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I have a post up at the OUPblog on the Non-Fiction Class Action (also known 'round these parts as the "literary class action"). It covers much of the same ground as previous posts here, but, like a good rug, I think pulls the whole thing together pretty well.
... to SCOTUSblog's symposium on the future of the class action, being held right now over at their site. The first entry, by Professor Scott Dodson, is already up. Judging from the distinguished invitees (present company excepted) and Professor Dodson's opening salvo, I'd say it's going to be a lively debate.
The last few weeks have been exceptionally busy for appellate decisions involving class actions. In addition to Judge Easterbrook's In re Aqua Dots opinion, the Sixth Circuit's Pipefitters opinion, the Second Circuit's Literary Works opinion, and the Ninth Circuit's reversal of the Bluetooth settlement, the Third Circuit has offered up a pair of opinions involving predominance and common evidence. In one, Behrend v. Comcast Corp., a panel appeared to limit the reach of In re Hydrogen Peroxide on expert evidence, affirming certification of an antitrust case again the cable provider in part because it held that a Daubert inquiry is not necessary at class certification. In the other, Gates v. Rohm & Haas Co., a different panel affirmed the denial of certification of an environmental class action. In doing so, it appeared to follow Hydrogen Peroxide in requiring a "rigorous analysis" of expert proof, even if the parties themselves had stipulated no Daubert hearing would be necessary.
In general, Gates is an extremely useful opinion for defendants. Leaving aside its implicit analysis of the Daubert issue (which is likely to be hotly contested for some time to come), the Third Circuit made a number of other statements explaining just how difficult it can be to demonstrate either cohesiveness (for a Rule 23(b)(2) class) or predominance (for a Rule 23(b)(3) class).
I blogged about this case last year when the trial court denied certification. So, since it remains applicable, I'll repeat the factual summary from there.
Gates is an environmental case, in which the plaintiffs sued Rohm & Haas for polluting the water and air around Ringwood, Illinois with chemicals including vinylidene chloride, a known carcinogen. The plaintiffs sued for violations of CERCLA and state law, and sought damages for medical monitoring and damage to property. The proposed class action – like many environmental class actions – would turn on questions of causation, which can pose a number of thorny individualized issues in toxic torts. So, in addition to seeking damages, the plaintiffs sought an injunction compelling Rohm & Haas to set up a medical monitoring regime.
The district court refused to certify a class, finding that the Rule 23(b)(2) class lacked "cohesiveness" and the 23(b)(3) class lacked predominance. The plaintiffs appealed. The Third Circuit affirmed. Among its holdings:
The "cohesiveness" requirement for Rule 23(b)(2) is more stringent than the predominance requirement for Rule 23(b)(3).
As all class members will be bound by a single judgment, members of a proposed Rule 23(b)(2) injunctive or declaratory class must have strong commonality of interests.
The Third Circuit also noted that
Commentators have noted that certification requirements under Rule 23(b)(2) are more stringent than under (b)(3).
The plaintiffs could not rely on proof of a composite, "average" class member to establish factual predominance.
Plaintiffs cannot substitute evidence of exposure of actual class members with evidence of hypothetical, composite persons in order to gain class certification. … Averages or community-wide estimations would not be probative of any individual's claim because any one class member may have an exposure level well above or below the average.
Nor could plaintiffs use regulatory standards as shortcuts for common proof.
Although the positions of regulatory policymakers are relevant, their risk assessments are not necessarily conclusive in determining what risk exposure presents to specified individuals. … Thus, plaintiffs could not carry their burden of proof for a class of specific persons simply by citing regulatory standards for the population as a whole.
In short, the Third Circuit came out definitively against using some of the various shortcuts plaintiffs have employed to convince courts to certify a class despite the lack of actual common proof. As both a taxonomy of these shortcuts, and an explanation of why they don't work, this is a good opinion for class-action defense lawyers to keep in their toolkit.
Just a brief announcement that the Cato Institute's Constitution Day (which they use as a kickoff for the publication of the year's Cato Supreme Court Review) is coming up on September 15. Among other topics, one panel will be discussing the effect of various business-related rulings, including Wal-Mart Stores, Inc. v. Dukes.
Leaving aside moderators like Ilya Shapiro and Walter Olson, the panels feature various legal luminaries like Orin Kerr, Jonathan Adler (this one, not this one), and Adam Liptak. (I'll be there too.)
Hope to see you there!
