How US corporate claimants can maximize recoveries by opting out of class actions

In the US, the existence of a putative class action presents harmed class members with two options: Remain a member of the class or opt out and bring action as an individual plaintiff. “Opting out” refers to the decision not to participate in a class action and thus secures the right to bring the action as an individual plaintiff. When the legal action being considered has merit and a company has been harmed, the company has a right and possibly an obligation to shareholders to be made whole. For a corporate litigant, pursuing the claim as an individual plaintiff could mean getting back substantially more than the company would otherwise be entitled to as a class member.

As with any litigation decision, companies must analyze the costs and benefits of opting out. Among the inherent risks to consider when opting out are the loss of collective bargaining power, the distraction litigation can pose to the core business and the financial burden of retaining counsel and engaging in individual discovery. Many companies also wish to avoid being seen as litigious, especially against business partners.

These factors notwithstanding, companies are increasingly choosing to opt out of classes and file direct actions. In recent years, we have witnessed a wave of major companies with no historical practice of opting out deciding it was in the company’s best interest to proceed directly. Recent examples of corporate plaintiffs opting out include cases in the pharmaceutical and food industries relating to price fixing by suppliers and claims held by large volume investors in securities class actions.

The reasons that companies are opting out and pursuing individual claims vary. For many corporations, the prevalence of egregious conduct—spotlighted by high-profile criminal investigations and indictments—has grown alarming enough to override hesitation to litigate against business partners. Outside counsel are increasingly making their clients aware of the significant value of individual opt-out claims. And more and more companies and law firms understand that legal finance offers a risk-sharing solution that fundamentally changes the cost-benefit analysis to tip the scale toward opting out. Together, these factors persuade many in-house counsel and CFOs that their litigation claims are valuable assets that merit individual action.

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