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Class Action Countermeasures

Discussions of the Strategic Considerations Involved In Class Action Defense

Rule 23 Study Agenda – Notice Issues

Posted in Certification

Provisions to make notice of class certification cheaper and more effective are welcome, but they should also focus on making it more accessible once it arrives.

The Rule 23 Advisory Subcommittee is also looking at revising the provisions for class action notice.  From the report on its October meeting:

 In Eisen, the Supreme Court ruled in 1974 that only first- class mail notice of class certification in 23(b)(3) cases satisfies the rule. It seemed to have due process concerns in mind as well as interpreting Rule 23. It is clear that many regarded this ruling as unfortunate at or near the time it was made.

It is now clear that methods of notice not imagined in 1974 exist and might significantly facilitate the giving of effective, rapid, and much cheaper notice of class certification in 23(b)(3) actions.  Similarly, notice of certification of Rule 23(b)(1) and (b)(2) class actions might much easier than previously.  In 2001-02, a proposed amendment to require some sort of notice in (b)(1) and (b)(2) cases was vigorously opposed on the ground that the cost would drive away lawyers who might otherwise be willing to take such cases.  Perhaps that has also changed.

Attention has therefore returned to the notice topic. Committee members might share their experiences with use of notice by means other than by first-class mail for class actions (perhaps in state court or with regard to settlement approval in federal court), and more general views on the attractiveness of softening the Eisen command.

(Emphasis added.)

Improving the notice provisions to take account of technology that will make notice cheaper and more precise is a no-brainer.  Courts have for some time accepted web publication as a complement to direct-mailed notice, or in settlement cases, which are bound by different requirements. And emailed notice may also be feasible in many cases, although the Committee would be well-advised to make sure the notice doesn’t simply end up in the recipient’s spam folder.

Making sure the notice doesn’t end up in the Trash folder may be more difficult, however.  One of the largest problems with class action notices (whether mailed, emailed, or published somewhere) is that it’s obvious they were written by lawyers: they use small type, opaque language, and take forever to get to the information the absent class member would actually want.  These difficulties in part exist because the rules already in place regulating class notice are rarely enforced.

The central problem here may actually be a philosophical one rather than a logistical one.  Notice of a class action is generally agreed to be a necessity for due process.  But, because it can be so costly and time-consuming, courts often treat it (much as they do the adequacy requirement) as an obstacle to be overcome rather than a requirement to be met.  The lax enforcement of the rules regarding notice is evidence of a disturbing tendency to relax the requirements for a class action in order to allow more of them to exist.

As the Supreme Court has recently reminded us, there is no right to bring a class action, and the requirements imposed by Rule 23 are supposed to be difficult to meet.  That doesn’t mean that they should be needlessly costly (by, say, imposing a direct-mail requirement when most of the world uses email).  But it does mean that we should not sacrifice due process for convenience.

Brief Travel Interlude

Posted in Admin

My apologies for this abbreviated entry.  I’ve been traveling with family for the past week, and two small, jet-lagged children are not conducive to getting blog entries finished.  (When the laptop is open right now, it’s usually playing Doc McStuffins.)

But, in keeping with the focus on big ideas and trends that has started the new year on this blog, I’d like to let you know about a webinar the WLF is offering on Thursday, presented by two of my old colleagues, John Beisner and Jessica Miller.  (We all worked together at O’Melveny & Myers before I left for McGuireWoods and they left for Skadden.)  When these two talk about big trends in class actions, it is well worth a listen.  So go, listen, and report back next week for more on the Rules Committee’s Study Agenda.

Rule 23 Study Agenda – Objectors

Posted in Uncategorized

Oft-maligned objectors serve a valuable function in class actions.  Rather than trying to rein them in; the Advisory Committee should work on reducing the need for them. 

No one likes objectors.  Plaintiffs don’t like them because they stand in the way of getting paid.  Defendants don’t like them because they add expense and delay to an already expensive and drawn-out process.  Most judges don’t like them for the same reasons, going so far as to call them “remoras.”

Most judges, but not all.  Judge Posner has recognized the value objectors can offer. As he put it in his opinion last year in Eubank v. Pella:

American judges are accustomed to presiding over adversary proceedings. They expect the clash of the adversaries to generate the information that the judge needs to decide the case. And so when a judge is being urged by both adversaries to approve the class-action settlement that they’ve negotiated, he’s at a disadvantage in evaluating the fairness of the settlement to the class.

Enter the objectors. Members of the class who smell a rat can object to approval of the settlement. If their objections persuade the judge to disapprove it, and as a consequence a settlement more favorable to the class is negotiated and approved, the objectors will receive a cash award that can be substantial[.]”

(Emphasis added, internal citations omitted.)

