"Resolvability": a New Approach to Regulating Class Actions
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Scholarship Repository University of Minnesota Law School Articles Faculty Scholarship 2005 From "Predominance" to "Resolvability": A New Approach to Regulating Class Actions Allan Erbsen University of Minnesota Law School, [email protected] Follow this and additional works at: https://scholarship.law.umn.edu/faculty_articles Part of the Law Commons Recommended Citation Allan Erbsen, From "Predominance" to "Resolvability": A New Approach to Regulating Class Actions, 58 VAND. L. REV. 995 (2005), available at https://scholarship.law.umn.edu/faculty_articles/421. This Article is brought to you for free and open access by the University of Minnesota Law School. It has been accepted for inclusion in the Faculty Scholarship collection by an authorized administrator of the Scholarship Repository. For more information, please contact [email protected]. VANDERBILT LAW REVIEW ________________________________________________________________________ VOLUME 58 MAY 2005 NUMBER 4 _________________________________________________________________ From “Predominance” to “Resolvability”: A New Approach to Regulating Class Actions Allan Erbsen* I. INTRODUCTION .................................................................... 997 II. THE IMPLICATIONS OF DISSIMILARITY FOR THE LITIGATED AND NEGOTIATED VALUATION OF CLASS MEMBERS’ CLAIMS..............................................................1007 A. A Thought Experiment Confirming the Distorting Effect of Dissimilarity.............................................1007 B. Trial Distortions: Cherry-Picking, Claim Fusion, and Ad hoc Lawmaking.............................1009 C. The Distorting Effects of Dissimilarity on Valuation of Class Action Settlements ...................1014 1. Ineffective Monitoring.................................1015 2. Tainted Bargaining .....................................1017 _______________________________________________________________________ * A.B. 1994, J.D. 1997, Harvard University. Associate Professor, University of Minnesota Law School. Thanks to John Goldberg, Jill Hasday, Pam Karlan, Alan Morrison, Richard Nagareda, Robert Rasmussen, Martin Redish, Judith Resnik, David Rosenberg, Suzanna Sherry, and participants in the Stanford/Yale Junior Faculty Forum at Stanford Law School and at faculty workshops at the University of Minnesota Law School and Vanderbilt Law School for helpful comments on an earlier draft. 995 996 VANDERBILT LAW REVIEW [Vol. 58:4:995 III. PRINCIPLES THAT SHOULD SHAPE RULES GOVERNING THE EFFECT OF INDIVIDUALIZED ISSUES ON CLASS CERTIFICATION DECISIONS.................................................1023 A. The Finality Principle: A Certified Class Action Seeking Damages Should Eventually Result in a Judgment Resolving the Claims of All Class Members..................................................................1025 B. The Fidelity Principle: A Class Member Should Not Receive a Favorable Judgment Unless He or She Can Prove the Substantive Elements for a Cause of Action and Survive Any Applicable Defenses...................................................................1034 C. The Feasibility Principle: Attempts to Adjudicate Class Actions Should Occur Within Resource and Management Constraints ................................1046 D. Synthesis of the Three Principles ...........................1049 IV. INCONSISTENCIES BETWEEN CLASS CERTIFICATION PRINCIPLES AND EXISTING CLASS CERTIFICATION RULES AND DOCTRINE ...................................................................1050 A. The Origins and Role of the Predominance Test....1050 B. Defects in the Predominance Concept.....................1058 C. The Failure of Additional Rule 23 Certification Criteria to Cure Defects in the Predominance Standard.................................................................1068 1. Typicality.....................................................1068 2. Manageability..............................................1070 D. Doctrinal Consequences of Judicial Reliance on Predominance .........................................................1071 1. Doctrine De-emphasizing Individualized Damages ......................................................1072 2. Doctrine Under-Weighting Individualized Defenses.......................................................1074 3. Doctrine Postponing Conflict of Laws Analysis .......................................................1076 V. PROPOSED REVISION TO RULE(23)(B)(3) AND IMPLICATIONS.....................................................................1080 A. The “Resolvability” Test..........................................1080 B. Avenues for Further Scholarship............................1085 2005] REGULATING