This month, the Insight from Other Strategists feature turns from military thought to business strategy, a notoriously trickier thing to adapt to litigation. While there are certainly excellent business strategists who write knowledgeably about law-firm business strategy, it's harder to adapt their insights to the actual practice of litigation. (At least for defense lawyers; plaintiffs' lawyers, who are entrepreneurial to begin with, seem to make business and litigation decisions interchangeably, because the lawsuit itself is their product.) The reason for this seems to be that unlike a lawsuit or military engagement, where the competing parties are involved in an actual head-to-head encounter, business strategy operates more like a race: the competitor is definitely out there, but one makes progress by focusing on one's own performance more than by interfering with the other side's plans.
But just because business strategy doesn't immediately inform litigation strategy doesn't mean it can't say anything useful to class-action defense lawyers. One excellent is example is a a recent book by Richard Rumelt, a professor at UCLA Anderson's School of Management: Good Strategy/Bad Strategy: The Difference and Why It Matters.
Good Strategy/Bad Strategy is primarily a business strategy book, which as a practical matter means its second half is of more limited application to lawyers. (Examples of good business strategy aren't quite as useful to litigators in the middle of a case.) But the first half, in which Professor Rumelt identifies the difference between a good strategy and bad one, is of immense value. Professor Rumelt begins by identifying what a bad strategy looks like, and he identifies four red flags:
By contrast, Professor Rumfelt identifies "good strategy" as
coherent action backed up by an argument, an effective mixture of thought and action with a basic underlying structure I call the kernel.
(Emphasis in original.) This "kernel" has three elements:
There are at least two immediate uses for this book in class-action litigation. First, and most obviously, defendants would be wise to use Professor Rumelt's model on themselves, to make sure that their strategies are "good" ones, instead of just an incoherent, rote "oppose everything the plaintiffs do" plan. Those, far too often, lead to bad results.
But second, and possibly more importantly, most plaintiffs' lawyers are what Professor Rumelt would call "bad strategists," especially when it comes to class certification. This is not surprising, because for many of them, the fight is not over certification, but settlement. And it's not just with the defendant, but with each other. As a result, many plaintiffs do not think through how they would actually try a certified class with much, if any, rigor. And that is one of the largest weaknesses in most class-action cases. Because most courts want to know how the class action would actually be tried, and most plaintiffs are completely unequipped to offer a coherent trial plan.
Even with the business-strategy focus, I'd heartily recommend Good Strategy/Bad Strategy to complex litigators; there's a lot more in there of use than in this brief summary. Professor Rumelt has also begun blogging at StrategyLand, which is proving every bit as educational.
Superiority (which requires a court to find "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy") is an often-overlooked area of Rule 23, perhaps because these days, it comes with a nice long, non-exhaustive list of factors to consider, including:
(A) the class members' interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
After all, what litigant (or court) doesn't love slogging through a nice long list?
But, nice long list aside, superiority is an extremely valuable tool in a class-action defense lawyer's kit. Why? Because, when you get down to it, superiority encodes an important policy choice into Rule 23: when a plaintiff is suing for money damages, a class action should not be the court's first choice for resolving the dispute. The court should look to see whether other ways of solving the problem (individual cases, government action) work first. And it should also look to see whether the class action will do more harm than good.
One recent case, Pipefitters Local 636 Insurance Fund v Blue Cross Blue Shield of Michigan (6th Cir. 2011), illustrates just how useful the superiority requirement can be when wielded properly.
The plaintiffs in Pipefitters sued Blue Cross because, for three years, it had imposed a fee (called the "other-than group" subsidy, or OTG subsidy) on group health customers. The fee helped subsidize the care of out-of-group insureds, such as retired people living on fixed incomes. One of the key merits questions was whether Blue Cross had been acting as an ERISA fiduciary at the time it imposed the fee. Despite the fact that determining whether Blue Cross's fiduciary status required looking at its individual Administrative Service Contracts with each client, the trial court certified a class under Rule 23(b)(3).
Blue Cross appealed. And, in an unusual twist, it was joined by the Michigan Commissioner of the Office of Financial and Insurance Regulation, which filed an amicus brief explaining that certifying a class against Blue Cross could result in "significant, negative financial ramifications to Michigan's senior citizens" because a victory might result in the inability to subsidize older non-group insureds.
The Sixth Circuit reversed the certification on two grounds. Procedurally, it pointed out that the trial court had not based its opinion on sufficient facts. Substantively, it held that a class action was not superior in this case. Specifically, it offered three reasons why the proposed class action would not be superior. First, the proposed class was simply unmanageable.