The Rules Advisory Committee recognizes that regulating objectors can pose a difficult balancing act.  From its October 2014 Report:

The 2003 amendments specifically recognized in Rule 23(e)(5), as the courts had previously, that members of the class may object to a proposed settlement.  The Supreme Court held in 2002 that objecting class members could appeal the rejection of their objections.  At the time the 2003 amendments were developed, there was much discussion of the tension between ensuring that “good” objectors had an adequate opportunity to contest the attractiveness of the settlement and preventing “bad” objectors [from] using the objection process as a way to extract tribute from the settling parties, whose deal might be put on hold for years by objections in the district court, followed by an appeal.  In 2003, the rule was amended to direct that objections, once made, could be withdrawn only with the permission of the court.  The goal was to prevent hold-up behavior by objectors who would offer to drop their objections for a payment to them.  But that approval requirement may not have solved the problem, as it seems not to apply to a settlement reached only after the objector has filed a notice of appeal. The Appellate Rules Committee has received a proposal to build some sort of approval process into appellate practice to deal with this concern, but the logistics of such a response present some difficult questions.

(Emphases added.)

It will be interesting to see what proposal the Committee received.  Assuming that it is not simply a codification of the tactic of demanding large appeal bonds when an objector appeals, it could provide an intriguing new way to resolve the tension between “good” and “bad” objectors.

The difficulty is, of course, that from a lawyer’s standpoint, a “bad” objector is one who is opposing your settlement.  Ultimately, the presence of professional objectors is more a symptom of a settlement regime with serious flaws than it is one of the flaws themselves.  After all, remoras only show up where there is adequate food.

As a result, the best way to prevent costly, time-consuming objections is to encourage better settlements.  Reform the other parts of Rule 23(e), and you can cut down on objections of all types, “good” or “bad.”

This is, by the way, an area in which I recognize that I am speaking against some clients’ short-term interests.  Making it more difficult for objectors to do their jobs would make it easier to settle bad cases quickly and inexpensively.  But, as both an officer of the court and as someone who tries to keep my clients’ long-term interests in mind [http://www.classactioncountermeasures.com/2010/05/articles/strategy-1/grand-strategy-and-class-actions/], I’d rather see fewer bad cases leading to bad settlements than fewer legitimate objections.  That goal is harder to reach, but it makes for a better outcome for my clients, and for absent class members.

[Disclosure: I have on occasion worked pro bono for the Center for Class Action Fairness, a non-profit that objects to problematic class settlements.)

The Rules Advisory Committee Study Agenda – Cy Pres

Posted in Certification

Cy pres is an occasionally useful tool.  But limiting or eliminating it would clarify the underlying principles of the class action.   

In the last five years, the use of cy pres relief in settlements has become particularly controversial.  Various appellate courts have expressed suspicion about the use of cy pres in questionable settlements.  Even Justice Roberts has signaled that, given the right vehicle, he would like the Supreme Court to review the fairness of cy pres distributions.  Much of the controversy stems from two issues: (1) the potential for abuse of cy pres relief to inflate the value of bad settlements, and (2) the underlying philosophical justifications for allowing cy pres distributions.

Despite the growing controversy, the Rules Advisory Committee is considering formalizing the use of cy pres in Rule 23.  In its October 2014 report, the Rule 23 Subcommittee wrote that

The cy pres phenomenon is a matter of settlement, particularly in cases with small individual harms. There is no specific provision of Rule 23 that bears on this possibility. Some states do have specific provisions as a matter of state law. But the absence of a rule provision has not prevented use of this technique on occasion. And at least sometimes this sort of activity attracts criticism. For an example, see Chief Justice Roberts’ opinion regarding denial of cert. in Marek v. Lane, observing that “in an appropriate case, this Court may need to clarify the limits on the use of such remedies.” Maybe a rule change would be a way to do so as well. The ALI Aggregate Litigation provision on cy pres treatment has received considerable support in the cases and might provide a model.

(Emphasis added, internal citations omitted.)

The ALI’s take on cy pres—that it should be used only when there is unclaimed money in an escrow fund and further distributions to actual class members are not feasible—is largely considered a compromise position, albeit a fairly principled one.  (What is the defense-oriented critique?  Well, if the case had any merit and the settlement was negotiated based on merit rather than the “hydraulic pressure” of litigation costs and massive exposure, then why are there leftover funds?)

Many individual defendants can take or leave cy pres relief.  It can occasionally serve as a useful tool to close the gap between the cash a defendant is willing to spend for peace and the relief required to justify plaintiffs’ counsel’s fees.  (Since cy pres relief goes to third parties, it may tick different accounting boxes for some defendants than a cash payout.)  And there is nothing forcing a defendant to use a cy pres distribution in a class settlement.

