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Class Action Countermeasures

Discussions of the Strategic Considerations Involved In Class Action Defense

How Entrepreneurial Are Entrepreneurial Class Actions?

Posted in Scholarship

Plaintiffs’ lawyer-turned-professor Morris Ratner has published a new article on making litigation costs a profit center for class action plaintiffs. You may remember he wrote about this issue before with Professor William Rubinstein.  This new article, titled Class Counsel as Litigation Funders, makes it clearer that he isn’t talking so much about allowing plaintiffs’ counsel to charge a markup on photocopies as he is trying to establish parity between the lawyers who fund a case by fronting the costs and the lawyers who work a case. (Remember, in larger cases, many lawyers are required by co-counsel to contribute to a litigation fund.) In other words, he wants these lawyers (let’s call them the Bank) to be rewarded the way investors are rewarded, instead of simply being stuck with whatever their specific lodestar allows at the end of the case.

Does this matter to plaintiffs’ lawyers? Does it ever. A recent fight between Bank lawyers and laboring lawyers on the Neurontin antitrust class action show just how important (1) allocation of fees is, and (2) how much that is influenced by “lodestar”—the plaintiffs’ equivalent of the billable hour.

Scholars like Arthur Miller and Alexandra Lahav tend to talk in terms of “public interest” lawyering, eliding the the fact that most class counsel are profit-driven. Ratner’s a little more direct. These are entrepreneurs, he says, so let’s treat them like they’re motivated by profit. Or, as he puts it:

Class actions facilitate private law enforcement by manipulating the financial incentives of entrepreneurial class counsel, prompting them to act as litigation funders by advancing their time and litigation costs.

I should stop here for a moment to say: Professor Ratner’s article is well-argued and comprehensively sourced. It’s the kind of article where one can admire the scholarship even while disagreeing with the conclusions. Nonetheless, I have to admit I felt a little dirty reading it, and I couldn’t quite pin down why. I defend corporations; I’m familiar with the profit motive. And I think it’s smart to treat both sides as if they are largely rational, with the same mix of “good” and “bad” actors. So why the visceral reaction to this argument?

I think it’s because, when you strip away the mythologizing and the paeans to public interest, and leave yourself with just the entrepreneurial plaintiffs’ lawyer, as Professor Ratner does here, it becomes very clear just how little like other entrepreneurs class action plaintiffs’ lawyers are.

The story we tell ourselves about entrepreneurs is that they take risks and they build things.  They create a good or service, and bring it to the public, and if that good or service is compelling enough, then they succeed.  How does the “entrepreneurial” class action lawyer compare?  See for yourself.

Their entire infrastructure is subsidized by the taxpayer. Plaintiffs’ lawyers claim they offer “enforcement” or “deterrence.” But they do so by using the court system. There are, according to the latest estimations, approximately 7,500 class actions filed each year in the federal courts. Serious judicial bandwidth is taken up by the class action, including complex motion practice and discovery. And the plaintiffs get it for the same $100 filing fee as anyone else. Who makes up the overage? Well, it’s either other litigants who are paying the same fee for less judicial time, or the taxpayers who pay the rest.

Their operating costs are subsidized by their adversaries. One of the largest operating costs in class action litigation is discovery. And, due to the asymmetric nature of discovery, much of that cost is borne by the defendant, who must pay for identifying custodians, collecting documents, reviewing them for relevance and privilege, and then defending their choices when plaintiffs invariably challenge them. The Advisory Committee’s proposed changes to Rule 26 (which will require “proportionality”) should address this issue somewhat, although plaintiffs’ counsel are already promising to conduct discovery into the discovery they will be allowed. Proposals for a “requester pays” system, where class counsel would pay for the expansive discovery they seek, are rejected out of hand as too expensive.

They force people to buy their product. Ratner is explicit about this in the article. It is next to impossible to get consent up front for a Rule 23(b)(3) class action. So instead, we have “simulated consent” by court order. It is very difficult to think of another business in which one is allowed to charge potential customers for a product they did not ask for without their consent.

I am under no illusion that the entrepreneurial class action is going away any time soon. It’s institutionalized at this point; judges can point to the fact that class counsel run class actions instead of their clients, and still do nothing about the underlying issue. And any proposed reforms that would rein in the profit-seeking of class action lawyers tend to be dead on arrival. But it is worth looking at exactly what that “entrepreneurship” actually looks like. And, in general, it looks like exactly the kind of business model that might inspire one to file a class action.

