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Article Excerpt
INTRODUCTION: REFORM VERSUS COUNTERREFORMATION
I. THE AMERICAN COURTS' CONTRASTING ATTITUDES TOWARD "CLASSIC" CLASS ACTIONS II. MASS WITHOUT CLASS: EXISTING JOINDER ALTERNATIVES UNDER THE FEDERAL RULES A. Rule 20: Permissive Joinder 1. General standards for Rule 20 favor joinder 2. Courts have reached divergent conclusions on application of Rule 20's "transaction" requirement B. Rule 22: Interpleader C. Rule 42: Consolidation/Severance for Common Questions Trials III. CLASS NOUVEAU: EMERGING VARIATIONS ON THE CLASS ACTIONS THEME A. Rule 23(c)(4)(A): "Issues Classes " B. Classwide Punitive Damages Determinations C. The New and Implied Preference for Class Actions over "Representative Actions" in Consumer Cases D. The Class Action Fairness Act (CAFA) E. The "Opt-In" Class CONCLUSION
INTRODUCTION: REFORM VERSUS COUNTERREFORMATION
Class actions have been reformed to death. In Amchem Products Inc. v. Windsor (1) and Ortiz v. Fibreboard Corp., (2) the Supreme Court transformed Federal Rule of Civil Procedure 23(b)(3)'s "superiority" requirement into a mandate of perfection, and reformalized the "limited fund" doctrine beyond practical utility. In the case of Amchem, the perfect was the enemy of the good: the multibillion-dollar settlement, rejected by the Supreme Court, was lost forever, and thousands of claimants who would gladly have traded their pristine due process rights for substantial monetary compensation have been consigned to the endless waiting that characterizes asbestos bankruptcies. The $1 billion in contested insurance coverage that Ortiz attempted to capture for the benefit of asbestos victims has similarly evaporated. Sometimes, reform hurts most those whom it is invoked to assist.
On the legislative front, perennial congressional efforts to "reform" class actions by expanding federal diversity jurisdiction and removing the class action procedure from our state court systems were again revived in light of the outcome of the most recent election. (3) The admitted goal of congressional class action "reform" is to save class actions by destroying them as viable state court proceedings and transferring them (at the whim of any single class member or defendant) to the federal system, where, the lobbyists in favor of "reform," at least, have promised the suits will languish and die. (4)
There have been a few nonpartisan, functional additions and refinements to Rule 23: in the past six years the federal class action rule (5) has gained a discretionary appeals feature, (6) and the 2003 amendments include detailed provisions for governing the content and dissemination of class notice, (7) the appointment and compensation of class counsel, (8) and the specifics of the judicial review and approval process for class action settlements. (9) The states have engaged in their own class action innovations. For example, effective January 1, 2002, California enacted a uniform system of class action-specific Rules of Court that govern procedures in all class actions from the filing of the complaint through discovery, case management, class certification, class notice, trial, settlement, and dismissal. (10)
Unfortunately, the extreme wing of the movement for class action reform has also successfully waged war with fact. A recurring motif, for example, in mass media attacks on class actions is that class action attorneys' fees are too high, despite a massive body of empirical evidence that court-awarded fees in class actions are substantially lower than private contingent fee agreements. (11) Class action fees are substantially lower in real terms (as a percentage of dollars recovered) than private contingent fee contracts (which can range from 30% to 40% of recovery--and higher, in especially risky cases) because judicial recognition of the economies of scale inherent in class actions and judicial sensitivity to class members' interests and public sentiment have caused percentage fees to trend downward as class lawyers' efforts achieve ever larger settlements. (12)
As these "reforms" demonstrate, it is far easier to curb class actions than to avoid or reduce the mass frauds and disasters that create mass misery and the need for workable aggregate litigation mechanisms. Making asbestos victims wait longer for compensation or for their much-vaunted "day in court" does not correspondingly lengthen their life spans, nor increase their tolerance for delay. A new social covenant, fondly desired by corporate interests, would dismantle effective civil litigation enforcement in return for an unenforceable corporate promise to tell only the truth and sell only safe products for fair prices. In effect, it is an offer to replace justice with "just trust us." This "bargain" appears too close at hand for comfort.