If that’s the case, why would defendants bother opposing any attempt to enshrine cy pres relief in Rule 23?  There’s no question that some defendants (or defense counsel) may oppose cy pres because they need a third party to save them from themselves.  Much as someone watching his weight might understand that cutting sugar is good while still succumbing to the candy bar in front of him, it is possible to understand that overuse of cy pres will encourage more questionable settlements while still using it for temporary advantage in a current settlement.  For defense counsel in particular, watching client after client give in to this temptation against advice might motivate some strong advocacy against enshrining cy pres in Rule 23.  (I wouldn’t know; most of my clients don’t employ it.)

But the real stake here is the underlying theory of the class action.  There’s been a long debate over whether a class action is a “deterrent” “Private AG” action or an aggregation device to effect compensation for those who have been wronged.  Cy pres relief is perfectly consistent with conception of the class action as deterrent, and—as even its supporters admit—not at all consistent with any compensation theory.

And that raises some troubling questions.  Because if the class action is actually a deterrent device, then it likely violates the Rules Enabling Act, because it creates a new substantive law regime.  (After all, cy pres relief is not available to individual tort or contract claimants.)

One could argue that, since cy pres relief usually comes up at settlement, the parties are free to put in whatever provisions they want.  But enshrining cy pres relief in Rule 23(e) would go beyond simply allowing parties a greater freedom of terms.  It would actively be choosing between the deterrence and compensation models for the class action.

So the debate over cy pres relief really comes down to a debate over the legitimacy of the class action itself.  And it is likely to be a heated one.  After all, cy pres relief has become an integral part of many plaintiffs’ business model.  Despite the likely heat, the Advisory Committee would be on sounder footing were it to explicitly limit (or even disclaim) the use of cy pres relief.  Doing so would be consistent with the traditional rationale for the class action, and would avoid messy constitutional questions.


The Ten Most Significant Class Action Cases of 2014

Posted in Certification, Settlement

Year-end lists are funny things.  They take a sort-of arbitrary starting and stopping point, and then they cram a bunch of prejudices into a (usually) arbitrary number of items.  And then people take them kind of seriously.  But they can be handy ways of catching trends one did not see before.  And in a year that has seen the beginning of a new debate over the shape of Rule 23, looking at the trends in caselaw can be important.  This year’s cases include some pro-plaintiff and some pro-defendant, and some hard to quantify.  But most of them are notable because they highlight one (or more) of the key debates facing class action practice in the middle of the ‘Teens.  So, without further ado, and in order only of jurisdiction:

