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Class Action Lawsuits in Commercial Litigation: What Business Owners Should Know

Liability is a serious concern for any business owner. If your business negligently harms someone, you could be the target of a personal injury lawsuit. Such a lawsuit could be crippling even for large businesses. For small businesses, it could be a death knell.

As bad as a single personal injury lawsuit can be for your business, it’s even worse if multiple people claim that your product or service harmed them. When that happens, your business could be the target of a class action lawsuit.

What is a class action lawsuit?

A class action lawsuit occurs when multiple plaintiffs make a legal claim against a party for the same reason. In this situation, the courts combine those claims into a single lawsuit, which is known as a “class action” suit.

Consolidating multiple suits enables hundreds or thousands of litigants to pursue legal action against another party without overwhelming the court system.

Class Action Lawsuits Are Usually Tried in Federal Courts

While class action lawsuits are designed to allow large groups of individuals to get justice for their losses, not all class action lawsuits are legitimate. Recognizing this fact, Congress passed the Class Action Fairness Act (CAFA) in 2005 to help protect defendants from abusive lawsuits.

The main benefit of this act is that it lowered the threshold for moving a class action lawsuit from state to federal court. This measure prevents litigants from “forum-shopping” for a friendly judge.

Individual Litigants Don’t Need to Prove Their Cases

If you were sued by 5,000 consumers for an alleged product defect, many of them probably wouldn’t be able to prove their claims. These individuals likely couldn’t produce evidence of each element required to prove a personal injury claim.

However, that standard doesn’t apply in a class action lawsuit. Individual litigants only need to prove that they were part of the class represented by the lawsuit. The standard for this proof is usually much lower.

The Class as a Whole Must Still Prove Its Claim

A lower barrier to entry doesn’t mean those who join in a class action lawsuit don’t still need to prove their claims in court. The claimants must show that their claims about the danger of your product or service are accurate and that that danger harmed a significant portion of the class.

Defending Against Class Action Lawsuits Is Expensive

The worst part about defending against a class action lawsuit is that it can cost hundreds of thousands — potentially even millions — of dollars. Even if you win, you aren’t likely to get any of that money back.

Most businesses can’t afford such a costly legal battle. As such, it’s a good idea to consider purchasing lawsuit liability insurance to protect your business from going bankrupt from a class action lawsuit. Just keep in mind that you’ll need to buy it before a lawsuit is filed.

Class Action Lawsuits Usually End in a Settlement

Even if your business is in the right, it generally isn’t worth going to trial unless your attorney is confident they can get the case dismissed. You can easily spend more on a trial than you would to settle the lawsuit without accepting fault.

It’s an unfortunate reality, but you should be prepared to settle, assuming your lawyer can negotiate a reasonable settlement.

Be Diligent to Protect Your Business From Class Action Lawsuits and Contact an Attorney

A class action lawsuit doesn’t have to be a constant threat hanging over your head. You can protect your business from financial harm by purchasing the right type of insurance and discussing liability and risk factors with a Nassau County personal injury lawyer at Kohan Law Group.