Arthur Miller on Aggregate Litigation

Posted in Uncategorized
I’ve written before about legal giant Arthur Miller (now with the Lanier Law Firm) and his pessimistic take on modern federal procedure.  In the ‘teens, he has largely worried about the effect of procedural rulings on the plaintiff’s right to her day in court.
Now, in his latest article, The Preservation and Rejuvenation of Aggregate Litigation: A Systemic Imperative, 64 Emory L.J. 293 (2014), he expresses concerns about the future of the class action.  They’re not groundbreaking, but there is no reason to expect Professor Miller to break ground at this phase in his distinguished career.  Instead, it’s important to look at what he says because he is the most legitimate voice class action plaintiffs’ counsel have.  So, what does he have to say?
Well, to start, he continues to employ some of the same pro-plaintiff assumptions as in his last jeremiad.  He assumes that all claims brought should be tried, even if they can be disposed of before trial.  He continues to characterize plaintiffs’ lawyers as “entrepreneurial” and “social interest,” and “defense interests” as “scorched earth.”  And he harbors a newfound suspicion that concerns about electronically-stored information have not “been advanced honestly.”
Class action practice has become front-loaded to its detriment.  In keeping with his previous jeremiad, Professor miller believes that there are too many “stop signs” for plaintiffs on the way to certification of a class.  In particular, he criticizes the enforcement of the “rigorous analysis” standard (even though courts themselves don’t always know how to apply it), and worries that:
The certification process has become so arduous that its cost and delay – coupled with the risk of eventual failure – either deter the institution of potentially meritorious class actions or lower their settlement value.
The class action isn’t dead (yet).  In general, Professor Miller is optimistic about the ability of plaintiffs’ counsel to innovate, and find the “back doors” in adverse rulings.  He is particularly optimistic about the use of issue certification, which he views as “somewhat of a game-changer.”  He specifically endorses the tactic of marrying a request for Rule 23(b)(2) relief with a request for issue certification, a la McReynolds v. Merrill Lynch.
Plaintiffs’ difficulties with class actions are largely self-inflicted.  Plaintiffs’ counsel (well, some unnamed plaintiffs’ counsel) tend to act “like pigs at the trough” and play “territorial games.”  Instead, he believes that class action plaintiffs’ attorneys should organize in order to combat the reputation they have been tarred with by “defense interests.”  But he also points out that plaintiffs would do well to pay more attention to complaints before they file them, to make sure they actually have valid, certifiable claims:
The lesson this history teaches is that considerable pre-institution attention must be paid by counsel to the composition and definition of the class as well as the substantive claims to be advanced. The natural plaintiff’s instinct to be overinclusive in framing classes must be resisted in some situations. Less may be preferable to more.
So what’s the takeaway here?  In general, class actions are doing just fine.  Even Arthur Miller says so.  But, more importantly, the largest problems plaintiffs currently face—what look like big wins for defendants on the commonality, predominance, and ascertainability fronts—may just be the consequence of over-inclusive classes.  Which is what may of us “defense interests” have been saying for quite some time.

Will HR 1927 Kill the Class Action?