  • Halliburton Co. v. Erica P. John Fund (“Halliburton II”) (S. Ct.).  In its second review of the Halliburton case, the Supreme Court upheld the “fraud on the market” presumption of Basic, Inc. v. Levinson.  But it also contained important explication of how the Supreme Court would treat a merits inquiry at the class certification stage.
  • Dart Cherokee Basin Op Co LLC v Owens (S. Ct.). The Supreme Court held that a defendant is not required to submit evidence in favor of a removal petition; a short and plain statement is enough.  (The defendant may need to submit evidence in response to a motion to remand, but it cannot be faulted for not doing so at the outset.)  The Court also reaffirmed that there is no presumption against CAFA removals.
  • EQT Prod. Co. v. Adair (4th Cir.)With this opinion Fourth Circuit became the second Circuit Court of Appeals to clarify the ascertainability standard, joining the Third Circuit.  This is another topic on the Advisory Committee’s agenda, and the spread of a clearer, practical standard is likely to influence those discussions.  [Disclsoure - McGuireWoods worked on this case, although it did not represent either of the two titular parties.]
  • Mabary v. Home Town Bank, N.A. (5th Cir.); Stein v Buccaneers LP (11th Cir.).  Rule 68 offers of judgment have become one of the most controversial tools in the federal rules—at least as they are applied to class actions.  This year, the Fifth and Eleventh Circuits decided to weigh in on whether an offer of judgment can moot a class action, and both said “no.”  This leaves most of the appellate circuits holding against the practice (the Seventh Circuit remains a holdout).  Neither case addressed the use of a Rule 68 offer as a cost-limiting device.  Did I mention that (1) this is on the Advisory Committee’s Study Agenda, and (2) the Supreme Court has hinted the tactic might pass muster?
  • Eubank v. Pella Corp(7th Cir.).  Judge Posner has two settlement opinions in this year’s list.  In this first one, he reverses a settlement full of red flags, including close personal relationships between class counsel and some named plaintiffs, wholesale substation of named plaintiffs who objected to the settlement, and counsel whose contemporaneous ethics problems disqualified them from representing the proposed class.
  • Pearson v. NBTY, Inc. (7th Cir.).  Judge Posner’s second reversal of a class settlement zeroes in on several of the issues that will preoccupy the Rules Advisory Committee, including the proper role of objectors (he thinks they serve a valuable function in aiding the courts’ oversight of settlements), and the appropriate use of cy pres relief.  (Like many other judges, he would restrict it.)  Given the upcoming debates, this is likely to be an influential opinion.
  • Berger v. Home Depot USA, Inc., (9th Cir.).  The Ninth Circuit made a technical point, but an important one for plaintiffs seeking to appeal an adverse ruling in a class action.  Rather than take their chances on the very discretionary Rule 23(f) interlocutory appeal, a class plaintiff can stipulate to dismissal, and then appeal the adverse ruling; the stipulated dismissal is still “adverse” enough to justify the decision.  I’d expect to see quite a few of these going forward.
  • The Whirlpool trial verdict.  The Whirlpool washing machine cases have been closely watched since the Sixth and Seventh Circuits first affirmed certification of classes where the vast majority of class members had suffered no concrete harm.  The subsequent re-affirmation in light of Behrend made these cases even more important.  The trial verdict from the first classwide trial (in Ohio) vindicated Whirlpool, but also showed the dangers (to both sides) of certifying “no injury” classes.  While the victory has made the rhetorical debate over no-injury cases more interesting (plaintiffs claim it shows that the system works; defendants worry about the effects on absent class members who might have actual injuries), the fact of the verdict itself is likely to have serious impact on how plaintiffs and defendants alike try these cases going forward.
  • The Adequacy Trilogy.  Three district court cases took the Supreme Court’s direction to require affirmative evidence that Rule 23(a) has been met seriously, and decided to require affirmative evidence of adequacy: Diaz v. Res. Credits Sols., Inc., 297 F.R.D. 42, 52 (E.D.N.Y. 2014) (denying certification where “Plaintiff has not satisfied her burden of demonstrating she is an adequate representative of the putative class” because “the Court has been provided with no evidence concerning the Plaintiff’s basic knowledge of this lawsuit or whether she is able to make intelligent decisions based on advice from her counsel”); In re Kosmos Energy Ltd. Secs. Litig., 2014 U.S. Dist. LEXIS 36365, *38 (N.D. Tex. Mar. 19, 2014) (“plaintiffs seeking certification must produce actual, credible evidence that the proposed class representatives are informed, able individuals, who are themselves—not the lawyers—actually directing the litigation”); and Labou v. Cellco Partnership, 2014 U.S. Dist. LEXIS 26974 (E.D. Cal. Mar. 3, 2014) (“Plaintiff’s contention that she is an adequate representative simply because she pled she is an adequate representative falls short of that burden.”).  The end result added some life back into a long under-enforced requirement.


The Rules Advisory Committee Study Agenda – Rule 23(e)

Posted in Settlement

Amending Rule 23 would add clarity to the settlement process and teeth to the protection of absent class members.  But to solve the real class settlement process, the Advisory Committee will have to look at why so many weak claims advance so far into litigation.

For the next few months, excepting my usual year-end posts, I am going to be taking a longer look at the various items on the Advisory Committee’s Study Agenda. And, in contrast to my usual stance in this blog, which tends to be “comment on the strategies, not the wisdom of the case,” I am going to editorialize.  (Why?  Because Rule 23 has not been amended yet, and if it is, I’d like it to be in a way that makes class action litigation better and more effective when it’s appropriate.)

The first item on the Study Agenda is possible amendment of Rule 23(e).  (I’ll take longer looks specifically at cy pres and objectors, both of which have been singled out for review.)

Rule 23(e) governs the settlement of class actions.  And, to be sure, Rule 23(e) generally could use some clarity.  As a standard for settlement approval, “fair, reasonable, & adequate” is nice but vague, kind of like Bill Pullman.  So courts have stepped in to fill the doctrinal gaps left by the standard, leaving us with an extensive and conflicting common law littered with disparate, redundant, complicated multi-factor tests.  As the ALI put it in its Principles of the Law of Aggregate Litigation:

The current case law on the critera for evaluating settlements is in disarray. Courts articulate a wide range of factors to consider, but rarely discuss the significance to be given to each factor, let alone why a given factor is probative.

(Emphasis added.)  (The First Circuit has made the same criticism.

So, for example, the Second Circuit requires a court to consider:

(1) the complexity, expense and likely duration of the litigation;
(2) the reaction of the class to the settlement;
(3) the stage of the proceedings and the amount of discovery completed;
(4) the risks of establishing liability;
(5) the risks of establishing damages;
(6) the risks of maintaining the class action through the trial;
(7) the ability of the defendants to withstand a greater judgment;
(8) the range of reasonableness of the settlement fund in light of the best possible recovery;
(9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.

