Deciding Whether to Opt Out of the Class Action

• Pages: 73-89

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CHAPTER IV

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 out’ or ‘requ est for

exclusion’ form 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).

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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 plaintiff’s 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 plaintiff’s 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 more—before receiving any compensation.3

3. The procedures and practical considerations relating to settlement of class

actions are discussed in detail in Chapter VIII.