Wednesday, May 6, 2015
Yale Law Journal is publishing a note by Geoffrey Shaw on the latest hot topic in class litigation, class ascertainability. Here's the SSRN abstract:
In recent years, federal courts have been enforcing an “implicit” requirement for class certification, in addition to the explicit requirements established in Rule 23 of the Federal Rules of Civil Procedure. The ascertainability requirement insists that a proposed class be defined in “objective” terms and that an “administratively feasible” method exist for identifying individual class members and ascertaining their class membership. This requirement has generated considerable controversy and prevented the certification of many proposed classes. The requirement has taken a particular toll on consumer class actions, where potential class members are often unknown to the representative plaintiffs, often lack documentary proof of their injury, and often do not even know they have a legal claim at all.
This Note explores the ascertainability requirement’s conceptual foundations. The Note first evaluates the affirmative case for the requirement and finds it unpersuasive. At most, Rule 23 implicitly requires something much more modest: that classes enjoy what I call a minimally clear definition. The Note then argues that the ascertainability requirement frustrates the purposes of Rule 23 by pushing out of court the kind of cases Rule 23 was designed to bring into court. Finally, the Note proposes that courts abandon the ascertainability requirement and simply perform a rigorous analysis of Rule 23’s explicit requirements. This unremarkable approach to class certification better reflects what the Rule says and better advances what the Rule is for.
Our friends at the FJC and Administrative Office of the U.S. Courts, Emery Lee, Catherine Borden, Margaret Williams, and Kevin Scott have posted their latest empirical analysis of multidistrict litigation on SSRN. Here's the abstract:
Following the judiciary's experience with aggregate litigation in the 1960s, Congress established a procedure for the transfer of related cases to a single district court for coordinated pretrial proceedings. Originally designed to achieve efficiencies associated with coordinated discovery, the multidistrict litigation (MDL) process evolved from a rather modest starting point to become a central part of aggregate litigation in the federal courts today. Despite its importance, however, there is little empirical research on the MDL process. This article seeks to fill this gap in the empirical literature by addressing a few central questions about the work of the Judicial Panel on Multidistrict Litigation (Panel). Using a unique database, we examine how that body decided motions to centralize multidistrict litigation. We find, most importantly, that the Panel became more likely to order centralization of proceedings over time, after controlling for other factors. That trend is not, however, apparent in the most recent years' data. We also find, all else equal, that the Panel is more likely to centralize a proceeding including class allegations, and more likely to centralize proceedings raising certain kinds of claims.
Thursday, April 30, 2015
There's been a lot of chatter over the past few years about the greater use of issue classes. The Rule 23 Subcommittee in its recent report (p. 41) indicated that issue classes top its agenda for possible reform and there's been a greater willingness to rely on Rule 23(c)(4) among the circuit courts over the last few years. Much of the scholarship on issue classes thus far, however, has focused on how to use issue classes in conjunction with Rule 23(b)(3)'s predominance requirement. Professor Laura Hines (Kansas) has, for instance, written a series of articles on the topic and there have been several debates in symposium pages, such as DePaul's 2013 symposium.
Whatever side of the debate one adheres to on the to-be-or-not-to-be question, the courts are embracing issue classes. Thus, there remains much work to be done on discerning which issues should qualify for certification, how to think about Seventh Amendment Reexamination Clause questions, and how to compensate plaintiffs' attorneys who initiate issue classes.
I've recently written a paper on issue classes that takes some steps toward fleshing out these problems. The paper is long since it's meant to be a one-stop shop for judges and attorneys on the subject, but here are the critical points worth underscoring:
First, one of the main difficulties of our system is that the focus in massive lawsuits has shifted to the ways in which the plaintiffs are dissimilarly situated, even when the defendant's conduct is uniform. Take the GM ignition switch debacle or the Toyota acceleration cases, for example. Corporate actions are nonindividuated; it doesn't make sense to litigate what GM or Toyota did in 40,000 different cases. (Draft pp 5-8) But defendants have successfully shifted the procedural focus to how their behavior affected claimants, which tends to defeat class certification because common questions do not predominate over individual ones. The issue class has the potential to recapture what is common to the plaintiffs: defendant's conduct--at least so long as that conduct is nonindividuated. One can capture this notion by divvying up the legal elements in any claim or defense as "conduct components," which concern the defendant's conduct, or "eligibility components," which concern a plaintiff's eligibility for relief. (Draft pp 15-29)
Second, by embracing the standard suggested by the ALI's Principles of the Law of Aggregate Litigation, courts can ease the supposed tension (to the extent any remains) between Rule 23(c)(4) and Rule 23(b)(3). (Draft pp 31-32) Courts should certify issue classes where resolving the issue would "materially advance the resolution of multiple civil claims by addressing the core of the dispute in a manner superior to other realistic procedural alternatives, so as to generate significant judicial efficiencies." (Principles, 2.02(a)(1), 2.02 cmt. a, 2.08, 2.08 cmt. a) Predominance is embedded in the "materially advance" language and superiority is included as a condition that certifying the issue would be "superior to other realistic alternatives" such that it "generate[s] significant judicial efficiencies." Moreover, the courts themselves seem to have reached a general consensus on this matter, with even the Fifth Circuit embracing issue classes in In re Deepwater Horizon, 739 F.3d 790, 804 (5th Cir. 2014). (Draft p. 30)
Third, courts must figure out a way to compensate (and thus incentivize) plaintiffs' attorneys. This is perhaps the trickiest part because of both the lack precedent and doctrinal hurdles such as Lexecon. Lexecon presents a special challenge in multidistrict litigation cases where issue classes might prove most useful. Nevertheless, one need not invent a theory out of whole cloth. Charging liens and the common-benefit doctrine provide sound analogies for fashioning a coherent path forward. (Draft pp 42-50)
Finally, there are some hurdles to making issue classes stick, such as preclusion doctrines, adequate representation, and the Seventh Amendment Reexamination Clause. Thus, the paper concludes by suggesting solutions to these problems and arguing that preclusion can provide a way to coordinate dispersed public and private regulators.