(Internal citations omitted; line breaks added.)  The Ninth Circuit‘s standard is subtly different, requiring consideration of

among others, some or all of the following:
the strength of plaintiffs’ case;
the risk, expense, complexity, and likely duration of further litigation;
the risk of maintaining class action status throughout the trial;
the amount offered in settlement;
the extent of discovery completed, and the stage of the proceedings;
the experience and views of counsel;
the presence of a governmental participant; and
the reaction of the class members to the proposed settlement.

(Line breaks added.)  (And, to digress, one must ask why the “views of counsel” are relevant.  Is class counsel really going to admit they disagree with some settlement terms?)

In addition, there are a number of practices that have evolved in class action settlements that are not addressed by Rule 23(e), including the use of incentive awards for class representatives and the use of cy pres relief.

But while Rule 23(e) could benefit from some clarity, the real issue at stake here has very little to do with settlement approval.  The underlying issue is the skewed incentives that lead to poor settlements.

What do I mean by a poor settlement?  Let’s look at some of the more prominent settlement reversals in the last few years:

  • Mirfasihi v. Fleet Mortgage reversed a FCRA class action settlement that contained a large cy pres component.  Before its final disposition, the settlement bounced up and down to the Seventh Circuit a remarkable three times.  As Judge Posner wrote, the real problem was that neither side had an incentive to concede the “utter worthlessness of the claim.”
  • Klier v. Elf Atochem, Inc. reversed a toxic-spill class action in which an $830,000 claims surplus was donated to charity rather than distributed to class members.
  • Feder v. Frank reversed a settlement with a large coupon component.  The plaintiffs had alleged problems with their printer toner, but the trial court had called their evidence of liability and causation “weak.”
  • Dewey v. Volkswagen Aktiengesellschaft reversed a settlement involving leaky sunroofs.  The named plaintiffs had divided the class up into those who were entitled to monetary relief (which included them) and those who were not.  (The distinction had to do with the claims rates for various Volkswagen models.)  The Third Circuit found this to be an irreconcilable conflict of interest.

Similarly, there have been a number of case in which courts have rejected preliminary approval of settlements because of their obvious deficiencies.  To name just a few:

  • In Tijero v. Aaron Bros. Inc., the Northern District of California rejected a wage-and-hours settlement in which the class members received only minimal relief in exchange for an overly broad release.
  • In Better v. YRC Worldwide, the District of Kansas refused preliminary approval to a securities settlement that released claims for no compensation, and offered no information about the distribution of a substantial cy pres payment.
  • In Figueroa v. Sharper Image, the Southern District of Florida refused to approve a consumer-fraud settlement that included a large coupon component, and injunctive relief of questionable value to the class.

In each of these cases, the primary problem was the gap between what the defendant thought the claims were worth, and what the plaintiffs’ counsel would accept in fees to go away.  Bad settlements spring from weak cases.  In weak cases, defendants don’t value the case at much, but plaintiffs’ counsel want (or need) a certain amount of fees.  So we wind up with little actual benefit to class members.  (We can assume both sides are working in good faith.  If the plaintiffs just screw up at the beginning, then they will have sunk costs into a loser, and the defendant won’t want to pay.  Or in some cases, like Figueroa, the defendant may not be able to afford more.)

Rule 23(e) is valuable, and it serves as an important check on class action settlements that do not benefit absent class members.  If there should be one guiding principle for Rule 23(e), it should be to watch out for the interests of the absent class members.  (Can I say this as a defense lawyer?  Yes.  Defendants and absent class members often have oddly converging interests.)

But Rule 23(e) is only addressing a symptom (questionable settlements), not the cause of the problem.  And the cause of the problem is that gap in valuation of class claims.  The fact is that the vast majority of bad class action settlements come from cases that should not have been brought in the first place.  Cases where it is clear from the time of the complaint that large numbers of class members have not been harmed (like in Mirfasihi or Dewey) or cannot be found (like in Klier) or where evidence of causation will be weak (like in Feder) are not cases that should survive preliminary scrutiny.  Once they do, the threat of (1) exorbitant discovery costs and (2) even a slim chance of a bet-the-company loss will usually compel some cost-of-litigation settlement.  When that is not enough to justify fees that would allow plaintiffs to break even, we see the kinds of “innovations” that eventually get reversed.

Politically, effective reform here will be extremely difficult.  Defendants are agnostic overall about bad settlements.  (The option is nice in individual cases, but conscientious defense counsel will advise their clients that cheap settlements often cost more in the long run.)  Objectors lack the political power to influence much reform.  Judges have a compelling (and admirable) interest in clearing their dockets that lead them to favor settlements of class actions where possible.  And any real reform directly threatens plaintiffs’ business model.  But bad settlements start with bad cases.  And no matter how unpleasant it may be in the short term, reducing the number of bad cases brought benefits everyone.

