Deciding Whether to Opt Out of the Class Action

The Federal Rules of Civil Procedure provide class members with an
opportunity to opt out of classes certified under Rule 23(c)(2), and
require that courts notify class members that the court will exclude from
the class any member who requests exclusion.1 This is because, as the
Supreme Court has recognized, “due process requires at a minimum that
an absent plaintiff be provided with an opportunity to remove [itself]
from the class by executing and returning an ‘opt outor requ est for
exclusionform to the court.”2 The right to opt out is not absolute,
however. Courts often balance the due process rights of individual
litigants with concerns about minimizing duplicative proceedings and
using judicial resources efficiently. These countervailing concerns give
rise to some burdens on and barriers to the right to opt out. Nevertheless,
the right to opt out remains a vital tool for protecting the due process
rights of individual litigants, and, under certain circumstances, may offer
the best option for a plaintiff to achieve its litigation goals.
A. Why Opt Out?
There are a number of reasons that a plaintiff may choose to opt out
of a class action. Members of a class may have a difference of
philosophy from or even an outright disagreement with the litigation
methods and strategies of class counsel. For example, a large corporate
class member that previously had been a defendant in one or more class
action lawsuits may not wish to be represented by counsel that was
adverse to it in a prior litigation, or may simply believe that the lawsuit
brought by class counsel is improper. A putative plaintiff may have a
business relationship with a defendant that it does not wish to jeopardize.
Or, a plaintif f may opt out of the class to file its own lawsuit may be the
best option for a plaintiff with a large financial stake in the litigation in
order to optimize its recovery.
1. FED. R. CIV. P. 23(c)(2)(B).
2. Phillips Petrol v. Shutts, 472 U.S. 797, 812 (1985).
74 Class Actions Handbook
The calculus about whether to remain in a class is different for large
corporate plaintiffs than it is for individual or small corporate plaintiffs.
The class mechanism typically benefits small plaintiffs who may lack the
financial wherewithal to litigate against larger, better funded defendants.
Where each individual plaintiffs potential recovery is small, it makes
sense for plaintiffs to pool their resources and litigate jointly as members
of a class. The dynamic is different, however, for large corporate
plaintiffs, who may have both a large financial stake in the outcome and
the ability to invest the resources necessary to litigate individually or as
part of an opt-out plaintiff group.
The belief amongst most practitioners is that large corporations
opting out of a class action will recover more by bringing independent
actions than by remaining members of the class. However, virtually all
settlements between opt-out plaintiffs and defendants are confidential, so
there is scant empirical evidence to prove or disprove this theorem.
Because of the costs associated with opting out, as a practical matter only
those plaintiffs with adequate litigation resources and significant
recoveries at stake will be in a position to pursue independent actions.
Importantly, by opting out of a class action, a plaintiff remains in
control of its own litigation decisions. The first and perhaps most
important decision will be to determine whether it wants to file its own
action, and, if so, when to do so. A large corporate plaintiff may have the
option of reaching settlements with potential defendants that are business
partners without having to incur the expense or burden of filing and
pursuing a lawsuit. An opt-out plaintiff also retains the flexibility to sue
some or all of the potential defendants and may choose to refrain from
naming a particularly important business partner in its case. Opt-out
plaintiffs also may have more control over the decision to go to trial
and/or the timing of settlements.
Aside from the timing of reaching agreements to resolve a case with
a defendant or group of defendants, an opt-out plaintiffs only constraint
on the timing of receipt of payment of a settlement is its agreement with
the defendant. A class member must await the resolution of a
cumbersome and time consuming process—that can take six months to a
year or even morebefore receiving any compensation.3
3. The procedures and practical considerations relating to settlement of class
actions are discussed in detail in Chapter VIII.

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