As always, comments are welcome (eburch at uga.edu).
April 30, 2015 in Aggregate Litigation Procedures, Class Actions, Current Affairs, Lawyers, Mass Tort Scholarship, Procedure, Products Liability, Tobacco, Vioxx | Permalink | Comments (0) | TrackBack (0)
Thursday, March 19, 2015
Friday, February 6, 2015
Perry Cooper, of the BNA Class Action Litigation Report, published a special report yesterday titled "Issue Classes Swell in Consumer Suits: Are Potential Rewards Worth the Risk?" A subscription is required to read the full article, but it does a nice job of portraying different points of view on the topic - John Beisner and Jessica Miller (Sadden Arps) for the defense, Gary Mason (Whitfield Bryson & Mason) for the plaintiffs, and some of my own views as an academic.
Issue classes have been on my mind for awhile now as well as the minds of many others--the Rule 23 Subcommittee has indicated that the topic tops their list for potential rule changes. As such, I've been working on an article titled "Constructing Issue Classes." I'm still tweaking it, so it's not available for public consumption yet, but for those interested in the topic, here's the gist of it:
Issue classes under Rule 23(c)(4) have the potential to adjudicate collectively what actually unites plaintiffs: defendant's uniform conduct. One can separate the elements of any cause of action into "conduct elements" that relate to the defendant's conduct--what the defendant knew, when the defendant knew it, etc.--or "eligibility elements" that relate to the plaintiff's eligibility for relief--specific causation, damages, etc. When defendant's conduct toward the plaintiffs is uniform, as it was for example in the smelly washing machine cases, then adjudicating elements relating to that conduct collectively can even out resource imbalances between plaintiffs' attorneys and defendants and reduce the possibility of inconsistent verdicts.
As you may imagine, a lot rides on that one trial. Issue classes work by generating two-way preclusion in follow-on cases. In the Ohio "smelly washer" trial against Whirlpool, the defense verdict meant that defendants could preclude class members from relitigating those same issues in subsequent cases. (Granted, the class was limited to Ohio purchasers, but did include some 100,000 consumers.) The high stakes suggest that anytime courts certify an issue for class treatment they should be prepared to allow an interlocutory appeal on the merits (not just the certification question as Rule 23(f) permits). It also means that courts shouldn't certify trivial issues for class treatment. As the ALI in its Principles of the Law of Aggregate Litigation suggest, the issue class should "materially advance the resolution of the claims," which would be the case with regard to most conduct-related questions.
Sunday, December 14, 2014
My colleague Professor Debra Lyn Bassett (Southwestern) has posted to SSRN her article, Class Action Silence, 94 Boston U. L. Rev. 1781 (forthcoming 2014). Here is the abstract:
A number of law review articles have noted the issues inherent in treating class members' failure to opt out as consent to the court's personal jurisdiction or as agreement to a proposed class settlement. Missing from the existing analyses, however, is the "big picture" -- the reality that class action silence is layered, resulting in silence that is repeatedly and inappropriately compounded. At each and every step in class action litigation, absent class members are not just expected, but effectively encouraged, to remain silent. Moreover, at every step, courts interpret class members' silence as consent. The ultimate result is a "piling on" of consents: the expected and encouraged silence is deemed to constitute consent to the filing of the class suit and consent to personal jurisdiction and consent to be bound to any resulting class judgment and consent to the proposed class settlement and approval of the proposed settlement's terms and conditions. Yet this compounded effect occurs under highly ambiguous circumstances, where arguably the most sensible interpretation of class members' silence is not consent, but confusion. The multiple and contradictory meanings of silence render it unreasonable to equate the failure to opt out with consent. The fallacy of repeatedly ascribing consent to highly ambiguous silence should be recognized as a due process danger that potentially can deprive class members of property rights and their day in court.
Saturday, October 4, 2014
I've been a bit slow in posting this, but Louisiana Law Review hosted an excellent symposium last spring titled The Rest of the Story: Resolving the Cases Remanded by the MDL. As part of that symposium, I wrote a piece titled Remanding Multidistrict Litigation. Remands are something that have received scant attention in the scholarly literature, but are a constant hope for many plaintiffs' lawyers involved in multidistrict litigation (well, at least those who aren't on the steering committees).
I just got around to posting the piece on SSRN today. Here's the abstract:
Multidistrict litigation has frequently been described as a “black hole” because transfer is typically a one-way ticket. The numbers lend truth to this proposition. As of 2010, the Judicial Panel on Multidistrict Litigation remanded only 3.425% of cases to their original districts. That number dwindled to 3.1% in 2012, and to a scant 2.9% in 2013. Retaining cases in hopes of forcing a global settlement can cause a constellation of complications. These concerns range from procedural justice issues over selecting a forum and correcting error, to substantive concerns about fidelity to state laws, to undermining democratic participation ideals fulfilled through jury trials in affected communities. Yet, if transferee judges remanded cases after overseeing discovery into common issues, they could alleviate those concerns while avoiding inconsistent rulings on common questions and streamlining discovery.