What Will Be in the Coming Class Action Amendments?

Posted in Certification, Uncategorized

            I’ve written a little so far about the fact that Rule 23 is likely to undergo revision in the next few years.  Last week Judge Robert Michael Dow, who is a member of the Advisory Committee on the Rules of Civil Procedure’s Rule 23 subcommittee, spoke at the annual meeting of Lawyers for Civil Justice.  He offered an update on what the Rules 23 subcommittee is looking at reforming (what he referred to as their “study agenda”). 

As Judge Dow pointed out, the subcommittee is at the beginning of its review, which he called “stage one of a multi-year process.”  In other words, there will be no amendment to Rule 23 until January 2017, at the earliest.  The study agenda currently contains six items, although, as you’ll see, at least one of them encompasses a number of hot topics in Rule 23 practice. (And that’s not to say the subcommittee may not add more if suggested by enough parties.)

So enough throat-clearing.  What is the subcommittee looking at?

  1. Settlement class issuesThis is the single largest topic that the subcommittee is addressing.  As Judge Dow put it, at this point, somewhere between 96% and 99% of certified class actions settle rather than proceeding to trial, so the Rule should really reflect the fact that settlement is the primary endgame in a class action.  In addition, most federal judges have made it clear that they would like more guidance about how to conduct settlements.  (This makes a great deal of sense.  As I’ve observed in the Class Action Playbook, Rule 23(e) provides only three vague factors to consider when evaluating a settlement: is it “fair, reasonable, and adequate”?  As a result, different federal circuits have adopted different, cumbersome, multi-factor tests, making settlement a difficult and opaque process.  The Rule 23 subcommittee is considering a number of potential reforms.  In addition to clearer guidance within the Rule, it is also considering whether it should formally address the controversial issue of cy pres relief, as well as the role the objector  should play in class settlements.  (For this latter issue, the Rule 23 subcommittee is coordinating with the Appellate Rules subcommittee, since one of the proposed reforms involves appeals bonds.)
  2. Issues classesSince the certification of issues classes has come into vogue post-Dukes, a fresh issue has arisen.  May a court certify an issues class even if the larger proposed class would not meet Rule 23’s requirements, or is that just an unconstitutional end-run around Rule 23(b)(3)’s predominance requirement?  (Professor Laura Hines, who also presented at the meeting, has a great analysis here.)  The Rule 23 subcommittee is looking at this issue as well.
  3. Notice issuesMost parties don’t pay much attention to notice until a class has been certified, and then the primary concern is cost.  The Rule 23 subcommittee will consider, among other things, whether advances in technology may make effective notice cheaper, and whether this may require a change in Rule 23’s language.
  4. Rule 68 and mootnessJudge Dow sits in the Northern District of Illinois, so he referred to this issue as the “Damasco problem.”  There’s no question the Seventh Circuit’s particular ruling has created some peculiar practices in its district courts.  It appears the Rule 23 subcommittee is primed to consider how to address these issues.  (Judge Dow did not say whether the Rule 23 subcommittee will consider how the cost-limiting provisions of Rule 68 interact with Rule 23.)
  5. Ascertainability.  Many, many courts have referred to Rule 23’s “implicit” ascertainability requirement.  It may be time to make it explicit.  The Third Circuit has asked the Rule 23 subcommittee to consider whether there should be a formal ascertainability requirement in the Rule.  Assuming there should be (and it’s hard to come up with arguments against), the biggest question is what the contours of the requirement will look like.  For example, will the recent recognitions of “administrative burden” make it in?
  6. Merits inquiriesThe Supreme Court may have thought that it had finally resolved the question of whether a “rigorous analysis” requires an inquiry into the merits where appropriate when it decided DukesIt didn’t.  Courts still apply varying standards for certification.  And it remains an open question whether a given court will allow an early challenge to facially deficient class pleadings.  So the Rule 23 subcommittee is also keeping an eye on these issues under the umbrella of the role of the merits in class actions.

What does this all mean for the average practitioner?  I’ll be pushing into more depth on some of these issues in the coming weeks to discover just that.  But, in the meantime, it certainly means that (a) the class action is far from dead, and (b) for class action practitioners, the next few years are going to be interesting ones.

Strategic Ambiguity in Complex Litigation

Posted in Uncategorized

Defense lawyers, especially class-action defense lawyers, live in a world ruled by ambiguity.  While they’re often more predictable than they like to believe, judges work to keep their intentions in a given case ambiguous.  (We’ll see why in moment.)  “Adventuresome” plaintiffs’ counsel work hard to push the boundaries of existing caselaw, which can leave the state of even settled law more ambiguous than one might like.  And, of course, because plaintiffs’ lawyers tend to play offense, they’re often more tactical than strategic, which gives them an incentive to remain ambiguous about their intentions.  Wouldn’t it be great if there were just some kind of math we could apply in situations like this?