Yet recently, there has been a judicial awakening, a dawning recognition that class actions were not the sole remaining barrier to utopia and that class action reform may have been "carried to an excess, that itself will need reforming." (13) The counterreformation has begun. It is taking several forms. First is the path of least resistance, utilizing alternatives to traditional, formal class certification to accomplish at least some of its aggregative and preclusive advantages. (14) This is done through adopting, and adapting, the joinder and aggregation alternatives that exist, most notably, in Rules 19 through 24 of the Federal Rules of Civil Procedure. (15) The second, more straightforward, path is the reclamation and revitalization of "partial" or "issues" class certification under Federal Rule of Civil Procedure 23(c)(4)(A).
Intersecting with this approach is a neoclassical analysis that recognizes practicality as a touchstone and rejects the insistence on perfection as the functional equivalent of superiority under Federal Rule of Civil Procedure 23(b)(3). The most recent judicial example of this trend, the decision affirming class certification in Klay v. Humana, Inc., (16) is discussed in this Article. The neoclassical approach adheres to the textual requirements of class certification under Rule 23 and draws upon decades of jurisprudence to restore rational, comparative analysis to the inherently relativistic (but too often absolutist) determination of Rule 23(b)(3)'s "predominance" and "manageability" requirements. (17)
The last, and newest, approach focuses not on the development of judicial choices through "issues class" analysis under Rule 23(c)(4)(A), or on Rule 23(b)(3) superiority criteria, but on the mechanics of class member choice, harnessing the inherent authority and equity jurisdiction of federal courts to engraft alternative procedures, such as the "opt-in" class, that are neither expressly provided for, nor precluded by, the text of Rule 23 itself.
I. THE AMERICAN COURTS' CONTRASTING ATTITUDES TOWARD "CLASSIC" CLASS ACTIONS
The most recent major opinion on nationwide class action certification authored by a federal appellate court is the Eleventh Circuit's comprehensive decision in Klay v. Humana, Inc., which issued on September 1, 2004. (18) In Klay, a unanimous panel of the Eleventh Circuit affirmed the district (trial) court's certification of a nationwide class of over 600,000 physicians alleging violations of the federal civil RICO (antiracketeering) statute, in connection with major U.S. health care insurers' alleged refusal to make full payment for the physicians' professional services. (19) The Klay class is one of the very largest classes ever certified in U.S. commercial, nonsecurities litigation. Klay signifies the continuing willingness of at least some American appellate courts to recognize the utility and vitality of the representative suit to fairly, efficiently, and cost-effectively provide consistent and binding adjudication of common, recurring questions of fact or law. In recent years, by contrast, some American courts have withdrawn from affirmative embrace of the class action mechanism, in no small part because the mechanism is effective: risk-averse litigants and passive courts seem reluctant to decide important issues in one fell swoop, preferring instead to nibble away at the issues in protracted litigation, hoping that a comprehensive solution will emerge through "market forces." (20)
What is most striking about the Eleventh Circuit's Klay decision is the policy declaration that concludes it. In Klay, the defendants claimed that a class action was inferior to a host of individual suits in resolving the recurring issues of the litigation, invoking the conventional "free market" multitrial approach to mass litigation to argue that "a single jury, in a single trial, should not decide the fate of the managed care industry." (21) An influential 1995 decision, In re Rhone-Poulenc Rorer, Inc., by the Seventh Circuit, had advanced just such a premise in reversing certification of a mass tort class action, because, with a class action,
[o]ne jury, consisting of six persons ... will hold the fate of an industry in the palm of its hand. This jury ... [may] hurl the industry into bankruptcy.... [This] need not be tolerated when the alternative exists of submitting an issue to multiple juries constituting in the aggregate a much larger and more diverse sample of decision-makers. (22) To this, the Klay court responded: We find such reasoning unpersuasive and contrary to the ends of justice. This trial is not about the managed care industry; it is about whether several large HMOs conspired to systemically underpay doctors. The issue is not whether managed care is wrong, but whether particular managed care companies failed to live up to their agreements. The plaintiffs are seeking nothing more than the compensatory damages to which they are contractually entitled, and the treble damages to which they are statutorily entitled. We have nothing but the defendants' conclusory, self-serving speculations to support their claim that this trial could devastate the managed care industry. "Because considering the financial impact of a judgment presupposes success on the merits and requires the trial court to express an opinion on the harshness Vel non [sic] of a particular remedy prior to trial itself, it ought to be allowed only in extreme cases." ... More importantly, however, if their fears are truly justified, the defendants can blame no one but themselves. It would be unjust to allow corporations to engage in rampant and systematic wrongdoing, and then allow them to avoid a class action because the consequences of being held accountable for their misdeeds would be financially ruinous. We are courts of justice, and can give the defendants only that which they deserve; if they wish special favors such as protection from high--though deserved--verdicts, they must turn to Congress. ... Given the number of parties involved in this case, it threatens to degenerate into a Hobbesian war of all against all. Nevertheless, we feel that the district court--a veritable Leviathan--will be able to prevent the parties from regressing to a state of nature. One can only hope that, on remand, the proceedings will be short, though preferably not nasty and brutish. (23)
Klay merits both fulsome quotation and close study, because it signals an abrupt about-face from the previous recessive trend in class action jurisprudence and declares a renewed commitment to centralized case management that does not skew or ignore procedural rules because their application may have profound consequences. As such, Klay is the polar opposite of the judicial attitudes embodied in the Rhone-Poulenc decision with which it took direct issue.
