Monday, April 1, 2013

The Problem of Settlement Class Actions

I have posted a new paper, The Problem of Settlement Class Actions, on SSRN. It makes the argument that we should abandon settlement-only class actions as a means of resolving mass disputes. The article focuses first on problems of leverage, including would-be class counsel's inability to take the class claims to trial and the monopsony or "reverse auction" problem. Because of the inherent asymmetry of settlement class action negotiations, would-be class counsel does not adequately represent the interests of the absent class members. The article incorporates these leverage concerns into an account of the illegitimacy of settlement-only class certification as a matter of judicial authority. The problems include not only due process concerns of inadequate representation, but also Rules Enabling Act concerns.

Settlement class actions have been an important form of dispute resolution in mass torts (as well as securities, antitrust, and other areas). Despite the Supreme Court's rejection of two asbestos settlement class actions in Amchem and Ortiz, and despite the problems encountered in the fen-phen nationwide settlement class action shortly thereafter, mass tort settlement class actions have never disappeared, and we need only look at the BP settlement class actions in the Gulf Oil Spill litigation for a well-known recent example.

Needless to say, the argument I am advancing faces an uphill battle. It cuts against entrenched interests of defendants, of plaintiffs' counsel, and of judges, all of whom prefer easier paths to comprehensive negotiated resolutions. The argument also cuts against the grain of most recent thinking on this topic. The ALI Principles of the Law of Aggregate Litigation, as well as a recent suggestion under consideration by the Advisory Committee on Civil Rules, would alter Rule 23 to facilitate settlement class actions even in cases that would be uncertifiable for purposes of litigation. Recent cases such as the Second Circuit's 2012 decision in In re AIG Securities Litigation and the Third Circuit's 2011 en banc decision in Sullivan v. DB Investments have taken new liberties with the Supreme Court's Amchem decision. The article explains what is problematic about the direction these cases have taken.

Here is the abstract:

This article argues that class actions should never be certified solely for purposes of settlement. Contrary to the widespread “settlement class action” practice that has emerged in recent decades, contrary to current case law permitting settlement class certification, and contrary to recent proposals that would extend and facilitate settlement class actions, this article contends that settlement class actions are ill-advised as a matter of litigation policy and illegitimate as a matter of judicial authority. This is not to say that disputes should not be resolved on a classwide basis, or that class actions should not be resolved by negotiated resolutions. Rather, this article contends that if a dispute is to be resolved on a classwide basis, then the resolution should occur after a court has found the matter suitable for classwide adjudication regardless of settlement. 

HME

http://lawprofessors.typepad.com/mass_tort_litigation/2013/04/the-problem-of-settlement-class-actions.html

Class Actions, Mass Tort Scholarship, Settlement | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef017d4274509e970c

Listed below are links to weblogs that reference The Problem of Settlement Class Actions:

Comments

I read with interest Professor Erichson's article about settlement only class actions. He has pointed out the problems with the current system and made some nice proposals for future settlements. The real problem lies in the fact that Class Counsel has inherent conflicts of interest when negotiating any kind of class action settlement. The defendants don't have similar ethical concerns when trying to settle, but Class Counsel certainly does. More emphasis should be placed on analyzing Class Counsel's conduct when negotiating the deal, and merely requiring lack of "collusion" sets the bar way too low. Carefully analyzing the actual relationship between Class Counsel and the settling defendant would almost always reveal a cozy relationship that might not be evidence of collusion but is enough to cause concern. Appointing interim class counsel would eliminate this obvious conflict and result in more appropriate settlements.

Posted by: Kip Petroff | Apr 4, 2013 4:07:46 AM

Post a comment