It turns out there is.  It’s pretty darned advanced, but it does exist.  And, in their 2011 working paper The Strategic Use of Ambiguity, Bielefeld University’s Frank Riedel and Linda Sass apply it to reach some interesting conclusions about when and how to use ambiguity in strategic games.  (For our purposes, that means “litigation.”)

Skipping the formula, what Riedel & Sass do is to define ambiguity (roughly, creating a condition where others cannot make an informed guess about your intentions), create a way to model it mathematically (using “Ellsberg urns”).  Apply a little game theory et voila!, instant strategic insight.  And what are those insights?

  • Judges have a game-theoretic incentive to stay ambiguous.  One of the games Riedel & Sass model involves a superpower mediating between two skirmishing regional states.  The superpower cares mostly about peace, and discerning who started a conflict may be impossible.  (Sound familiar?)  If the superpower opts to remain opaque about its intentions and sympathies, then under a normal range of payoffs, both states will avoid starting anything.  (Usually these games are structured to show that, with a normal range of payoffs, conflict is likely.  So this is an unusual result.  In game-theoretic terms, these ambiguities create non-Nash equilibria.)  What’s particularly interesting about the analysis is that it assumes that all players prefer no ambiguity.  If I’m correct that plaintiffs’ lawyers are more ambiguity-accepting, then judge/superpower ambiguity may appear to create a slight strategic advantage for them.
  • If your opponent plays ambiguous strategies, you should not.  This is the conclusion that should prove most interesting to defense lawyers.  It was to me (and, as it turns out, to the authors.)  Riedel & Sass model a game called “Matching Pennies”.  This is because, as it turns out, in a probability game like Matching Pennies, it is possible to immunize oneself against strategic ambiguity by focusing on the probability of outcomes.  TV attorney Harvey Spector has become famous for his very quotable “I play the man, not the odds.” But, as it turns out, if you’re up against an opponent who employs strategic ambiguity—particularly if there are other uncertainties, like an ambiguous judge—playing the odds is more often the winning strategy.  And it’s not really playing the odds, it’s playing the terrain.

In other words, keep focused on what the law actually says.  And don’t be afraid to be very clear with both the judge and your adversary what you’re doing.  If you’re right about the law, it’s not going to matter nearly as much as people think.


Size Matters: The Psychology of the Class Action

Posted in Scholarship

Back when the Dukes class action was before the Supreme Court, journalists and academics wrote a number of pieces—some longer, some shorter—about whether a class action could be too large. (After the fact, University of Chicago professor William Hubbard published an illuminating article on the same topic.) For the most part, the conclusions tended to be the same: it was not the size of the class action that mattered, but the cohesiveness.

Now Rotterdam PhD candidate Alexandre Biard has weighed in on the topic from a new perspective: behavioral psychology, and the conclusions he reaches are both fascinating and practical. The name of the paper is Iudex non calculat?Judges & the Magnitude of Mass Litigation from a Behavioural Perspective, and while Biard performs no independent studies himself, his review of the literature offers up some interesting ideas, some of which confirm and some of which contradict my own intuitions about the subject.

According to Biard, the key concept to understand is “entitativity,” which could be roughly defined as cohesiveness, or the degree to which a collection of individuals can be perceived as an entity. Generally speaking, the more a group looks like an entity, the more likely it is that the judge will treat it like one.

Among the qualities that can confer “entitativity” are the number of intimate connections within a group (families, for example, are good examples of entities), and the degree to which the group shares tasks and goals (like sports teams do). As one might expect, these findings have some interesting implications for class certification briefing. Among others, it really is worthwhile to fight over the commonality requirement, because, rhetorically at least, that is where the real heavy lifting is getting done. If the plaintiffs can paint a picture of a class bound by common goals and common connections, then they have a better shot at getting a class certified. Similarly, if the defendant can show that the proposed class is really just a loose connection of people who happened to stumble into similar circumstances, it can defeat certification.

(As a side note, this view of “entativity” may also explain why securities and antitrust classes are often considered easier to certify: it’s easier to see how stock investors or direct purchasers in an industry might be bound by common goals. It is harder to see how used-car purchasers or competitors for work promotions are.)

Biard also finds that the outlier effect tends to affect these groups. The outlier effect describes how individuals will impute characteristics to a group based on what they perceive in its most extreme (or most memorable) members. This suggests a psychological reason for the typicality and adequacy requirements: if the class representative is too far off from the group in one aspect or another (she faces unique defenses for example, or she has an unusually compelling story, then she will skew perception of the merits for the entire group. That’s not good in either direction: either the defendant is being treated unfairly, or the putative class is.