[T]he district court here would be required to conduct individualized inquiries into the ASC terms and funding arrangements of each ASC customer. That means looking at the contract terms and funding arrangements of 550 to 875 class members. Given the necessary number of individual inquiries, a class action cannot be a superior form of adjudication.
Second, the potential damage awards were large enough to justify individual litigation.
[T]he potential damage awards do not support a finding of superiority. The Fund alone claimed damages in excess of $280,000, and the record indicates that the possible awards of other class members exceed this amount. These are not the types of awards that would preclude individual class members from seeking relief through litigation.
But most important (and most interesting),
The Commissioner contends that, as a result, if the case were to proceed as a class action, BCBSM would potentially be forced to stop collecting more than $100 million dollars annually, which could result in higher premium rates for insured customers or in a reduction in Medigap coverage and a dramatic increase in premium rates for Michigan's senior citizens. The serious financial repercussions to Michigan's elderly population further support a conclusion that a class action is not a superior method of resolving the Fund's allegation.
The Sixth Circuit justified this view by citing an old Third Circuit case, Katz v. Carte Blanche Corp., 496 F.2d 747, 760 (3d Cir. 1974), that had held that a court could consider whether the class action was good for the "public at large." There is a certain logic to this argument. After all, if class action plaintiffs' lawyers want to hold themselves out as quasi-public servants who supplement publicly-accountable attorneys-general, then it would make sense to look at the effect their actions have on the public at large.
So what can defense lawyers learn from this case? Never assume that a class action is the best way of resolving a dispute. Class-action critics have often complained that plaintiffs' lawyers file big cases without considering the bigger picture of how they will affect policy. Pipefitters indicates that courts may actually listen to those arguments.
[Note: Many thanks to the folks at the WLF Legal Pulse for asking me to write this entry. It's cross-posted there.]
Given the stakes of class actions, which transform small-dollar claims into bet-the-company litigation, settlements are hardly unusual. And given the minuscule recoveries most class members receive compared to their lawyers' multi-million paydays, neither are objections to those settlements. What is unusual is for a court to reject a settlement because of these objections. And what’s even more unusual is for the court to put a small doctrinal booby trap into its rejection. But last week, the Second Circuit did just that.
The class action in question, In re Literary Works in Electronic Databases Copyright Litigation, involved a copyright challenge. The plaintiffs were freelance authors; the defendants were large publishers with electronic databases. The plaintiffs accused the defendants of "publishing" their articles in various electronic databases (like LEXIS/NEXIS) without their permission and without paying them. Back in 2001, the Supreme Court endorsed their theory in a parallel case, N.Y. Times Co. v. Tasini.
In the years since, the plaintiffs' claims were consolidated before the Southern District of New York, and underwent extensive mediation in front of mediation guru Kenneth Feinberg. By 2005, the parties had reached a classwide settlement that the district court approved. The settlement compensated three different categories of class members:
Many authors held claims that fell into more than one category. As structured, the settlement would pay (on average) around $1,000 for each Category A claim, $150 for each Category B claim, and $60 for each Category C claim. The settlement was capped at $18 million. If the freelancers submitted more than $18 million in claims, a provision known as the "C reduction" kicked in. The "C reduction" did just what it said on the label; it reduced the payments to Category C claimants until the $18 million cap was reached. If it exhausted the C claims, it reduced A and B claims on a pro rata basis.
The settlement drew a number of objections, primarily from authors in Category C. By the time they appealed the order approving settlement, the objectors had identified three major problems: (1) the release was too broad (it released all future claims, which gave the publishers a free pass to republish any articles they had already wrongfully published); (2) the class representatives had sold out the Category C claimants with the "C reduction"; and (3) the settlement process had been unfair.
The majority (the panel split, 2-1) was unconcerned about the breadth of the release. In fact, it specifically noted that in most classwide settlements, if one did not release all future claims, the defendant had no real incentive to settle. It also found the process challenge to be moot.
But the majority was concerned with the adequacy of the class representatives under Rule 23(a)(4). One key measurement of adequacy is whether there are any conflicts of interest in the class. Here, the majority found that the "C reduction" showed that "[t]he selling out of one category of claim for another is not improbable ..." And it saw only one solution:
Only the creation of subclasses, and the advocacy of an attorney representing each subclass, can ensure that the interests of that particular subgroup are in fact adequately represented.
That's right. Each subclass would require its own independent attorney.
The rationale is simple: how can the value of any subgroup of claims be properly assessed without independent counsel pressing its most compelling case?