Despite the potential upside, remand rarely occurs because it disfavors those with litigation control—transferee judges, lead plaintiffs’ attorneys, and defendants. Transferee judges deem settlement a hallmark of their success. Lead plaintiffs’ lawyers try to increase their fees by inserting fee provisions into settlements. Likewise, plaintiffs’ attorneys can bypass doctrinal uncertainties over weak claims by packaging plaintiffs together in a global settlement. And aggregate settlements allow defendants to resolve as many claims as possible in one stroke, take their hit, and return to business, which their shareholders view as a net positive. The remand process itself defers to these vested interests. Although the Panel could remand cases at a party’s request, in practice it appears never to have done so. Rather, it waits for the transferee judge to admit defeat and suggest remand—thereby conceding failure.
For transferee judges to begin remanding cases, the “pro-settlement” norm and “remand-as-a-failure” stigma must change. Accordingly, transferee judges should routinely entertain a suggestion for remand by a party or initiate them sua sponte as soon as discovery on common issues concludes and only case-specific issues remain. Likewise, the Panel should seriously consider parties’ remand requests even when the transferee judge does not support them. This reopens a direct line for parties to request remand when common discovery ends, but the transferee judge prefers to hold cases hostage in hopes of coercing settlement.
Sunday, September 21, 2014
Professors Adam Zimmerman (Loyola Los Angeles) and Dana Remus (North Carolina) have posted to SSRN their article, Aggregate Litigation Goes Private, 63 Emory L.J. 1317 (2014). Here is the abstract:
In Disaggregative Mechanisms, Professor Jaime Dodge documents how corporate defendants increasingly design their own mass resolution systems to avoid collective litigation — what she calls “disaggregative” dispute resolution. According to Dodge, such schemes promise benefits not only to putative defendants, but also to plaintiffs — resolving disputes quickly, handling large volumes of claims predictably, and sometimes, offering more compensation than would be available through aggregate litigation. She observes, however, that these systems also risk underdeterrence. Dodge concludes by endorsing disaggregative mechanisms while suggesting a need for more public oversight.
In the following response, we argue that, left unregulated, such highvolume claim systems threaten transparency, deterrence, and even the rule of law. We therefore agree with Dodge’s call for public oversight. But we observe that a number of policing and oversight mechanisms already exist. Today, lawmakers and regulators police collective arbitration and private settlement funds, in a wide variety of areas — from financial and environmental regulations to employment and consumer protection laws. After reviewing the ways that policymakers currently regulate corporate dispute resolution, we examine their effectiveness by exploring two regulated private settlement systems in more detail: (1) regulations developed by the Obama Administration that require airlines to offer “liquidated damages” using a preapproved settlement grid when they overbook customers on a flight and (2) regulations imposed by the Office of the Comptroller of the Currency following accusations that many of the nation’s largest banks executed “robo-signed” mortgages that required banks to perform a detailed “independent foreclosure review” of past loans with borrowers. These case studies demonstrate both the challenges to, and opportunities for, government bodies that attempt to encourage sound regulation of mass private settlement systems without compromising their potential contributions to increased access, equality, and efficiency.
Monday, August 4, 2014
Professors Charlie Silver and David Hyman have posted their latest article, "Double, Double Toil and Trouble: Justice-Talk and the Future of Medical Malpractice Litigation," on SSRN. Their article studies the people behind the cases: the lawyers. It examines the market for legal services and how recent economic changes have impacted that market. Here's the abstract:
It’s not easy being a lawyer. “Biglaw” may not be dead (yet), but major firms have dissolved, filed for bankruptcy, and shed partners and practice groups. Small and mid-sized firms and solo practitioners are facing similar challenges. Some of these developments are attributable to the financial crisis and the Great Recession. Others are the result of structural and technological changes affecting the market for legal services — and those changes have revealed new weaknesses in the business forms through which lawyers have traditionally delivered legal services. To most inhabitants of Biglaw, these changes and challenges are unprecedented, but to lawyers who do medical malpractice and personal injury litigation, market turbulence of this sort is old hat. Over the past three decades, there have been dramatic changes in the market (and demand) for such services. Some of these changes are clearly attributable to legislative action, including caps on noneconomic or total damages, and procedural hurdles such as screening panels, certification requirements, and interlocutory appeals of expert witness reports. But, even in states that have not taken such steps, there has been a long-term secular decline in the volume of medical malpractice litigation. Apart from the highly visible public brawl over the merits of damage caps, these developments have attracted little attention. However, the dynamics are clear to those who wish to pay attention to them. In this Article, we explore these trends, highlight the ways in which they have interacted with one another, and then briefly discuss why it is not helpful to analyze these developments in terms of their impact on “access to justice.”
