchmaking potential plaintiffs with attorneys who may be willing to pursue a class action or other litigation on their behalf. The most successful of these sites serve as a marketplace of ideas in identifying business practices that may be ripe for a class action lawsuit. Users of these sites can search through an extensive database of existing and emerging class action law suits. Potential plaintiffs can then join an existing class action or add a brand-new complaint in search of their perfect lawyer. Because all of this information is technologically grouped in one easy-to-search database, entrepreneurial attorneys can quickly get a preliminary impression of the scale and nature of the alleged injuries and make an informed decision when filing a new class action. Defense lawyers and in-house counsel are well served to make it a practice to find and search these sites to learn of class action trends affecting their clients and industries.


How to Use Social Media in Traditional Class Action Litigation

Although the Honda case is an example of how social media can create a hurdle for class action settlements, there are many examples to show how social media can complement class action settlements. Class action lawyers on both sides of the bench have an interest in identifying ways to provide effective but cost-effective notice of class settlements. Social media present a possible solution in some cases. For example, a class notice program can either supplement or replace the classic snail mail notice, where appropriate, with email, text, website, or even Quick Response Code notice programs. And, with the ability to track electronic receipt of such modes of notice (keeping privacy and confidentiality in mind), both sides can increase the likelihood of a successful notice campaign.


On the other hand, social media are still in their relative infancy and still not as widely accepted as more traditional notice methods like the U.S. mail. This is due in part to the difficulty in measuring with precision the number of individuals who can be reached with social media and in part to the reluctance of courts to embrace social media. As a result, although social media are a tool to consider in class action settlements, it is always important to fully understand the benefits and limitations of social media before attempting to incorporate them into a class action notice program.


Keywords: litigation, class action, derivative suits, arbitration, notice, opt out, settlement, small claims


Casie Collignon and Paul Karlsgodt are partners at Baker Hostetler LLP.


 
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