Posted in Certification, Uncategorized
Since HR 1927 was introduced, there has been an outcry that it will “kill the class action.”  In fact, opponents (among them Professors Alexandra Lahav, Samuel Issacharoff (Issacharoff HR1927 Letter), and Arthur Miller (Miller HR1927 Letter)) have complained that it was specifically designed to do so.  Nothing could be further from the truth.  In fact, the bill was specifically designed to have a minimal impact on Rule 23.  So how did the disconnect between the intent and the reaction occur?  I thought it would be worth walking through the criticisms of the bill so far, and what is actually going on.
No more civil rights class actions.  Critics have misread the bill’s provision to ban any injury that is not to person or property.  The language is
 Screenshot 2015-05-04 11.34.44
The criticism is that this would ban any injury that doesn’t fall into these narrow categories.  If this criticism were accurate, I’d oppose the bill myself.  But it’s not.  It’s based on a misreading.  The definition of “injury” in this case is only for the purposes of determining when a court must make the inquiry and whether proof is required.  If a type of injury was not specified, the bill doesn’t affect it.  So civil rights class actions (like Brown v. Board of Education), or statutory damages class actions (like those arising under FCRA) are not affected by the bill.  (Expressio unius est exclusio alterius.)  It is possible that the current language is more ambiguous than I think, in which case Congress can fix it.  And if they don’t, it is also within a court’s powers to give the statute its intended, more restrictive meaning.
The bill requires identical injuries.  According to the critics, if one class member is injured in the amount of $2, and another for $3, then one cannot certify a class.  This is an overly restrictive reading of “type and extent.”
 Screenshot 2015-05-04 09.54.04
Extent does not mean “exact quantity.”  It means “general amount.”  If I’m wrong, and this is a genuine issue, this is another place where a simple language change would solve the problem the critics have identified.  Perhaps to “scope” or “scale.”
It will require full-blown trials before certification.  The language in the bill is “proof by admissible evidence.”  This was drafted to track the language of various recent Supreme Court cases.  So HR 1927 no more requires a full-blown trial on the merits than the Supreme Court has.  Even if this were new, it’s aimed at a narrow issue: whether the injury suffered by the named plaintiffs matches the injury suffered by the class.  “Admissible evidence” includes documents produced by the defendant, affidavits, deposition testimony, and expert testimony—all evidence already offered in a rigorous certification inquiry.
It’s a class-action killer.  I’ve been over this criticism many, many times.  The PSLRA did not kill the securities class action.  CAFA did not kill the class action.  Wal-Mart Stores, Inc. v. Dukes didn’t kill it.  Nor did Comcast Corp. v. Behrend.  (In fact, Comcast inspired judicial retrenchment.)
I know Congress is polarized.  And I know that means any bill generated by one side will inspire knee-jerk suspicion from the other side.  But it is still possible to have an honest, rigorous debate about these issues.  H.R. 1927 was designed to take care of the kind of situation found in Whirlpool and Pella.  If plaintiffs’ lawyers find those cases acceptable, they can defend then.  But the same old rhetoric about how any proposed reform will kill the class action is tired and inaccurate.
We’re all better than that, aren’t we?

April is the busiest month

Posted in Uncategorized

It’s been a busy April ‘round these parts, even if there haven’t been many posts going up. So I thought I would let everyone in on a few of the things that have been going on:

HR 1927. Earlier this month, Congressman Bob Goodlatte proposed HR 1927, a bill to cut down on the kind of overbroad “no-injury” class actions that seek to turn idiosyncratic product defects into full-blown federal cases. There’s been a heavy push against the bill, mostly based on the mistaken belief that it would prohibit Rule 23(b)(2) class actions completely, and, of course, the old canard about how this time, we’re looking at the death of the class action. I testified in support of the bill yesterday. You can find my testimony (as well as that of John Beisner, Mark Behrens, and Professor Alexandra Lahav) here.  And you can see Perry Cooper’s live-tweeting of the testimony on her Twitter feed.

Entity theory article. I was fortunate to be invited by the University of Akron Law Review to participate in their upcoming symposium on the Roberts Court and the class action. So I’ve been finalizing the edits for that. You can find a draft version at SSRN here.

Other writing projects. I’ve been finalizing the details for another fairly substantial writing project, which I’ll be working on with Professor Mark Moller of DePaul University Law School. I can’t really talk too much about this one yet, but I’m very excited about it. It should be out sometime next year, and should generate some interesting material for this blog in the interim.

Regular posting should resume next week.

