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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

Misconceptions About Concepcion

Posted in Strategy

Today, the United States Supreme Court hears oral argument in Concepcion v. AT&T, a case on appeal from the Ninth Circuit concerning whether the Federal Arbitration Act preempts states like California from requiring arbitration clauses to allow for classwide arbitration. (The venerable SCOTUSBlog has an excellent roundup of the issues and briefing.)

I’m not interested in pre-gaming the argument. (Although if I were a betting man, I’d lay odds on the Roberts Court finding in favor of AT&T.) I’m more interested in the rash of stories and op-eds (like this one from Vanderbilt Professor Brian Fitzpatrick) that make claims like

If the case is decided the way many observers predict, it could end class-action litigation in America as we know it.

You could say I’m biased. Class actions form the foundation of my practice. I write a blog about class-action strategy (and welcome to it). I just published a book on how to litigate class actions.  But it’s simply not true that class actions will disappear if the Supreme Court rules in favor of AT&T on this issue.

Here are the assumptions that inform my conclusion. Class actions are big business for many attorneys. And class action lawyers are endlessly resourceful. The Private Securities Litigation Reform Act did not kill securities class actions. Nor, despite similar warnings, did the Class Action Fairness Act end consumer class-action litigation.

Does this mean that I think that Concepcion will have no effect on class actions? Hardly. If the Supreme Court rules in favor of AT&T, defendants will have a powerful tool for making sure that plaintiffs’ attorneys can’t gin up minor complaints into bet-the-company litigation. It will be more difficult to bring certain kinds of consumer class actions; most notably the kind where the claims do not describe harms consumer care about. (How do we know when consumers don’t care? They don’t bother to claim their money. For many consumer class-action claims, the response rate is very low–between 2 and 20 percent. This is one of the reasons why cy pres relief is so popular among plaintiffs’ lawyers, and so controversial otherwise.)

But reducing the number of low-merit consumer class actions does not mean there will be no consumer class actions; there are many consumer class actions where there is no contract (and hence no arbitration clause) at issue. Nor does it mean that there will be no way for wronged consumers to get redress. Among other methods:

  • Many companies provide voluntary customer-satisfaction programs.
  • Many companies will be providing attractive bilateral arbitration provisions. (AT&T’s covered most costs, and provided a $7,500 bonus to consumers who got more than AT&T had first offered.)
  • State consumer-protection laws that offer attorneys’ fees still exist. (So do lemon laws.)
  • State and federal consumer-protection agencies exist.

Moreover, there are a number of different kinds of class actions that an arbitration clause likely would not apply to. Among those are:

  • Consumer class actions that do not involve form contracts.
  • Various antitrust class actions.
  • Securities class actions.
  • Environmental class actions.
  • Civil rights class actions.
  • Labor and employment class actions.

I don’t believe I live in a world where corporations can do no wrong. Some can and do; and deterring wrongdoing is a noble policy goal. But I also don’t live in a world where all class-action plaintiffs’ lawyers selflessly bring only meritorious claims. Many don’t; and those claims do nothing to deter actual wrongdoing. Finding the proper balance between under- and over-deterrence of corporate misconduct is not easy. It’s a game of constant adjustment, and no matter which way the Supreme Court rules in Concepcion, either plaintiffs or defendants will have some adjusting to do. But if the Supreme Court rules in favor of AT&T, class actions will not disappear. It will just be harder to bring the kinds of class actions that will provide little actual relief for the class. And, if I were a betting man, I’d lay money on the side that says that even then, there will still be consumer class actions for me to defend.

UPDATE (12 November 2010) – Welcome Overlawyered readers!  If you haven’t already, please also check out Ted Frank’s post at Point of Law, which very lucidly covers similar points.  Also, look here for a brief postgame analysis of the argument.