This is the fourth of what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last month in Chicago. For more on this excellent conference, see my October 31, November 5, and November 6 CAB posts.
The fourth session was entitled “Sifting Through All the Big Shoulders,” Litigating Class Actions Alongside Opt-Outs – Free-Riding or Riding Shotgun. Vincent J. Esades moderated another distinguished panel, which included Professor Geoffrey Parsons Miller, The Honorable Lee H. Rosenthal, and attorneys Joseph R. Saveri and David C. Eddy.
Managing parallel class and opt out cases in multidistrict litigation is an increasingly common and complicated venture, especially in antitrust litigation, where individual institutional plaintiffs may have a sufficient enough individual stake to justify hiring their own counsel and pursue their own claims. A potential free-rider problem arises in this context because individual plaintiffs have a right under Rule 23(b)(3) to opt out of any class, at least for the purpose of pursuing damages claims. This means that individual plaintiffs and their lawyers can take advantage of the time and effort expended by the named plaintiffs and their counsel early on in the case, only to opt out later and pursue their own litigation without having to share the benefits of any recovery with class counsel.
The panelists seemed to agree that there is an inherent tension between the opt out rights embodied in Rule 23 and the burdens on the courts of managing both class and individual litigation over the same issue. They also seemed to agree that, short of re-writing Rule 23, there is no simple solution to ensure that the parties and attorneys who come late to litigation are not free riders on the efforts of others. Professor Miller raised the question whether these problems suggest a fundamental change is needed in how mass litigation occurs, including a convergence of mass tort and class actions or a recognition that those labels don’t mean anything in the context of certain multidistrict litigation. Alternatively, can existing rules of civil procedure could be used to solve the problem? Whether the solution to this problem is litigation reform, a change in judicial philosophy, or creative solutions already within existing rules, much of the discussion surrounded a very pragmatic question, “What’s the blueprint?”
The allocation of fees and costs between a class and individual plaintiffs raises a host of difficult questions, including 1) can a court force an opt-out to pay a portion of the fees of class counsel? 2) does a court have jurisdiction to require the defendant to pay any portion of any individual settlement with one or more plaintiffs into an escrow account, where a portion of any fee award can be claimed by the counsel for other plaintiffs, depending on the work performed? and 3) if allocation between counsel is somehow permitted, how should non-monetary aspects of settlements be valued, such as agreements to provide a guaranteed source of supply of a particular product?
The judge does, of course, have express case management authority under Rule 16 as well as more general inherent discretionary case management authority. However, the problem in using these case managemnt tools tends to be a lack of information about the precise problems that need to be resolved. Judge Rosenthal pointed out that the judge is typically not in a good position to make that decision without the help of the lawyers because there is usually very little information the economic incentives driving different groups of lawyers. (In what might have been the most quotable quip of the entire program, she implored the three lawyers on the panel, “How do I get you guys to lift up your skirts?”) If there is more transparency by the parties and their attorneys, she argued, a judge would be a better able to allocate costs fairly. Once the problems and incentives are identified, there are case management tools available to incentivize conduct properly, even if a judge does not have direct authority to order one party to pay another’s fees. For example, the judge can help parties to understand the benefits of coordination of efforts voluntarily.
One key question debated by the panelists was whether procedures used in mass tort litigation can be applied to the class action context. On one hand, as one panelist pointed out, the management of class and individual actions in a single MDL raises different challenges than the management of mass tort cases in an MDL. In the mass tort context, one panelist pointed out, all the parties and their attorneys have to be involved in the proceedings from the beginning because of the nature of mass torts as a collection of individual actions. In the class action context, by contrast, individual plaintiffs can wait and see how the class action proceedings develop before having to get involved individually through their own counsel. On the other hand, as with any complex litigation, there are models and protocols that both parties and judges to look to in order to bring efficiencies to the litigation even when not every problem can be solved. While mass tort litigation is not completely analogous it can provide a source of ideas for judicial management of certain problems.
In the end, the point was made that this is not so much an issue of jurisprudence as it is a problem of judicial management. As with any issue with case management, the solutions will develop over time through experience, trial, and error.
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Class Action Reform through Common Sense Constraints on Abuse by the Courts, Achievable Goal or Unattainable Utopia?
Posted in class action reform, Commentary, Other class action blogs, tagged class action, class action abuse, class action reform, class action settlement, costs award, easterbrook, frivolous, professionalism, public policy, sanction, settlement approval, wolfman on August 15, 2012 | 1 Comment »
Brian Wolfman, Co-director of the Institute for Public Representation at Georgetown University Law Center, has two excellent recent posts on Public Citizen’s Consumer Law and Policy Blog that provide food for thought on the need for class action reform, and the best way to achieve reform if it is needed.
In the most recent of the two articles, Paying the Lawyer’s Expenses in Class Actions, Wolfman discusses the social importance of allowing plaintiffs’ attorneys to recover their reasonable costs incurred in successfully pursuing a class action settlement or judgment, but discusses a recent case in which two attorneys from a prominent plaintiffs’ firm were sanctioned for having claimed reimbursement for fancy dinners and first class airline tickets. Wolfman warns about the negative impact that this type of conduct has on public perception of class actions, and makes the valuable point that even minor abuses of the system for personal gain threatens to bring scrutiny to the class action mechanism more generally, which limits access to justice that class actions may provide in meritorious cases.
In an earlier article, Important 7th Circuit Decision Rejecting Shareholder Derivative Suit, Wolfman applauds Judge Frank Easterbrook’s opinion throwing out the settlement of a shareholder derivative suit after finding that the underlying suit lacked merit and should be dismissed. Wolfman makes the point that rather than approving a settlement that provides little or no benefit to class members on the grounds that the merits of the claims are weak, the better solution from a public policy perspective is to dismiss the case entirely. He sums up this point concisely, “[a]n obviously meritless case should not benefit the lawyers and no one else.”
The two articles illustrate two important conceptual principles on which many consumer advocates and corporate interests may find themselves in complete agreement: First, it is the potential for abuse of class actions, and not the class action mechanism itself, that often provides the basis for legitimate criticism. Second, courts can preserve the fairness and integrity of class action mechanism without the need for systematic reform simply by applying common sense restraints in the face of clear abuse. I think that both of these points are correct as a matter of principle, and they are both eloquently illustrated by Wolfman’s posts.
My only question is whether the idea of preventing abuse through the application by the courts of common sense constraints, while pure in theory, is truly realistic in practice. It only works to the extent that all judges will act as carefully and thoughtfully as the judges in the two cases highlighted above. If courts do not dismiss all frivolous cases when a defendant files a motion to dismiss, what choice does a defendant have as a practical matter but to consider buying peace on the best terms possible, which often means paying off the lawyers at the expense of a class that the defendant doesn’t believe was harmed anyway? And, if some courts continue let frivolous claims proceed in the hopes that the parties will settle, or turn a blind eye to small excesses in fee and cost petitions, then basic human nature says that some (but certainly not all) plaintiffs’ lawyers will continue to commit these abuses, and some (but not all) defense lawyers will play along to serve their own interests. In the end, the cynic will question whether relying on the diligence and intellectual honesty of the judiciary and the professional integrity of the bar is a realistic path to reform.
On the other hand, for those of us who are practitioners and not policymakers, professional responsibility, appeal to reason, diligence, and intellectual honesty are the only tools we have at our disposal at maintaining the integrity of the judicial process.
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