The Proposed Rule 23 Amendments Are Here, and They’re Not Good

Posted in Certification
Last week, the Rule 23 Subcommittee of the Federal Rules Advisory Committee published its draft concept amendments to Rule 23.  You can find them here.   (They’re in the April 2015 Agenda Book.)  What follows is my personal reaction to the proposed concept amendments.  They will be subject to public comment, and, I imagine, vigorous further debate.
Here’s the good news.  The Subcommittee has made two completely unobjectionable proposals.  First, it would modify Rule 23(e) to require a statement of any side agreements before an objector withdraws an objection.  Greater transparency is always good.  Second, it would allow for emailed notice, which is a long-overdue recognition of the way technology has advanced since 1966.
The remainder of the Rule 23 Subcommittee’s Agenda Book appears to be a systematic attempt to undermine the caselaw that has curbed class action abuses over the last twenty years.  Most notably:
Rule 23(b)(4).  The Subcommittee admits that it is seeking to overturn Amchem, and take the predominance requirement out of settlement classes.  In particular, it worries that it is too easy for objectors to invoke predominance as a means of blocking a proposed class settlement.
Rule 23(c)(4).  The Subcommittee recommends amending Rule 23(b)(3) to state that it is subordinate to Rule 23(c)(4).  This proposed amendment clearly contravenes both the legislative history and structure of Rule 23.  It would also raise a number of very difficult policy questions with which the Subcommittee has not engaged.
Rule 68.  The Subcommittee wants to put in language that would specifically state that Rule 68 offers of judgment don’t apply to class actions.  Leave aside the fact that, as the Subcommittee admitted in its October 2014 Report, this won’t actually do anything to curb the “picking off” practice that frightens plaintiffs so.  What it does do is to preserve the fiction that individual plaintiffs are in charge of class actions in an attempt to undermine the cost-limiting provision of Rule 68.
There are other provisions in the proposed amendments that should concern those who follow class actions closely, including an attempt to formalize cy pres relief (which I imagine will agitate Professor Redish), and provisions to sanction objectors.
In general, these amendments reflect the stated view of at least one of the Subcommittee’s members that class actions have become too difficult to certify.  And that places them at odds with the Supreme Court’s stated view that class actions should be difficult to certify.
Here’s the thing: the class action is a great device for vindicating the rights of large numbers of people in certain circumstances.  But they only work when they are conducted according to due process.  The requirements of Rule 23 are not simply technical obstacles to bringing group cases, they ensure that the cases certified can actually bind absent class members, both as a constitutional and a practical matter.  Abolishing the predominance requirement, either overtly or covertly, will do little to make class actions more effective.  It will just enrich plaintiffs’ lawyers at the expense of absent class members.  So my personal reaction is disappointment: the Subcommittee is full of smart people whom I believe are sincere in wanting to improve the lot of the absent class member.  That’s why it’s so unfortunate that they fell so short.

Rule 23 Study Agenda – Ascertainability

Posted in Certification

The Subcommittee believes that drafting a formal ascertainability requirement is too difficult; it should try nonetheless.

The final topic the Subcommittee has announced it will examine is the possibility of adopting a formal ascertainability requirement. The topic was suggested by several judges of the Third Circuit, who formally requested the Subcommittee consider a formal ascertainability requirement when dissenting from a refusal to hear a Third Circuit ascertainability case en banc. The specific language of that request:

 I suggest that the Judicial Conference’s Committee on Rules of Practice and Procedure look into this matter. Rule 23 explicitly imposes limitations on the availability of class actions. Marcus adds another—that class membership is reasonably capable of being ascertained. If the Committee agrees with that, how easy (or how hard) must this identification be?

Despite this request, the Subcommittee has identified ascertainability as a “back-burner” topic. As it explained in its October 2014 Report:

 For current purposes, in light of the likely difficulty of drafting rule provisions on class definition, the question is whether the problems described warrant making the effort.

What are those difficulties? The Subcommittee appears concerned about determining the exact limits of the ascertainability requirement, likely judging it to be a political flashpoint. (I.e., plaintiffs will argue there should be no requirement; defendants will argue for full application of Carrera v. Bayer Corp. At that point, nothing the Subcommittee does will please anyone.)

Despite the fact that there will likely be some controversy, the Subcommittee should move this issue to the front burner. There is remarkable consensus among appellate courts that Rule 23 contains an implicit ascertainability requirement.   And, since that requirement is strong enough to support the denial of certification, it should not be implicit. Everyone—plaintiffs, defendants, and courts—would benefit from the clarity an explicit ascertainability requirement would bring. Among other benefits, a common text for reference would be invaluable.

Moreover, a strong ascertainabilty requirement would perform a valuable screening function on class actions. If the plaintiffs cannot define their class without reference to the merits (the common “fail-safe” problem), or if they do not have any feasible way of identifying class members for notice, the proposed class action is likely to be stillborn if certified. Moreover, the lack of a good class definition often speaks to deeper problems with a proposed class action. Identifying these issues sooner rather than later is in everyone’s interest.

This is exactly the kind of high-return work the Subcommittee should be focusing on: rationalizing Rule 23 and ensuring that it remains a vehicle for efficient representative actions.

