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Understanding Class Action Lawsuits

Here's what those notifications in the mail mean for you and your wallet.

You could call class action lawsuits the nuclear option of consumer advocacy, the ultimate weapon in the battle against unethical corporations.

See also: Flip That House? Think Twice.

However you look at class action suits, you could well be a party to at least one of them at this moment, whether you know it or not. When the lawyers bringing those actions eventually reach out to you, you can make a little money or lose a lot, depending on what you do.

Lawyers file hundreds of class action lawsuits every year. They all start when a group of people with similar complaints — the "named" plaintiffs — join forces to make the same legal argument in court. (They may do this out of a genuine sense of grievance, or at the urging of lawyers who smell big fees. Or both.)

The plaintiffs could be seniors who are victims of discriminatory hiring practices, parents of children injured by dangerous toys, or investors who lost money because of what they claim is corporate malfeasance. To gain legal standing as a "class," the named plaintiffs typically have to convince a judge they have suffered common injury as a result of the purposeful or negligent actions of a corporation. In the recent Wal-Mart case, the Supreme Court significantly raised the bar, so that any suit must now include a common cause for the damage, such as a harmful company policy, and not just a common result.

Next: What to do when a class action notice arrives in your mailbox. >>

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