(Emphasis added.) But while the rationale may be simple, the execution is likely to be anything but. Class-action lawyers are a notoriously competitive lot. Many of them find it extremely difficult to work with each other, in part because they find it hard to trust each other. So finding a separate lawyer (presumably from a separate firm) for each subclass who will "press its most compelling case" will be extraordinarily difficult for them. This is good news for defendants, who often watch class actions rife with conflicts of interest get certified. Of course, class-action lawyers are also notably inventive; it will be interesting to see what they come up with to get around this requirement.
I don't often rush to post news of a new opinion, but when I open my inbox to find multiple emails telling me something new and big has happened, that's a different story. And yesterday, I had a number of people telling me about a new opinion out of the Seventh Circuit: In re Aqua Dots Products Liability Litigation.
Russell Jackson wrote about this case last year, when the district court issued its opinion. The case concerned a child's toy called Aqua Dots, which was basically colored beads that, when you added water, would fuse together into whatever design you had arranged. The problem was, Aqua Dots looked a lot like candy. So much so that some kids swallowed them, and were put into brief comas. As soon as Aqua Dots found out, they recalled the product. But, sure as Thanksgiving is followed by Christmas shopping, the recall was followed by a class action.
The District Court had a hard time understanding how a class action would be superior to the recall, so it declined to certify the proposed class on superiority grounds. The plaintiffs appealed. The Seventh Circuit affirmed the result in an opinion by Judge Easterbrook. As he put it:
It is hard to quarrel with the district court’s objective. The lower the transactions costs of dealing with a defective product, the better. The transactions costs of a class action include not only lawyers’ fees but also giving notice under Rule 23(c)(2)(B). Notice may well cost more, per kit, than the kits’ retail price—and could be ineffectual at any price, since most purchases were anonymous. The court can’t send each buyer a letter. Notice would be by publication, yet the recall was widely publicized. Why bear these costs a second time? The Consumer Products Safety Commission has not expressed dissatisfaction with the recall campaign or its results, and the record does not contain any evidence of injury to children after the recall was announced. Spin Master believes that most of the 400,000 kits not returned in the recall were used before the recall began and that few, if any, defective kits remain in consumers’ hands. Consumers whose children used their kits are not members of the proposed class, so a public notice of a class action could be expensive yet pointless.
(Emphasis added.) Despite Judge Easterbrook's initial sympathy, he took issue with the fact that the trial court had departed from the text of Rule 23. (While the judge had held that the class action was not superior, he had not identified what kind of adjudication it would be superior to. Judge Easterbrook held that the voluntary recall of Aqua Dots was a resolution, but not an adjudication.) And, as Judge Easterbrook pointed out, the Supreme Court has made it clear that the text of Rule 23 controls over any individual policy preferences:
A district court is no more entitled to depart from Rule 23 than it would be to depart from one of the Supreme Court’s decisions after deeming the Court’s doctrine counterproductive. Rule 23 establishes a national policy for the Judicial Branch; individual district judges are not free to prefer their own policies. The Court made this point twice in its most recent Term. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011); Erica P. John Fund, Inc. v. Halliburton Co., 131 S. Ct. 2179 (2011).
(Emphasis added.) Here's where the opinion gets really interesting. Because while Judge Easterbrook held that the trial court could not depart from the text of Rule 23, he found another textual source for the court's holding.
Instead of departing from the text of Rule 23(b)(3), the district court should have relied on the text of Rule 23(a)(4), which says that a court may certify a class action only if “the representative parties will fairly and adequately protect the interests of the class.” Plaintiffs want relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class. A representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the class members’ expense to obtain a refund that already is on offer is not adequately protecting the class members’ interests.
(Emphases added.) In other words, when a plaintiff files a class action that basically duplicates a voluntary action that the defendant has already taken, she may not have come up with an inferior method, but she is an inadequate representative of the class, in part because she appears to be prizing her attorneys' best interests over those of the class.
I'd usually close up by asking how a defendant can use an opinion like this, but in this case I don't think I really need to add anything.
(Hat tip to Ted Frank and David Appelbaum.)
The other week, fellow blogger (and ABA Blawg 100 writer) Russell Jackson sent me a copy of Verdict for the Defense: Fighting Jackpot Justice with Firewall Defense Strategies by Greenberg Traurig lawyer Rob Herrington. (Which just goes to show - sending books to bloggers can work.)