Professor Linda Mullenix has posted a new article titled "Designing Compensatory Funds: In Search of First Principles" on SSRN. It takes on several high-profile compensation funds and may have something of interest to say about how GM is designing its own compensation fund. Here's the abstract:
The World Trade Center Victims’ Compensation Fund of 2001 ushered in a new age of fund approaches to resolving claims for mass disasters in the United States. Since then, numerous funds have been created following several mass events injuring large numbers of claimants. The Gulf Coast Claims Facility, created in the immediate aftermath of the BP Deepwater Horizon oil platform explosion, represented a further expansion of fund design and operation. The funds that have been implemented since 2001, including the World Trade Center Fund, have been the object of both praise as well as criticism. Notably, all these funds have been designed and implemented after the events giving rise to a universe of mass claimants. This article suggests that the policy recommendations for future fund design largely fail to address antecedent threshold questions about the nature of the events giving rise to possible recourse to a fund for compensation of claims. Although such compensation funds have been intended to provide an alternative to the tort compensation system and to operate largely outside the purview of the judicial system, instead most fund designs have relied on tort notions of corrective justice that mimic the tort system. However, many funds have in practice entailed mixed theories of corrective and distributive justice, confusing the purpose, utility, and goals of such funds. This article asks fundamental questions about the goals of such funds and whether and to what extent disaster compensation funds comport with theories of justice. It suggests that certain types of mass disaster events ought not to be resolved through fund auspices at all, while only a limited universe of communitarian harms should give rise to such a response. Finally, a communitarian fund designed ex-ante might more fairly be based on theories of distributive justice based on an egalitarian social welfare norm.
Monday, July 14, 2014
Professor Linda Mullenix (U. Texas) has posted to SSRN her article, Ending Class Actions as We Know Them: Rethinking the American Class Action, Emory. L.J. (forthcoming 2014). Here is the abstract:
Class actions have been a feature of the American litigation landscape for over 75 years. For most of this period, American-style class litigation was either unknown or resisted around the world. Notwithstanding this chilly reception abroad, American class litigation has always been a central feature of American procedural exceptionalism, nurtured on an idealized historical narrative of the class action device. Although this romantic narrative endures, the experience of the past twenty-five years illuminates a very different chronicle about class litigation. Thus, in the twenty-first century American class action litigation has evolved in ways that are significantly removed from its golden age. The transformation of class action litigation raises legitimate questions concerning the fairness and utility of this procedural mechanism, and whether class litigation actually accomplishes its stated goals and rationales. With the embrace of aggregative non-class settlements as a primary – if not preferred – modality for large scale dispute resolution, the time has come to question whether the American class action in its twenty-first century incarnation has become a disutilitarian artifact of an earlier time. This article explores the evolving dysfunction of the American class action and proposes a return to a more limited, cabined role for class litigation. In so doing, the article eschews alternative non-class aggregate settlement mechanisms that have come to dominate the litigation landscape. The article ultimately asks readers to envision a world without the twenty-first century American damage class action, limiting class procedure to injunctive remedies. In lieu of the damage class action, the article encourages more robust public regulatory enforcement for alleged violation of the laws.
Wednesday, May 28, 2014
As I've slowly emerged from my grading slump, I've caught up on a number of interesting articles dealing with class actions, two of which are authored by Professor Jay Tidmarsh at Notre Dame. In case you missed them, too, I thought I'd mention them here.
The first is a new take on auctions. Auctions have been proposed and used to pick class counsel, but Tidmarsh proposes using them to increase settlement prices. Once the parties reach a settlement, the court puts the class's claims up for auction. If an entity--presumably a corporation, though perhaps a third-party financier?--outbids the settlement price, that entity purchases the class's rights to sue and can continue to litigate against the defendant. Here's the idea in Tidmarsh's own words in his SSRN abstract:
Although they promise better deterrence at a lower cost, class actions are infected with problems that can keep them from delivering on this promise. One of these problems occurs when the agents for the class (the class representative and class counsel) advance their own interests at the expense of the class. Controlling agency cost, which often manifests itself at the time of settlement, has been the impetus behind a number of class-action reform proposals.
This Article develops a proposal that, in conjunction with reforms in fee structure and opt-out rights, controls agency costs at the time of settlement. The idea is to allow the court, once a settlement has been achieved, to put the class’s claims up for auction, with the settlement acting as reserve price. An entity that outbids the settlement becomes owner of the class’s claims, and may continue to pursue the case against the defendant. A successful auction results in more compensation for the class. On the other hand, if no bids are received, the court has evidence that the settlement was fair. The prospect of a settlement auction also deters class counsel and the defendant from negotiating a sweetheart deal that sells out the class.
The Article works through a series of theoretical and practical issues of settlement auction, including the standards that a court should use to evaluate bids, the limitations on who may bid, and the ways to encourage the emergence of an auction market.
Tidmarsh's second article returns to a long-espoused notion: trial by statistics (or, as Justice Scalia used in the pejorative sense in Wal-Mart Stores, Inc. v. Dukes, "Trial by Statistics."). Here's the abstract, which explains the idea concisely:
“Trial by statistics” was a means by which a court could resolve a large number of aggregated claims: a court could try a random sample of claim, and extrapolate the average result to the remainder. In Wal-Mart, Inc. v. Dukes, the Supreme Court seemingly ended the practice at the federal level, thus removing from judges a tool that made mass aggregation more feasible.
After examining the benefits and drawbacks of trial by statistics, this Article suggests an alternative that harnesses many of the positive features of the technique while avoiding its major difficulties. The technique is the “presumptive judgment”: a court conducts trials in a random sample of cases and averages the results, as in trial by statistics. It then presumptively applies the average award to all other cases, but, unlike trial by statistics, any party can reject the presumptive award in favor of individual trial. The Article describes the circumstances in which parties have an incentive to contest the presumption, and explores a series of real-world issues raised by this approach, including problems of outlier verdicts, strategic behavior by parties, and the parties’ risk preferences. It proposes ways to minimize these issues, including a requirement that the party who reject a presumptive judgment must pay both sides’ costs and attorneys’ fees at trial.
The Article concludes by showing that this approach is consonant with important procedural values such as efficiency, the accurate enforcement of individual rights, dignity, and autonomy.