But most importantly, Biard argues that, when confronted with an extremely large group like a prospective class, judges (like any human beings) tend to rely more on emotional reactions than on pure logic. The reason for this is that it is easier to process judgments about large groups of people by using the cognitive shortcuts our emotions afford us. Unfortunately, this also means that judges will rely on stereotypes and intuitive judgments about right and wrong, rather than strict logic or legal text.

So what are the practical implications of this work? It suggests a number of rhetorical focuses for the defendant:

Keep focused on the diversity within the proposed class. To the degree one can show a proposed class is not a single entity with common objectives, it will be easier to defeat certification. To that end,

Keep focused on the named plaintiffs. Most named plaintiffs are outliers, if only because they have taken the unusual step of heading up a class action. As a result, keeping the litigation focused on their stories is likely to show how the proposed class is not a cohesive whole.

Emphasize law and facts. Particularly in class actions, the more a defendant can stick to the existing law and facts as opposed to naked emotional appeals, the more likely it is that it can circumvent any bias that may result from the judge’s employment of the affect heuristic.

[NOTE - This post has been edited to include a previously missing link.]

Adequacy & Class Action Governance

Posted in Certification

For a long time, I have had a very specific law review article I’ve wanted to write, but with my many other commitments, it has never come to fruition. And, given my schedule coming up, it’s unlikely it ever will. But I do have this blog, so why not just outline the idea here?

Scholars have worked for a long time to establish a governance mechanism for class actions that would prove both effective and legitimate. It’s a difficult balance to strike: most policymakers want class actions that can operate effectively as litigation devices, but that don’t just hijack the choses in action of numerous unnamed class members. As a result, we’ve seen radical proposals to reform the class action, including making it into a trust device, and just eliminating class plaintiffs altogether.

In fact, there’s an even more radical solution, that would at the same time require no change to the existing Rule 23. Enforce Rule 23(a)(4)’s adequacy requirement. As written, and as originally interpreted, the adequacy requirement exists to ensure due process is met. It is the constitutional guarantee that a representative action like a class action is legitimate.

The problem, then, is that most modern class plaintiffs are not adequate to the task. That’s not to speak ill of class plaintiffs. They’re recruited, and then “trained” to defer to their lawyers’ judgment of what is best for the class. And that makes sense from the lawyers’ standpoint, too. There is nothing that can disrupt a carefully planned legal theory in a complex case more than a wilful client.

This is why Rule 23(a)(4) is honored mostly in the breach. The other reason, as I’ve alluded to elsewhere, is a line of cases that read too much into a old motion to dismiss ruling upheld by the Supreme Court. The end result of that misreading is similar to the end result of the misreading of Eisen for several decades: courts inclined to certify class actions simply quote, without further analysis, the proposition that a named plaintiff does not have to be Arthur Miller [] in order to represent a class.

So what would this kind of adequacy enforcement look like? Several courts this year have actually offered an idea.

  • There would have to be affirmative evidence of the plaintiff’s adequacy. Boilerplate assurances of “zealous advocacy” would not be enough.
  • Named plaintiffs would have to have actual working knowledge of their case. They still wouldn’t need to be legal experts themselves, but courts would not allow them to simply say they defer to their lawyers.
  • Class lawyers would not be allowed to replace named plaintiffs without consequence.

Of course, this proposal is likely to receive criticism as well. The largest criticism is probably that reinforcing the adequacy requirement may make class actions as a device less effective. And, to the extent “less effective” means “requires some up-front work to file and maintain,” that may very well be true. But that does not make the criticism valid. The Supreme Court has recently reminded us that Rule 23’s requirements are “stringent” and “in practice exclude most claims.” And (and you’ll see here that I am a defense lawyer) that’s OK. Class actions should be rare, and they should be more expensive than the average lawsuit. They are far more lucrative, after all. If tracking down an adequate plaintiff—that is, one who has suffered an actual harm and is willing to represent the class and stand up to her lawyers when necessary—is that difficult, it may be that the lawsuit doesn’t have much merit to begin with.

What’s interesting is that we’ve tried this experiment at least once, and with good results. The Private Securities Litigation Reform Act added some prohibitions that made it extremely difficult to pull anyone who had bought a single share of stock into a securities lawsuit. The result was that institutional investors became class plaintiffs. There were fewer (though not no) meritless securities lawsuits, and the quality of the securities class action bar improved as well.

Properly enforced, adequacy makes a great asset to class action practice on both sides: it screens out truly frivolous suits, and it gives meritorious suits an edge by giving them a plaintiff who will do more than sign interrogatories and testify for three hours.