Verdict for the Defense provides a practical take on class action and mass tort defense, written for businesspeople rather than lawyers. (And you can tell. While most class-action books are heavy on the footnotes and the citations, this one alludes to the legal rulings, and focuses more on actual advice.) Herrington focuses on his area of expertise--products liability and consumer-fraud class actions--which enables him to provide specific counsel about how to head off potential class actions.
Herrington's "firewall" strategy consists of seeking out--and then blocking off--several of the more common, preventable sources of class actions. Starting from the premise that the best defense is to be a good company (one I wholeheartedly agree with), he recommends a full audit of the company's most popular products (the ones most likely to get the company sued in a class action) to make sure there are no (1) significant problems lurking or (2) minor, but recurring issues that might serve as the basis for a complaint. He also recommends a review of customer service, to stave off lawsuits that might originate from disgruntled customers or common internet complaints. Some of Herrington's advice is clearly aspirational: most companies don't aim to have bad customer service, but instead find themselves fighting against constraints like organizational inertia. And companies should, of course, be careful that any product audits don't provide blueprints for subsequent class actions. But in addition to the common-sense exhortations, Herrington provides some immensely practical advice for enabling the defense of largely meritless class actions, including:
So, can defense lawyers get anything out of this? Yes. Leaving aside Herrington's advice on litigating class actions (which, while sound, is probably a little low in citations for lawyers), it provides good insight into what a conscientious client will be thinking. More importantly, Verdict for the Defense helps identify what the best practices should be among clients. And that should help class-action defense lawyers act more like trusted advisors than hired guns.
Culver v. City of Milwaukee dealt with allegations of race discrimination--specifically, a white man who claimed he had been denied a job application at the Milwaukee police department because it was not accepting white males the year he applied. The trial court certified his proposed class (which consisted both of white men who had allegedly been denied applications and white men who might have been passed over because of changes in exam scoring to favor minorities). A year later, Culver got a different job, with which he was content, thus mooting his claim. Five years after that, a different trial judge decertified the class because Culver was not an adequate class representative. Culver appealed.
Judge Posner began his opinion by noting that
The class action is an awkward device, requiring careful judicial supervision, because the fate of the class members is to a considerable extent in the hands of a single plaintiff (or handful of plaintiffs, when, as is not the case here, there is more than one class representative) whom the other members of the class may not know and who may not be able or willing to be an adequate fiduciary of their interests. Often the class representative has a merely nominal stake (Culver has no stake), and the real plaintiff in interest is then the lawyer for the class, who may have interests that diverge from those of the class members. The lawyer for the class is not hired by the members of the class and his fee will be determined by the court rather than by contract with paying clients. The cases have remarked the danger that the lawyer will sell out the class in exchange for the defendant's tacit agreement not to challenge the lawyer's fee request.
He then stated that Rule 23
tries to minimize the potential abuses of the class action device in two principal ways, first by insisting that the class be reasonably homogeneous, and second by insisting that the class representative be shown to be an adequate representative of the class.
In this case, the largest problem was that the two classes Culver sought to certify were mutually exclusive. White men who had received no job application at all would offer very different proof than those who had sat for an entrance exam, and then had their test scores changed after the fact. Oddly, Culver's counsel, rather than finding a representative of the second proposed class, insisted that both classes be represented by the same person. (This might have been, as Posner noted, because "no member of the class has any interest beyond that of a curious onlooker in pursuing this litigation.")
At this point, Posner became extremely candid:
For purposes of determining whether the class representative is an adequate representative of the members of the class, the performance of the class lawyer is inseparable from that of the class rep- resentative. This is so because even when the class representative has some stake (unlike Culver), it is usually very small in relation to the stakes of the class as a whole, magnifying the role of the class lawyer and making him (or in this case her) realistically a principal. Indeed the principal. When we said earlier in this opinion that “Culver has done nothing to move the case forward except to file a flurry of frivolous motions” and remarked “the lack of energy with which he [Culver] has performed his function of class representative” and that the courts and Congress had refused as yet to rule that “the requirement that a class action, like any other suit, have a plaintiff is to be dropped and the class lawyer recognized as the true plaintiff,” realists reading this opinion no doubt sniggered. All Culver's moves in this suit were almost certainly the lawyer's. Realistically, functionally, practically, she is the class representative, not he.
(Italicized emphasis in original.) The Culver opinion has proven long-lived precisely because of this candor. In addition to providing a typically lucid explanation of why the adequacy requirement is so important (a fact that is often overlooked in the rush to certify classes or approve settlements), Judge Posner also explained, in simple terms, how class actions really operate. He unmasks the fiction that the named plaintiff is in any way in charge of a class-action lawsuit as just that--a fiction. A number of scholars, judges, and legal reformers have continually wondered what can be done to solve the so-called "agency problem" in class actions. In many ways, the Culver opinion reinforces that there is a simple, easily-enacted solution: enforce the adequacy requirement. If the named plaintiff is truly an adequate representative of the class, then we should not have to worry about whether or not he can stand up to his lawyer when her interests diverge from the class's.