Rule 23 Study Agenda – Issue Certification and Rule 23(c)(4)

Posted in Certification

The Advisory Committee should clarify the role of issue certification, by reinforcing that issue certification is only appropriate when a class is otherwise certifiable under Rule 23.  

One of the Advisory Committee’s “front burner” issues is whether to clarify Rule 23(c)(4), establishing either that it (1) only applies when the rest of Rule 23 has been met, or (2) is an alternative route to certification for plaintiffs willing to narrow the scope of their case. As the Subcommittee Report describes the current state of issue certification:

 Rule 23(c)(4) says that “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.”  But Rule 23(b)(3) authorizes class certification under its provisions only when the court finds that common questions predominate and a class action is superior to other available methods for adjudicating the dispute.  Arguably, these two provisions are not entirely in synch.  Is predominance to be required only with regard to the issues specified, or must the entire case present predominant common questions?  Why would plaintiffs be satisfied with limited certification if they could have full certification?  Can they achieve predominance simply by dumping individual issues off the table?

Perhaps the existence of such questions explains the longstanding division in the courts about whether 23(c)(4) can be used in cases in which 23(b)(3) cannot be satisfied.  At least some courts seem to think that is not permissible.  But a different interpretation of the current rule might be that — at least with regard to manageability — Rule 23(c)(4) offers a technique that facilitates certification under Rule 23(b)(3).  In any event, it is clear that there is a division among the courts about how the current rule should be interpreted, and that it has existed for some time.  It is also reasonably clear that in some courts issue certification is quite popular.  It may be that a reconciliation of these two parts of the current rule is possible, perhaps by recognizing in 23(b)(3) that its requirements are subject to the alternative and more limited certification authority in 23(c)(4).  It is also possible that 23(c)(4) might be amended to elaborate on when use of issue certification is “appropriate.”  It is unnerving to have such a blatant division in the circuits about what the rules permit.

(Emphases added.)  There are two reasons for this “blatant division.”  The first is that, despite the drafters’ express belief that Rule 23(c)(4) was “obvious[ly]” just clarifying the process of certification under the first two sections of the Rule, its language is ambiguous enough to create confusion about where it fits into the certification scheme.

The second reason is that the stakes involved in establishing the proper role of issue certification are quite high. The question of how to interpret Rule 23(c)(4) is really a question of whether Rule 23(b)(3) has any teeth whatsoever. Even some of the courts that have allowed 23(c)(4) certification have explicitly recognized that it should only apply in limited circumstances (such as when the plaintiffs seek injunctive relief instead of monetary damages).

Professor Laura Hines has identified a strong argument—based in the structure and legislative history of Rule 23—that issue certification is only appropriate if the class is otherwise certifiable under Rule 23(a) and (b). (In fact, Rule 23(c)(4) was originally intended—as the late Benjamin Kaplan wrote—to make a “perfectly obvious point” about how the certification process would work under Rules 23(a) and (b).) And as the Supreme Court pointed out in Wal-Mart Stores, Inc. v. Dukes, Rule 23(b)(3) exists to ensure due process for class members seeking monetary damages: in other words, a monetary damages class is only appropriate when common issues predominate and the class action is superior to other methods of deciding the dispute. An “issues class” for monetary damages lacks those overall protections.

That structural argument is buttressed by sound judicial policy. When the entire class has been certified, it is possible to tell which claims are being tried, and what preclusive effect they will have, win or lose. Once a court begins carving up a class in order to make it certifiable, these questions become much murkier, undermining the original purpose of Rule 23.

If the Advisory Committee is going to allow issue certification even when Rule 23 has not otherwise been satisfied, it will need to think through all of the various effects of that decision in other parts of the Rule. Does an issues class have different notice requirements than a Rule 23(b)(3) class? (For example, does the class member need notice that she will be responsible for her own damages trial?) Is an issues class verdict a “judgment” under Rule 23(c)(3)? How are class attorneys to be compensated for prosecuting an issues class? Can one settle a Rule 23(c)(4) class without running afoul of the Court’s directions in Amchem and Ortiz?

Deciding the proper scope of of an issues class–like defining the proper scope of Rule 23(c)(4)–cannot be done effectively in a vacuum. Which is, of course, is what the structuralists have been arguing all along.

