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

The Chamber of Commerce’s Class Action Christmas List

Posted in Scholarship

 We’re in the middle of the holiday season, and that means that folks are making (or, for those who celebrate Hannukkah, checking off) their wish lists. This October, the Chamber of Commerce’s Institute for Legal Reform compiled one of their own in their report A Roadmap for Reform: Lessons from Eight Years of the Class Action Reform Act. Why pay attention to this report? As class action defense counsel, don’t we already know what we’d like?

Sure. But the report was prepared by John Beisner, a long-recognized thought leader in class action defense. [Disclosure: I worked with John when we were both at O'Melveny & Myers.] It’s always worth a look to see what John is concerned with. And the list (which is accompanied by concrete reform proposals) is an interesting one. Among its highlights:

Changing the incentives to use cy pres relief. Despite its common use in settlements, changing the availability of cy pres relief remains on many defense lawyers’ wish lists. (And not just because of the possible slippery slope.)

Plaintiffs’ lawyers are attracted to cy pres settlements because they eliminate the need to identify claimants who were injured by the defendant and/or are sufficiently motivated to participate in a class settlement. In other words, cy pres is employed primarily to justify attorneys’ fees by inflating the size of the “award,” even though the award goes to charity, not the class members. Cy pres awards thus undermine the fundamental goal of civil litigation:to provide compensation for allegedly aggrieved plaintiffs.

Beisner specifically suggests amending CAFA to treat cy pres settlements like coupon settlements, compensating class counsel only for those actual class members who make claims. It’s an interesting proposal.

Hearing more Rule 23(f) petitions. At this point, plaintiffs’ counsel often argue that the class action is dying because the Supreme Court has stacked the deck against them.  But, as it turns out, the Circuit Courts of Appeals may be tilting in the other direction right now.

Over the last several years, appellate courts have grown increasingly reluctant to review class certification orders under Rule 23(f). A recent study conducted by Skadden, Arps, Slate, Meagher & Flom LLP on behalf of the Institute for Legal Reform revealed that between September 30, 2006 and April 24, 2013, federal appellate courts granted fewer than one fourth of the petitions seeking interlocutory review of lower court class certification rulings. This finding contrasts with an earlier report, sponsored by the federal judiciary, which found that federal appellate courts granted 36 percent of Rule 23(f) petitions filed between 1998, when the rule was adopted, and 2006.

(Emphasis in original.)

Reining in issues classes. Rule 23(c)(4) issues classes have existed for some time. But there is no question that Judge Posner’s opinion in McReynolds v. Merrill Lynch has–at least temporarily–changed the game. Why would that be a problem?

Issues classes like those approved by the Seventh Circuit are inappropriate for a number of reasons. First, they do not promote efficiency because they do not resolve any individual plaintiff’s claims; after an issues trial is complete, each plaintiff would still have to prove injury, causation and damages in separate trials. Second, issues trials are inherently unfair to defendants because it is much easier for plaintiffs to secure a classwide verdict when the jury does not hear the actual facts of any individual plaintiff’s claims. And third, they pose constitutional problems because the Seventh Amendment bars a second jury from considering issues already decided by a prior jury in the same case.

The entire analysis is worth a read. For defense counsel, it’s a good summary of some of the challenges we currently face. For plaintiffs, well, it’s always good to know what the other side wants, isn’t it?