Defendant class actions are rare beasts. Rule 23 clearly authorizes them, but plaintiffs rarely file them, and defense counsel rarely encounter them. (I've only seen one or two in the wild myself.)
An article by law professor Francis X. Shen that appeared in the Denver University Law Review, The Overlooked Utility of the Defendant Class Action, notes that only about 177 class actions have ever been reported. Professor Shen argues that this comparative rarity doesn't reflect a difficulty in using the device so much as it does a misunderstanding of its usefulness.
What is a defendant class action, anyway? Simply put, it's a class action where, instead of joining a number of plaintiffs with a single representative, the plaintiff joins a number of defendant with a single representative. A defendant class action has to meet the same Rule 23 requirements as a plaintiff class action. And therein lies the problem. A defendant class action requires an adequate class representative. And most defendants have no interest in serving as a representative for a class of similarly-situated defendants. A proposed representative that doesn't want the job is not adequate; a proposed representative that does want the job is arguably even less so. Moreover, in a Rule 23(b)(3) class action, most defendants would likely exercise their right to opt out.
As a result, most defendant classes are brought under Rule 23(b)(1). (Professor Shen's empirical analysis confirms this, the largest group of defendant class actions were constitutional challenges, which could be brought under the "inconsistent rulings" provision of Rule 23(b)(1). These constitutional challenges also benefit from the fact that the defendants--usually government personnel--have a strong incentive to clarify certain rules about how they should act; they're not personally on the hook for damages.) And, because of the due process concerns involved with imposing injunctions against people who can't defend themselves, courts are very reluctant to certify defendant classes under Rule 23(b)(2).
Despite these crushing disadvantages, Professor Shen believes that the defendant class action would be useful in cases where coordinating defendants is difficult. As he puts it:
The crux of my argument is that it is more likely for this mid-size group to overcome collective action problems when they are on the defendant side. The reason for this logic is straightforward; on the defendant side, parties do not have to initiate the proceedings.
This analysis sounds odd enough--do defendants really suffer from collective action problems in cases like these? But when Professor Shen provides examples of what he means, it's clear that he's not really envisioning a Rule 23 class action as it exists under United States law. Professor Shen offers two hypothetical cases:
The first hypothetical demonstrates the problem with trying to bring a Rule 23(b)(3) defendant class. What young music downloader wouldn't opt out of an RIAA class action given the chance?
As for the second hypothetical, Professor Shen believes it would enhance deterrence in cases of corporate misconduct:
To the extent that it was not just a few "bad apples," but instead is in part driven systematically by certain kinds of corporate cultures, we want a legal device that can possibly change those cultures. A defendant class action might do that. In operation, if future members of a firm knew that they could be held liable (as a defendant class member) for any harm caused by the firm, it seems more likely that they would stand up to their bosses when asked to do illegal tasks.
Of course, nothing currently prevents lawyers currently from naming many individual defendants in securities cases involving "certain kinds of corporate cultures." And other firm personnel already know they will suffer for any harm caused by the firm: they will lose their jobs, and have to explain their tenure at the previous firm when looking for more employment. By contrast, if they're sued for damages in a defendant class, what will prevent them from opting out of any additional liability?
Professor Shen views this as a "system design" problem. In other words, he argues for changing the rules of the defendant class action to allow for drafting defendants into a defendant class, possibly applying a presumption of liability against them to give them an incentive to litigate, and possibly assessing a "litigation tax" to make sure they contribute to the costs of defense. He does concede that
It remains to be seen, for instance, how the proposed tools of system design will hold up in practice.
Amen to that.
Class definitions can be extremely difficult for plaintiffs. In addition to holding that merits-based class definitions cannot support certification, courts have begun to hold that some definitions are simply too broad. Overbroad definitions usually are symptomatic of other problems with the proposed class.
Want an example? Take the case of Kemblesville HHMO Center LLC v. Landhope Realty Co., 2011, U.S. Dist. LEXIS 83324 (E.D. Pa. Jul. 28, 2011). Kemblesville concerns the dispersion of methyl tertiary-butyl ether (MTBE), a gasoline additive that helps reduce harmful automobile emissions, but which can contaminate groundwater under the wrong circumstances.