Rule 23 Study Agenda – Merits Inquiry

Posted in Certification

The Advisory Committee has signaled that the merits inquiry is a “back burner” issue for the next Rule 23 amendments.  Perhaps they should nudge it towards the front. 

 The role of the merits inquiry at certification is of vital interest to litigators, but less so to policymakers.  The Rules 23 Subcommittee, in the report from its October meeting, pointed out that, as far as it was concerned, the role of the merits inquiry did not rate a place on the “front burner.”

It’s clear why it came up, however.  Plaintiffs (and their advocates in academia) do not like the current state of the merits inquiry.  For a long time, plaintiffs (and courts that favored certification) relied on a misreading of the Supreme Court’s Eisen v. Carlisle & Jacqueline to blockade against either (1) inconvenient facts or (2) costly, time-consuming dives into certification-related issues.  Since the Supreme Court clarified the standard for merits inquiries in Wal-Mart Stores, Inc. v. Dukes, however, courts have engaged in increasingly closer scrutiny of the merits of plaintiffs’ claims as they try to discern how those claims will be tried.

It’s difficult to make a credible argument that courts should engage in less scrutiny during certification.  To do so would be to concede as truth one of several suspicions critics have of class actions.  Specifically, (1) that due process is simply not that important in class actions, or (2) that the class action really exists solely to leverage large settlements from corporate defendants.

It’s also difficult to envision a rules change that would make any difference in what the standard is.  As the Subcommittee puts it:

These developments place considerable stress on the prior notion that there is a useful dividing line between “class discovery” and “merits discovery.” They also may call for greater scrutiny of expert opinion evidence that is designed to show that all class members have been affected similarly by a common course of defendant conduct. Even a full-fledged Daubert evaluation of that proposed testimony may be necessary at the class-certification stage. At least in some circuits, it is said that when the party seeking certification and the party opposing it offer expert evidence, the court may have to choose between the contending expert views.

In terms of cost and effort, then, this relatively-recent development is clearly important.  And it appears to relate somewhat to rule changes that occurred in 2003.  But it is not clear what rule change would be appropriate to react to these developments, or that rule changes played a large role in bringing about the courts’ evolving attitude toward merits scrutiny in connection with certification.  And there is an argument that, even without something like a probability of success inquiry, there is a value to stricter scrutiny of the merits before cases are certified.

(Emphasis added.)  You won’t hear this blog argue against the value of stricter scrutiny of the merits of class actions, in no small part because so many of them fall apart once courts engage in rigorous inquiries.

But even if the Subcommittee is refraining change to the language of the Rule, and even if (by all indications) it is refraining for the right reasons, holding the debate is a good idea.  For one thing, there is a non-frivolous argument to be made that adding language about “rigorous analysis” that “probes beyond the pleadings” would help to cement the current understanding that appropriate merits inquiries are vital to striking the right balance at certification.  (They might, for example, cut down on the use of “no-injury” class actions by allowing the court to look at how many class members were actually injured under a given legal theory.)

Similarly, given the confusion about the appropriate level of scrutiny for certification, it’s clear some courts could use the reminder that they are not supposed to take the plaintiffs at their pleadings.

Most importantly, though, like with Rule 68, adopting language that reflects the Supreme Court’s “stringent” certification standard would actually assist the Subcommittee on its front-burner issues like appropriate class settlements.  Bad settlements occur when bad cases make it past the pleadings or past certification.  Tighten those gates, and there will be less need for vigilance at settlement.

Rule 23 Study Agenda – FRCP 68 and Mootness

Posted in Motions Practice

Courts look down on offers of judgment in class actions as a procedural trick.  Used properly, however, they are an effective early screen for cases that can’t be certified. 

One of the most heated debates in the last five years of class action practice has been the proper use of Rule 68’s offer of judgment.  Defendants like the offer of judgment because it can either moot a case early in (thus shutting down lawsuits that could cost hundreds of thousands of dollars to defeat in conventional litigation), and because the cost-shifting procedures place some of the financial risk of the case back on the plaintiff.  Plaintiffs’ counsel dislike the offer because it complicates the already-difficult task of finding an adequate named plaintiff, and because it shifts some of the financial risk back on them.

Many courts tend to view the offer of judgment as a cheap procedural trick.  Indeed, since the last time I surveyed the field, the Fifth and Eleventh Circuits have both held that offers of judgment do not moot class actions.