CLASS ACTIONS 997 I. INTRODUCTION Class actions incite both delight and disgust. Several complementary themes in popular culture embrace the class action, including sympathy for underdog litigants challenging powerful malefactors, fascination with massive redistributions of wealth from corporations to individuals, and reluctance to permit large and influential wrongdoers to escape justice merely because of their size and clout. Class actions have thus become an appealing procedural counterweight to the burdens that modern society imposes on consumers and citizens, giving many little Davids a fighting chance for protection from or retribution against political and economic Goliaths. But class actions also expose and rile competing visions of the judicial system: suspicion of large-scale judicial proceedings, wariness of high-paid plaintiffs’ lawyers, and a sense that society may subsidize the jackpot payouts that often result from group litigation and settlement. These crosscurrents of attraction and repulsion have propelled class actions to a level of political and academic prominence far exceeding the attention devoted to any other aspect of civil procedure. Despite the critical attention focused on class actions, the debate over how best to reform them has not identified a conceptual flaw at the core of their design. Academic scrutiny of class actions over the past sixty years has usually built upon three overlapping themes: the potential utility and fairness (or disutility and unfairness) of aggregating individual claims as a solution to collective action problems that inhibit enforcement of substantive rights, the extent and significance of agency costs and diminished individual autonomy in representative litigation, and the relative roles that courts, legislators, and administrative agencies should play in redressing widespread injuries. These themes at an abstract level frame the debate over whether class actions are desirable as a matter of public policy, and at a technical level frame arguments for or against the myriad procedural reforms that scholars and legislators have proposed to expand, curtail, or manage class litigation.1 However, analysis of _______________________________________________________________________ 1. A vast and growing literature analyzes the structure, role, and utility of class actions (as well as other aggregative devices) and proposes an equally vast array of regulatory, remedial, and procedural reforms to federal and state laws governing the prevention and remediation of injuries affecting large groups. Among the many excellent contributions to the field are: DEBORAH R. HENSLER ET AL., CLASS ACTION DILEMMAS: PURSUING PUBLIC GOALS FOR PRIVATE GAIN (2000); John C. Coffee, Jr., Class Action Accountability: Reconciling Exit, Voice, and Loyalty in Representative Litigation, 100 COLUM. L. REV. 370 (2000) [hereinafter Coffee, Accountability]; John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM. L. REV. 1343 (1995) [hereinafter Coffee, Class Wars]; John C. Coffee, Understanding the Plaintiffs’ 998 VANDERBILT LAW REVIEW [Vol. 58:4:995 whether and how to reform class actions often overlooks a critical theoretical concept that has little direct connection to either the collective action, agency cost, or institutional role strands of class action scholarship. This Article seeks to correct that theoretical oversight, to explore some of its practical implications, and to demonstrate how rethinking the principles that animate class actions reveals a novel avenue of class action reform. The pivotal issue in most proposed class actions seeking damages is whether class members’ factual and legal circumstances are sufficiently alike to permit resolution of contested claims and defenses collectively rather than through traditional case-by-case adjudication. This issue of “alikeness” arises because the factual circumstances of multiple plaintiffs seeking to join in a single proceeding are seldom precisely the same. Factual distinctions at various levels of subtlety and materiality usually permeate the legal claims of putative class members, such that their collective claims ________________________________________________________________________ Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 COLUM. L. REV. 669 (1986) [hereinafter Coffee, Private Enforcement]; Kenneth W. Dam, Class Actions: Efficiency, Compensation, Deterrence, & Conflict of Interest, 4 J. LEG. STUD. 47 (1975); Richard A. Epstein, Class Actions: Aggregation, Amplification, & Distortion, 2003 U. CHI. LEG. F. 475 (2003); Owen M. Fiss, The Political Theory of the Class Action, 53 WASH. & LEE L. REV. 21 (1996); Samuel Issacharoff, Governance and Legitimacy in the Law of Class Actions, 1999 SUP. CT. REV. 337; Harry Kalven, Jr.