In Kemblesville, the plaintiffs sued based on a theory that the presence of MTBE in a few sites surrounding a gas station diminished the value of property out to a 2,500-foot (roughly, half-mile) radius. (They referred to this as the "stigma class," because the reduced property values would come from the stigma of being located near the contamination.) The plaintiffs asked the court to certify a class of all property owners within that radius.
The court began by noting the burden plaintiff carries in arguing for certification, and the fact that "[t]he requirements set out in Rule 23 are not mere pleading rules." It also articulated why overly broad class definitions are not a good idea.
"The class must be sufficiently identifiable without being overly broad. Overbroad class descriptions violate the definiteness requirement because they include individuals who are without standing to maintain the action on their own behalf."
(Emphasis added, internal citations and quotation omitted.) The plaintiffs tried to avoid any overbreadth by claiming that the relationship between the alleged contamination and the geographic boundary of their class was a "merits issue." (This was an extremely odd choice. A number of courts have held that a class definition is fatally flawed if it requires a determination on the merits to decide who is in the class. While technically, the only merits question here was whether the plaintiffs' "objective" definition was reasonable, invoking the specter of a merits inquiry still seems self-defeating.) Nevertheless, the court disagreed.:
Plaintiffs' proposed class includes properties simply because they exist, irrespective of any actual connection to Defendants' activities. The Court does not at this stage require Plaintiffs to adduce definitive evidence about the specific amount and effect of MTBE dispersion. However, to enable this Court to conclude that there is a reasonable relationship between the relevant MTBE release and the proposed class area, Plaintiffs need to adduce some evidence of dispersion that indicates MTBE may have traveled, or will ever travel, near a radius of 2,500 feet.
Finally, the court also found a numerosity problem that stemmed from the overbreadth of the class.
However, because this class definition is too overbroad, I cannot accept Plaintiffs' numerosity argument. Plaintiffs have failed to provide evidence that MTBE contamination is present throughout the class area.
…
According to Plaintiffs, many properties are in contaminated or soon-to-be contaminated areas. However, that estimate is purely speculative, and conclusory allegations do not satisfy Rule 23(a)(1)'s numerosity requirement.
(Emphasis added.) So what can defense lawyers take from this ruling? Don't be afraid to challenge an overly broad class definition. Even if it looks "objective," if a class sweeps too many potential members in, determining who is actually entitled to relief will require individualized inquiries. That is not merely a problem with predominance or commonality; it can also be a problem with the definition itself.
This month, in our piece of classic scholarship looks at an old University of Chicago Law Review comment on how to use class action. The Class Action Device in Antisegregation Cases, 20 U. Chi. L. Rev. 577 (1953). (JSTOR link here.)
The Comment takes a plaintiffs' view of how to use class actions to combat segregation (which it defined to mean "any policy of discriminatory treatment of a minority group"). It begins with an observation that even it called "obvious," but that sets up much of its argument argument: that "segregation is a group phenomenon."
One reason that the class action appears to be an advantageous method of securing relief for the group is that a favorable decree will in its terms apply to all members. A decree rendered in an action brought by an individual on grounds that he is being discriminated against will require the defendant to desist from such practices only where the individual is concerned. The position of the group will improve only if compliance with the decree by the defendant incidentally inures to the benefitof all members.But a decree rendered in a class action will benefit directly the group as a unit.
(Internal citation omitted.) This group benefit also gave class-action plaintiffs a rhetorical advantage over individuals who challenged segregationist policies.
Another advantage of the class action device in this type of case is that it aids the plaintiffs in showing the seriousness of the discriminatory practice complained of. Use of the device itself carries an implicit declaration that the alleged wrong is general, widespread, and a matter of state policy. Moreover, if the action were brought by an individual only on his own behalf, evidence of the group nature of the wrong might not be relevant. But in a class suit, evidence of discrimination against any and all members of the class would be admissible, enabling the plaintiff to broaden the nature of his proof and increase the difficulties of rebuttal.
In particular, the class allegations would add weight to an individual challenge. While it might be easy to dismiss an individual plaintiff as a crank, a class plaintiff began with more (implicit) gravitas.
Further, individual plaintiffs asking relief from discriminatory practices might be viewed by the court and by the community as malcontents or eccen- trics. The receptiongiven to the commencement of such an action would probably be much better if it were brought in the name of and on behalf of the entire group affected by the segregation. Class representatives would appear not so much as a few plaintiffs with a grudge, but as part of a group with a justifiable claim
And using class allegations would also help prevent what had apparently become a common problem: getting rid of a challenge to a discriminatory policy by granting relief only to that person who raised the challenge, by, say, admitting a single black to a segregated swimming pool. (This would be a prototype for the mootness arguments made today in consumer class actions.)