As a result, the Rule 23 Subcommittee for the Advisory Committee on Federal Rules has added the offer of judgment to its agenda.  (Judge Dow told the LCJ it’s because “the Damasco problem has spread.”)  As the Subcommittee describes the issue in its report of its October Meeting:

Rule 68 seems on its face to be about something quite different — it is not specifically designed to provide a vehicle to make cases moot, but instead to change the otherwise-applicable rule on cost shifting if an offer is not accepted and the plaintiff wins but does not do better at trial.  A Rule 68 offer may provide stronger support for a mootness argument, however, because a judgment is what plaintiffs seek, and a judgment (on specified terms) is what Rule 68 calls for the defendant to offer.  And the rule also contains specifics on entry of judgment if the offer is accepted that may provide further support for mootness arguments.

So one approach to this problem might be to amend Rule 68 to say that it may not be used in actions brought under Rule 23.

(Emphasis added.)  This proposal is misguided.  The Rule 23 subcommittee itself concedes several reasons it might not work.  First, the Subcommittee points out,  the defendant could still make a non-Rule 68 offer that resulted in the same argument over whether the case was moot.

Second, doctrinally, the majority view in appellate courts runs counter to the Supreme Court’s recent holdings that stress that a class action is an individual lawsuit until it is certified.  The Rule 23 subcommittee has recognized this reality as well:

 Restoring the pre-2003 requirement for court approval of dismissal might also restore the pre-2003 notion that a proposed class action was to be treated as such until the court rejected class certification.  Courts holding that a Rule 68 offer can moot a class action often say also that plaintiffs can prevent that from happening by moving promptly for class certification. Given the need for fuller presentations to support certification, however, that may be difficult.  And if Rule 23 now means that a case is not a class action until a court certifies a class, it is not clear why filing a motion to certify is critical for mootness purposes.

A third problem with this proposal that the Subcommittee does not address is that some defendants use the offer of judgment for its cost-shifting provision.  There is no compelling policy reason to remove this tool in class actions, but not other cases where the plaintiff may wildly overestimate her chances of success.

But it is worth asking what the real problem is with the offer of judgment.  Because, viewed from the perspective of making sure good class actions get brought while bad ones do not, the offer of judgment looks like an essential tool.

The logic runs like this: a “good” class action is not necessarily one that will win on the merits of the claim, but one where victory or defeat for the named plaintiff will properly apply to the entire class.  In other words, good class actions result from issues that actually affect large numbers of people in identical ways.

Under these circumstances, a strong class action will be derailed by losing a single named plaintiff, because plaintiffs’ counsel will either (1) have recruited more than named plaintiff to bring the case, or (2) it will be easy to identify others who have suffered the same wrong.

Moreover, the defendant will recognize this is the case.  In my experience, defendants don’t entertain offers of judgment in cases that have a good chance at certification, because they are well aware what they will face instead is a Chinese water torture of similar filings.  In those cases, offers of judgment simply embolden further filings.  Better to either beat the case completely on a dispositive motion, or settle it on favorable terms.

In addition, the cost-shifting mechanism offered by Rule 68 is an excellent deterrent to “bad” class actions, and often serves to focus discovery on essential issues.  (Plaintiffs tend to be more careful about burdensome discovery requests when they believe there is a danger they might actually have to pay their costs.)

Ultimately, there are two larger philosophical debates that underlie the controversy over the offer of judgment in class actions, both of which counsel for its continued application to Rule 23.  One, as the Subcommittee has recognized, is whether the class action is an individual case before certification, or some special litigation entity.  (As discussed above, that debate has largely been resolved by the Supreme Court.)

But the other philosophical debate that informs this issue is over who the law recognizes as controlling the class action.  If it’s the named plaintiff (as the current legal fiction holds), then it should be acceptable to moot a class action by making an offer to that plaintiff.  If the plaintiff had identified an actual classwide issue, then someone else will file the same case.  If—as many courts acknowledge in passing—counsel is really in charge, then allowing cost-limiting is essential.  Among other benefits, it offers an elegant solution to the agency problem academics worry about so much.  It forces counsel to think through the merits of their case at an early stage.  (If the case has a strong chance of certification, the risk of paying exorbitant costs is low.)  Fight this logic, and you are conceding that even bad class actions have blackmail potential because the threat of litigation cost will drive settlement of claims when the merits don’t warrant it.

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.