Motions to certify class actions have long since become one of the most prevalent challenges facing private and public companies providing services to the public. Empirical studies show a gradual and nearly steady rise in the number of motions to certify class actions being filed since the Israeli Class Actions Law was enacted in 2006 and to date. If initially, a few dozen motions were filed annually, today, hundreds and even thousands of such motions are filed each year with the various courts, which imposes a heavy burden on the courts and on the parties being sued.
According to a ruling by the Israeli Supreme Court, a party seeking to file a motion to certify a class action against a company is not obligated to first contact the company to clarify details before filing the motion (although not doing so may have other implications, which we have already addressed in a previous article). This often leads to the following situation: a motion to certify a class action is filed against a company, without any prior communications with the company and without the plaintiff who initiated the proceeding being aware of the relevant details. In his motion, the plaintiff alleges that the company is committing some wrongdoing. After the motion to certify has been filed, it becomes evident that the company has already rectified the alleged “wrongdoing” – sometimes as a result of the filing of the motion, and sometimes as a result of an entirely unrelated process that the company initiated prior to and without any connection to the filing of the motion. Now the court faces a dilemma – is it required to conduct a full, long, complicated and expensive proceeding of deliberating the motion to certify a class action, when the alleged “wrongdoing” has already been rectified? Clearly, this would be a waste of judicial and other resources and, to a large extent, the ruling will be “rhetorical” since the subject of the action is no longer an issue.
What is the best way to proceed under such circumstances?
Usually, class plaintiffs tend to insist on conducting the proceeding or on formulating a settlement arrangement in an attempt to compel the company to pay compensation to the public (and to remunerate the class plaintiff and his attorney) in respect of the “wrongdoing” that was allegedly committed up until the motion was filed. The usual argument is that if the motion is abandoned, this will serve as a negative incentive to file justified motions to certify class actions because of the concern that companies will “amend their ways” swiftly and try to “pull the rug out from under” the proceeding.
The companies being sued, on their part, usually argue that, since the alleged wrongdoing was rectified even before a ruling, this should result in the immediate conclusion of the proceeding by way of the plaintiff abandoning his allegations. Depending upon the circumstances, the parties being sued also sometimes agree to pay some compensation to the plaintiff in respect of the efforts exerted until the claim became unnecessary, within the framework of filing for a withdrawal agreement for the court’s approval. Defendants’ usual argument within this context is that pursuing the action is superfluous and would constitute a negative incentive for companies to “amend their ways” while the proceeding is underway (which may be protracted) and even before a ruling is issued.
The District Court in Lod recently handed down a ruling on a motion to certify a class action, which was filed, inter alia, against Dorot Control Valves Ltd., and it adopted the approach whereby, under particular circumstances, if the alleged “wrongdoing” has been rectified by the party being sued, then the class action has been exhausted and it is not warranted to pursue the matter any further. In these instances, so the court ruled, the proper procedure is to conclude the proceeding with a withdrawal agreement and not by a settlement agreement. In that case, the court ruled that the withdrawal route is preferable since “when the objectives of the action have been achieved, then in essence, no ‘compromise’ needs to be reached.” The court ruled therefore that the appropriate route is withdrawing the action and, sometimes, remunerated withdrawal, which takes into account the achievements accomplished by the plaintiff, even if the efforts were exerted only for a short time.
This court ruling may be edifying for many companies being sued in class actions, when they consider effecting changes in their mode of conduct – without them per se being under any obligation to do so, and before any judicial ruling in the proceeding. Companies that opt to do so can, under particular circumstances, plead that the class action proceeding has exhausted itself and should be concluded by way of the plaintiff filing for withdrawing the motion. In this way, companies being sued can save themselves the considerable costs involved in managing a legal proceeding, and also alleviate the heavy burdens being imposed on the courts.