There is some doubt whether the same result would obtain if an action is brought for the benefit of an entire class.The Court of Appeals for Eighth Circuit has held that before a class action can be dismissed, there must be some evidence of permanent abandonment of the discriminatory policy complained of. The court in Morris v. Williams said that one reason the action would not be dismissed on the claim of defendants' counsel that the discriminatory salary schedule had been replaced by a non discriminatory schedule was that "there is no assurance. . . that such usage and custom may not be resumed at any time, even though presently abandoned."
What can modern class-action defendants take from this? First, this article is a good reminder that not all class actions are bad. Defense lawyers see far too many meritless class actions propped up by "justice"-oriented rhetoric. It can make them jaded. And it can be good to be reminded that sometimes a class action is an appropriate remedy for certain cases. Second, this article does a good job of showing why so many of today's class actions seem so venal. Antisegregation activists were fighting true group problems, that could be solved with true group remedies. (Remember, these class actions took place before the 1966 Amendments. These litigants were looking for injunctive relief, not money, and not money dressed up as an injunction.) This is the difference between a modern "civil rights" class action like the Dukes case, and the actual civil-rights class actions like Morris: one was seeking actual change, the other money clothed in noble rhetoric.
Second, the history can provide some context as to why courts make some of the decisions they do today about class actions. From a defendant's perspective, a Rule 68 offer of judgment to an individual who is hoping to leverage a truly unique bad customer experience into a class action makes eminent sense, and seems perfectly fair. Nonetheless, many courts will still reject any attempt at the tactic. At the time Morris was decided, that judgment made sense: it reflected the action of a community determined to discriminate. In the context of a modern 23(b)(3) class action for money damages, it's harder to tell whether either party has the equities on its side.
It's always worth looking back at the history of the class action. The cases may change, but many of the tactics stay the same, even when they're not perfect fits for the case in which they're employed.
Before we dive in today, I just want to apologize for not getting this post up yesterday. I'm in Boston, visiting my brand-new nephew, and so I've been a little preoccupied. So today's post will be a quick one.
Every defense counsel in class actions has faced having to negotiate a protective order with the other side. Plaintiffs, who often wish to release documents to the press for maximum PR leverage, or to share documents with other attorneys to bank favors, will often push for free document-sharing provisions. Defendants, by contrast, often want to make sure that their proprietary documents remain proprietary. As a result, they will seek protective orders that prohibit widespread sharing of documents. Occasionally, plaintiffs will seek a provision that allows them to provide documents if they are subpoenaed. After all, they can't stop another firm from subpoenaing them, can they?
Today's case, Murr v. Midland National Life Insurance Co., 2011 U.S. Dist. LEXIS 82486 (C.D. Cal. Jul. 28, 2011), shows why robust protective orders are important to defendants. In it, plaintiff William Murr (represented by Blood, Hurst & O'Reardon) filed a class action against Midland National Life Insurance in the Northern District of Iowa, challenging its annuity contracts. Midland had previously defended a similar lawsuit brought by Robbins Geller Rudman & Dowd LLP. Rather than fight over the relevance of specific documents to his case, Murr served a subpoena on Robbins Geller to just get the documents produced to it. Midland (note, not Robbins Geller) moved to quash the subpoena.
The court granted the motion to quash, and its reasoning is instructive. It held that Murr's request:
fails to take into account that his subpoena is unreasonably burdensome given that Murr may request the same documents being sought from Robbins Geller through discovery directed to Midland in the Murr Action, subject to normal discovery procedures and protections in place in his own action. Murr may request the documents directly from Midland without involving a third party that does not have the same interests as Midland in protecting the documents relating to its business practices and policyholders.
(Emphasis added.) While the court does not disclose what the protective order with Robbins Geller looked like, Midland likely did not agree to a simple "hand over if subpoenaed" provision. And cases like this show why it's important for defendants to pay close attention to the provisions of protective orders. Given the opportunity, plaintiffs will simply subpoena each other to get information from previous lawsuits, whether or not it's strictly relevant to their new claims. Robust protective orders can guard a defendant's proprietary information, even from plaintiffs' more inventive attempts to circumvent them.
Andrew Trask has defended more than 100 class actions, involving all stages of the litigation process. While his work hasMore...