Friday, May 16, 2014
I posted a new article to SSRN this morning that's been a labor of love for well over a year now. I'm excited about this new piece for a few reasons.
First, it debuts an original data set of all lead lawyers appointed in 72 product liability and sales practices MDLs that were pending as of May 14, 2013. As such, it's the only paper (that I know of) that includes empirical evidence on plaintiffs-side repeat players appointed to leadership positions. (Yes, it includes a list of some of the most entrenched repeat lawyers and law firms as an appendix.) (If this is of interest, have a look at Margaret Williams, Emery Lee, and Catherine Borden's recently published paper in the Journal of Tort Law titled Repeat Players in Federal Multidistrict Litigation, which looks at all plaintiffs' attorneys in MDLs using social network analysis.)
I also explain why appointing a leadership group comprised of predominately repeat players can cause inadequate representation problems. For example, repeat players playing the long game have rational, economic incentives to curry favor with one another, protect their reputations, and develop reciprocal relationships to form funding coalitions and receive client referrals. As such, extra-legal, interpersonal, and business concerns may govern their interactions and trump their agency obligations to uniquely situated clients who could threaten to bust a multi-million dollar deal. Non-conforming lawyers may be ostracized and informally sanctioned, which promotes cooperation, but deters dissent and vigorous representation. Over time, expressing contrary opinions could brand the dissenting lawyer a defector, which could decrease lucrative leadership opportunities. (Other reasons abound, which I explain on pages 25-27 of the paper.)
Second, it provides some much needed guidance for transferee judges. Although the Manual for Complex Litigation remains the go-to guide for transferee judges, it hasn't been updated in 10 years. So much has changed since the fourth edition was published in 2004. Accordingly, in "Judging Multidistrict Litigation," I suggest best practices for appointing and compensating lead lawyers. Judges can compensate lead lawyers on a coherent and more predictable basis by distilling current theories down to their common denominator: quantum meruit. Quantum-meruit awards would align fees with other attorney-fee decisions and compensate leaders based on the value they actually add.
Third, as anyone familiar with the area knows, settlement review in nonclass litigation is controversial at best. After judges expressly deny class certification they then harken back to Rule 23 and their "inherent equitable authority" to comment on settlements. So, employing a quantum-meruit theory for awarding lead lawyers' attorneys' fees would give judges a legitimate private-law basis for scrutinizing settlements. Because courts must evaluate the case's success to determine how much compensation is merited, it could likewise help stymie a trend toward self-dealing where repeat players insert fee provisions into master settlements and require plaintiffs and their attorneys to "consent" to fee increases to obtain settlement awards.
The article is forthcoming in N.Y.U. Law Review in April of 2015, so I still have a bit of time to tinker with it and welcome comments in the interim (eburch at uga.edu). In the meantime, here's the formal SSRN abstract.
High-stakes multidistrict litigations saddle the transferee judges who manage them with an odd juxtaposition of power and impotence. On one hand, judges appoint and compensate lead lawyers (who effectively replace parties’ chosen counsel) and promote settlement with scant appellate scrutiny or legislative oversight. But on the other, without the arsenal class certification once afforded, judges are relatively powerless to police the private settlements they encourage. Of course, this power shortage is of little concern since parties consent to settle.
Or do they? Contrary to conventional wisdom, this Article introduces new empirical data revealing that judges appoint an overwhelming number of repeat players to leadership positions, which may complicate genuine consent through inadequate representation. Repeat players’ financial, reputational, and reciprocity concerns can govern their interactions with one another and opposing counsel, often trumping fidelity to their clients. Systemic pathologies can result: dictatorial attorney hierarchies that fail to adequately represent the spectrum of claimants’ diverse interests, repeat players trading in influence to increase their fees, collusive private deals that lack a viable monitor, and malleable procedural norms that undermine predictability.
Current judicial practices feed these pathologies. First, when judges appoint lead lawyers early in the litigation based on cooperative tendencies, experience, and financial resources, they often select repeat players. But most conflicts do not arise until discovery and repeat players have few self-interested reasons to dissent or derail the lucrative settlements they negotiate. Second, because steering committees are a relatively new phenomenon and transferee judges have no formal powers beyond those in the Federal Rules, judges have pieced together various doctrines to justify compensating lead lawyers. The erratic fee awards that result lack coherent limits. So, judges then permit lead lawyers to circumvent their rulings and the doctrinal inconsistencies by contracting with the defendant to embed fee provisions in global settlements—a well recognized form of self-dealing. Yet, when those settlements ignite concern, judges lack the formal tools to review them.
These pathologies need not persist. Appointing cognitively diverse attorneys who represent heterogeneous clients, permitting third-party financing, encouraging objections and dissent from non-lead counsel, and selecting permanent leadership after conflicts develop can expand the pool of qualified applicants and promote adequate representation. Compensating these lead lawyers on a quantum-meruit basis could then smooth doctrinal inconsistencies, align these fee awards with other attorneys’ fees, and impose dependable outer limits. Finally, because quantum meruit demands that judges assess the benefit lead lawyers’ conferred on the plaintiffs and the results they achieved, it equips judges with a private-law basis for assessing nonclass settlements and harnesses their review to a very powerful carrot: attorneys’ fees.
