Houston law professor D. Theodore Rave’s new paper Settlement, ADR, & Class Action Superiority (forthcoming from the Journal of Tort Law) contains an interesting insight about class action practice: when you get right down to it, there is little functional difference between (1) a class action settlement, (2) an AT&T "gold-plated" arbitration clause, and (3) a customer service action like a voluntary recall. Or, as Professor Rave puts it:
Functionally, what is happening with class settlements, voluntary compensation schemes, and mandatory arbitration clauses in form contracts is very similar. Private actors are effectively designing a system of ADR in which aggrieved claimants can seek compensation. The goal is to replace the public litigation system with a more streamlined and less costly informal process for resolving a mass dispute and, importantly, to channel claims into that alternative process. The question of system design simply comes at three different times: before any dispute has arisen in the arbitration context, while the parties are in dispute in the voluntary compensation context, and after the parties have agreed on a framework to resolve their dispute in the class settlement context.
In the course of his argument, Professor Rave warns that placing too much emphasis on arbitration or customer service actions may privilege concerns about transaction costs (read, attorneys’ fees for plaintiffs) over "robust" "bargaining dynamics" (read, customers having attorneys argue for them).
From a policy standpoint (where, as I often argue, one should assume everyone has some good and some bad in them), Professor Rave’s warning is an interesting one, and it is backed up by a largely nuanced look at the three different forms. While he fears that corporate defendants may use arbitration or customer service to under-compensate their consumers, he also recognizes that the holdings in cases like Aqua Dots and Concepcion rested in part on (probably correct) intuitions that those specific cases involved plaintiffs’ attorneys who were trying to insert themselves into a perfectly appropriate customer service process.
From a strategic standpoint, however, Professor Rave’s article reaffirms that corporate defendants will likely want to look into robust arbitration clauses and solid customer service. While half-measures can lead to litigation, a good customer service initiative and a good dispute resolution process make extortionate class actions that much harder to bring.