Class Action (Opt-Out)

A form of aggregate litigation in which a defined class of injured plaintiffs is represented collectively, with individual class members bound by the outcome unless they affirmatively opt out of the class and pursue individual claims. Opt-out class actions are standard in U.S. securities fraud, antitrust, and consumer litigation, and the class mechanism dramatically increases the aggregate damages at stake, often transforming small individual claims into cases worth billions of dollars at the class level. Litigation funders are active in opt-out class actions both by funding the lead plaintiff's case and by providing capital to institutional investors exercising their right to opt out and pursue larger individual recoveries. The decision to opt out requires analysis of whether the anticipated individual recovery exceeds the expected class settlement allocation.

The opt-out structure is what transforms individually modest claims into an aggregate exposure large enough to justify institutional funding, so funders evaluating opt-out class actions model the expected class size and the likely certification outcome before sizing an investment — a large but uncertified class is worth far less than a smaller, certified one. Funders backing large institutional investors considering opting out of the class instead model the marginal expected value of individual litigation against the certain, smaller recovery available through the class settlement.