May 16, 2014 in Aggregate Litigation Procedures, Class Actions, Ethics, Informal Aggregation, Lawyers, Mass Tort Scholarship, Procedure, Products Liability, Settlement, Vioxx, Zyprexa | Permalink | Comments (0) | TrackBack (0)
Thursday, April 17, 2014
The Stanford Journal of Complex Litigation is hosting a symposium, "A Complicated Cleanup: The BP Oil Spill Litigation," on Thursday, May 8, 2014 and Friday, May 9, 2014, at Stanford Law School. The keynote address speaker is Kenneth Feinberg, the Gulf Coast Claims Administrator. Other symposium speakers will include Elizabeth Cabraser of Lieff Cabraser, Professor Francis McGovern (Duke), Professor Linda Mullenix (Texas), Professor Maya Stenitz (Iowa), and myself. Panel moderators will include Stanford Law Professors Nora Engstrom, Deborah Hensler, and Janet Alexander.
Tuesday, March 4, 2014
Louisiana Law Review is hosting a symposium on Multidistrict Litigation this Friday, March 7, 2014, that focuses on remand and may be of interest to our readers. The title of the symposium is "The Rest of the Story: Resolving Cases Remanded by MDL Here's the link for registration and additional information.
Here's the list of Panels and Panelists:
8:25-8:30: Welcome Address & Opening Remarks
- Chancellor Jack Weiss; LSU Law School
8:30-9:30: Panel 1: Collaboration of Judges and Attorneys in MDL Case Management
The panel will discuss how attorneys and judges can successfully collaborate to use disaggregation as a tool of effective case management.
Moderator: Francis McGovern; Professor of Law, Duke Law School
- Judge Eldon Fallon; U.S. District Court for the Eastern District of Louisiana
- Richard Arsenault; Neblett, Beard, & Arsenault
- James Irwin; Irwin Fritchie Urquhart & Moore, LLC
9:40-10:40: Panel 2: Effectively Planning for Disaggregated Discovery
The panel will discuss when discovery issues should be disaggregated for separate resolution, and the costs, benefits, and challenges of reserving issues for separate discovery.
Moderator: Judge Lee Rosenthal; U.S. District Court for the Southern District of Texas
- Mark Lanier; The Lanier Law Firm
- James Irwin; Irwin Fritchie Urquhart & Moore, LLC
- Dean Edward F. Sherman; Tulane University Law School
10:50-11:50: Panel 3: Integrating Aggregated and Disaggregated Discovery Issues
The panel will discuss various kinds of discovery (e.g., E-Discovery, expert discovery, and specific discovery), and the strategic and case management challenges each method presents in the context of MDLs, including both aggregated and disaggregated discovery issues.
Moderator: Mark Lanier, The Lanier Law Firm
- Judge Lee Rosenthal; U.S. District Court for the Southern District of Texas
- Francis McGovern; Professor of Law, Duke Law School
- Richard Arsenault; Neblett, Beard, & Arsenault
- David Jones; Beck Redden, LLP
11:50-12:10: Lunch Break
12:10-1:10: Panel 4: (Lunch Presentation) The Real Story: FJC Data on What the Empirical Data on MDL Remands Shows
Federal Judicial Center researchers will present findings from their research on multidistrict litigation. The analysis will focus on two sets of cases: (1) cases that are considered for transfer but not transferred, and (2) cases that are transferred and that are subsequently remanded back to the transferor court. Understanding these cases, and the cases that are resolved in the transferee court, may provide some insight into the effects of aggregation on various kinds of cases
Moderator: Judge Lee Rosenthal; U.S. District Court for the Southern District of Texas
- Emery G. Lee, III, Federal Judicial Center
- Margaret Williams, Federal Judicial Center
- Catherine Borden, Federal Judicial Center
1:20-2:20: Panel 5: When Remand is Appropriate
The panel will discuss at what stages plaintiffs, defendants, and judges perceive optimal windows to disaggregate various kinds of issues, and the factors that influence the decision and timing.
Moderator: Dean Edward F. Sherman, Tulane University Law School
- Judge Fallon; U.S. District Court for the Eastern District of Louisiana
- Professor Elizabeth Burch, University of Georgia School of Law
- David Jones, Beck Redden, LLP
2:30-3:30: Panel 6: How Remand Should be Effectuated
The panel will discuss how judges and attorneys work together to effectuate remand of MDL cases, including methods for ensuring smooth transitioning of work product, case management, and expertise to state and federal judges upon remand.
Moderator: Francis McGovern; Professor of Law, Duke Law School
- Judge Fallon; U.S. District Court for the Eastern District of Louisiana
- Professor Teddy Rave, University of Houston
- Professor Elizabeth Burch, University of Georgia School of Law
3:30-3:45: Closing Remarks
Monday, March 3, 2014
Torts scholars John Goldberg (Harvard) and Benjamin Zipursky (Fordham) have written a thoughtful analysis of the fraud-on-the-market issue that the Supreme Court will consider this week when it hears oral argument in Halliburton v. Erica P. John Fund. They gave me permission to post their analysis here, which I thought readers would find worthwhile. By breaking down the issues in fraud-on-the-market securities class actions, Goldberg and Zipursky help clarify the link between a defendant's allegedly wrongful conduct and widespread harm that plaintiffs allege was caused by that conduct -- a link that is at the core of mass tort disputes as well as securities litigation.
Parsing Reliance in Securities Fraud
John C.P. Goldberg, Harvard Law School
Benjamin C. Zipursky, Fordham Law School
In Halliburton v. Erica P. John Fund, Inc., to be argued before the Supreme Court on March 5, the Justices could drastically curtail federal-court class-action lawsuits for securities fraud. At issue in Halliburton is the Supreme Court’s 1988 decision in Basic v. Levinson. Basic held that it is not necessary for investors such as the Erica P. John Fund to prove that they actually read and relied upon the particular fraudulent statements alleged to have caused the their losses. Public misstatements by a company like Halliburton have the capacity to defraud the market as a whole and distort the prices for all investors. Basic’s “fraud-on-the-market” theory, as it is called, affords investors who can prove that the defendant made misrepresentations about important matters a presumption that the misrepresentations negatively affected the stock’s value. It is widely agreed that, without Basic’s presumption, securities fraud suits could rarely proceed as class actions. For a variety of reasons – the fact that Congress has weighed in extensively on securities fraud and left Basic untouched, the substantial pro-defendant changes that the Court and Congress have already made to securities fraud law, the expressed wishes of the S.E.C. to retain Basic because of the indirect regulatory force private actions supply, and the value of stare decisis – we think the Court would do best to leave Basic intact. It appears, however, that while some of the Justices may be similarly inclined, others are leaning toward overruling Basic, and others may be looking for a middle ground. With the fate of Basic in play, it is worth getting clear on some aspects of fraud-on-the-market doctrine that have typically been confused, and were in fact confused in Justice Blackmun’s Basic opinion itself.
The first and most important point to make about Basic’s so-called “presumption of reliance” is that it is not one presumption (as we have explained in a recent article offering a detailed analysis comparing securities fraud to common law fraud, see John C.P. Goldberg & Benjamin C. Zipursky, The Fraud-on-the-Market Tort, 66 Vanderbilt L. Rev. 1756 (2013)); Basic’s “presumption” is actually two presumptions (both favoring plaintiffs) and one affirmative defense (favoring defendants). Thus, if the Court decides to rethink “the presumption of reliance,” it will actually be rethinking two or three ideas, not one.
Basic’s first presumption allows a plaintiff to establish a legally cognizable injury by establishing that she bought or sold securities at a market price that was distorted by the defendant’s misrepresentations. This is an important departure from common law fraud, the tort from which the law of securities fraud has evolved. In a suit for common law fraud, it is critical for the plaintiff to establish that she, personally, made a decision in reliance on the information contained in the defendant’s misrepresentations. This is because the core injury at the heart of common law fraud is an interference with a person’s right to make decisions free from deception. Basic’sso called “presumption” of reliance – like many presumptions in the law – departed substantively from this aspect of the common law. A securities fraud plaintiff need not demonstrate that she was misled into believing that certain false propositions were true. Instead, according to Basic, she need only prove economic loss caused by the misrepresentation—that she bought or sold the defendant’s stock at a price distorted by the defendant’s misrepresentations, irrespective of whether she ever learned of the content of the defendant’s false statements.
Basic’s second presumption is evidentiary rather than substantive. It allows securities fraud plaintiffs to use a certain kind of circumstantial evidence to prove that the defendant’s misrepresentations in fact distorted market prices. If a misrepresentation is “material” and disseminated to the public, and if the securities are sold on an “efficient” market, it will be presumed that the misrepresentation caused a price distortion. Like many evidentiary presumptions, the materiality-based presumption of price distortion may be rebutted by evidence that the misrepresentation had no effect.
Justice Blackmun’s opinion in Basic also bundled a third idea into the so-called “presumption of reliance,” but this idea is actually an affirmative defense for the defendant, one akin to the consent defense to the tort of battery and the assumption of risk defense to the tort of negligence. Even if it is established that the defendant’s misrepresentations caused a price distortion and a loss to the plaintiff, the defendant can nonetheless escape liability by proving that the plaintiff was actually aware of the falsity of the misrepresentation and chose to engage in the market transaction nevertheless. Defendant Halliburton’s petition to overrule Basic has nothing to do with this third aspect of Basic.
Halliburton’s challenge to Basic’s presumption of reliance relates to the combination of the substantive and evidentiary presumptions described above. The Court in Basic allowed that materiality (given an efficient market) was enough, from an evidentiary point of view, to create a rebuttable presumption of price distortion, and it additionally concluded – as a substantive matter – that distortion suffices to replace the impact-on-plaintiff finding that reliance fulfills in the common law tort of fraud. It is these two ideas, taken together, that have permitted securities fraud plaintiffs to go forward without direct proof of reliance. Crucially, although Basic itself describes the combined effect of these two presumptions as establishing indirect proof of reliance, that description is inaccurate. Taken together, they instead amount to indirect proof of distortion, not of reliance.
Clarifying the distinction between the evidentiary and substantive aspects of the presumption in Basic is critical for evaluating what is and what is not at issue in Halliburton. Halliburton contends that Basic should be overruled because the efficient-market hypothesis has been rejected by economists during the quarter century since Basic was decided. Whether the efficient-market hypothesis actually has been rejected is a highly contentious issue. Even assuming, however, that it is unsound, that affects only the evidentiary aspect of the presumption of reliance—that is, only the part of Basic which states that material representations in an open market will be reflected in the market’s pricing of securities, and hence can be presumed to have distorted their price. If the evidentiary side of Basic is rejected or modified, that still leaves intact the substantive side of the presumption of reliance – the side which states that price distortion caused by the misrepresentations will suffice in place of individual reliance.
Appreciating the irrelevance of the efficient-market hypothesis to the substantive side of Basic is critically important for two reasons. First, the substantive side of Basic has received little cogent criticism over the decades. The courts that first recognized private rights of action under federal securities laws did so on the ground that those laws were established in the midst of the Great Depression to protect investors from losses resulting from deceptive practices. Under these circumstances, it was eminently sensible for these courts to interpret federal law as including an individual right to be free from economic harm caused by deceptive practices, whether through price distortion or individual reliance. And since then, both Congress and the Court have shown a steady commitment to the substantive side of Basic.
Second, price distortion is a common issue of fact in securities fraud litigation. This means that the securities defense bar’s effort to undermine securities class actions through a critique of the efficient-market hypothesis is misconceived. The alleged shakiness of the efficient-market hypothesis is an argument against the evidentiary side of Basic, not against its substantive side. But the substantive side -- the move from reliance to price distortion – is what makes class actions an appropriate vehicle for 10b-5 claims. If the Court is truly persuaded by the efficient-market hypothesis critique, and is not moved by stare decisis or any other reasons to leave Basic untouched, then it is, at most, the evidentiary side of the presumption of reliance that might bear revisiting. Of course, new questions might then arise at or before trial as to whether event studies or other sorts of evidence will suffice to establish price distortion, but that is a different matter, unconnected to the general question of whether distortion-based 10b-5 claims can be adjudicated as class actions.
The wrong of causing economic loss through misrepresentations that distort market prices is not identical to common law fraud. But it is closer to what Congress actually sought to protect in the Securities Exchange Act, it is consistent with what Congress has very thoughtfully kept alive in its more recent securities legislation, and its justifiability has nothing to do with the soundness of the efficient-market hypothesis. So long as this wrong remains the core of 10b-5 claims, class actions will continue to be an appropriate means for resolving them.
Wednesday, October 2, 2013
In the human rights litigation over Argentina's "dirty war" of the 1970s and 1980s, a dispute over personal jurisdiction has reached the Supreme Court and will be argued on October 15 (DaimlerChysler AG v. Bauman). A group of Argentinian plaintiffs sued DaimlerChrysler AG, alleging that the company's Argentinian subsidiary participated in kidnappings and other serious wrongdoing. They sued in the Northern District of California. On the question of personal jurisdiction, the Ninth Circuit held that DaimlerChrysler was subject to general jurisdiction in California based on the contacts of its US subsidiary, Mercedes Benz USA. The Supreme Court granted certiorari to resolve the jurisdictional question.
The Vanderbilt Law Review has published an online roundtable concerning the case, and the initial papers -- by Donald Childress, Burt Neuborne, Suzanna Sherry, Linda Silberman, and myself -- are now available on the Vanderbilt Law Review En Banc website. My own contribution, entitled The Home-State Test for General Personal Jurisdiction, takes a strong view that the Ninth Circuit got it wrong. General jurisdiction over corporations requires a home-state relationship; it should not be founded merely on the contacts of a subsidiary acting as an agent, or on the fact that a company has a substantial presence or does substantial business in the forum state (even if that business is "continuous and systematic," to use the ambiguous and misleading language that the Supreme Court should finally abandon as a description of the sort of relationship that justifies general jurisdiction).
Thursday, September 5, 2013
No procedural topic has garnered more attention in the past fifty years than the class action and aggregation of plaintiffs. Yet, almost nothing has been written about aggregating defendants. This topic is of increasing importance. Recent efforts by patent “trolls” and BitTorrent copyright plaintiffs to aggregate unrelated defendants for similar but independent acts of infringement have provoked strong opposition from defendants, courts, and even Congress. The visceral resistance to defendant aggregation is puzzling. The aggregation of similarly-situated plaintiffs is seen as creating benefits for both plaintiffs and the judicial system. The benefits that justify plaintiff aggregation also seem to exist for defendant aggregation — avoiding duplicative litigation, making feasible negative-value claims/defenses, and allowing the aggregated parties to mimic the non-aggregated party’s inherent ability to spread costs. If so, why is there such resistance to defendant aggregation?
Perhaps, contrary to theoretical predictions, defendant aggregation is against defendants’ self-interest. This may be true in certain types of cases, particularly where the plaintiff’s claims would not be viable individually, but does not apply to other types of cases, particularly where the defendants’ defenses would not be viable individually. These latter cases are explained, if at all, based on cognitive limitations. In any event, defendant self-interest does not justify systemic resistance to defendant aggregation. Likewise, systemic resistance is not warranted because of concerns of weak claims or unsympathetic plaintiffs, the self-interest of individual judges handling aggregated cases, or capture by defendant interests. This Article proposes that to obtain the systemic benefits of defendant aggregation and overcome the obstacles created by defendant and judicial self-interest, cognitive limitations, and capture, defendant aggregation procedures should use non-representative actions, provide centralized neutral control over aggregation, and limit aggregation to common issues. This Article concludes with a modified procedure to implement these principles: inter-district related case coordination.
Arguments that we have too much litigation (overclaiming) or too little (underclaiming) cannot be valid without estimating how many of the undecided claims that are brought (actual claims) or not brought (potential claims) have or lack legal merit. We identify the basic conceptual structure of such underclaiming and overclaiming arguments, which entails inferences about the distribution of actual or potential claims by their probability of success on the merits within a claims-processing institution. We then survey the available methods for estimating claim merit.
Wednesday, September 4, 2013
For those of us making brief reference to Ronald Coase in our Torts classes, here are a few links to helpful takes on Coase's scholarship and influence, in the wake of his recent passing: (1) Wall Street Journal editorial, The Wisdom of Ronald Coase; (2) Professor David Henderson (Naval Postgraduate School & Hoover Institution), The Man Who Resisted 'Blackboard Economics' (also in the WSJ); and (3) Cato Senior Fellow Walter Olson's post, Ronald Coase, 1910-2013.