The Rhone-Poulenc decision has been vastly influential in all aspects of class action jurisprudence. Its "free market" attitude toward the maturation of mass torts through repetitive trials in multiple jurisdictions has held sway across the country, (24) in part, it may be suspected, because it absolves reluctant courts of the serious responsibilities and daunting demands of organizing and managing complex litigation to determine common questions in unitary proceedings. In Rhone-Poulenc, the Seventh Circuit's justification in reversing the class action status of a major mass tort was avowedly procorporate. Rhone-Poulenc voiced the concern, found nowhere in the Federal Rules, that a classwide trial on liability that the defendant lost would place it into bankruptcy, or force it to settle, short of trial, because the risk of loss, rather than or in addition to the risk presented by the merits, would force a corporate decision to surrender. Since such pressure would not be present had the company faced only a series of scattered individual trials--with lower consequences of defeat, and repeated opportunities for victory--class actions therefore comprise, in the Rhone-Poulenc analysis, a form of "blackmail." (25)
Utterly absent from Rhone-Poulenc's diatribe against class certification was any recognition that the victims had corresponding rights. Indeed, Rhone-Poulenc and its progeny exhibited no consciousness that consigning common issues to individual adjudication denies due process to the victims of mass wrongs.
The notion of Rhone-Poulenc is that a sample of trial outcomes, garnered from complete trials conducted before many juries in multiple jurisdictions, will eventually yield a market consensus on the viability or settlement value of an average case. (26) The Rhone-Poulenc model posits unfairness to defendants resulting from the classwide trial of an "immature" tort: a case that has not been seasoned through repetitive trials and in which the outcome is unpredictable. This "immature tort" theory has been applied by a number of courts in denying or reversing class certification in mass tort litigation, most notably in tobacco litigation in which the Fifth Circuit, in 1996, declared smokers' claims to constitute an "immature tort" requiring multiple trials rather than class treatment. (27) The Fifth Circuit's decision in Castano v. American Tobacco Co. restates the value judgments inherent in the multiple trial/immature tort model:
In the context of mass tort class actions, certification dramatically affects the stakes for defendants. Class certification magnifies and strengthens the number of unmeritorious claims. Aggregation of claims also makes it more likely that a defendant will be found liable and results in significantly higher damage awards. In addition to skewing trial outcomes, class certification creates insurmountable pressure on defendants to settle, whereas individual trials would not. The risk of facing an all-or-nothing verdict presents too high a risk, even when the probability of an adverse judgment is low. These settlements have been referred to as judicial blackmail. (28)
The Klay court rejected the immature tort theory as a proper consideration in the class certification decision, disapproving recent case law from within the Eleventh Circuit itself. (29) As Klay instead declared, "None of our cases has ever held the 'maturity' of a tort to be a proper consideration in the certification decision.... [W]e reject this as a legitimate consideration in making a 'superiority' determination." (30) The Klay court affirmatively declared that "there is no basis in Rule 23 for arbitrarily foreclosing plaintiffs from pursuing innovative theories through the vehicle of a class action lawsuit.... [A] class action may be the only way that most people can have their rights--even 'innovative' or 'immature' rights--enforced." (31) As the Klay court further observed, if an immature tort truly raised a variety of new or complicated legal questions, then those questions themselves would constitute significant common issues of law, whose "resolution in a single class-action forum would greatly foster judicial efficiency and avoid unnecessary, repetitious litigation." (32) Accordingly, the Klay court saw superior desirability in centralizing the litigation and adjudication of such claims in a single forum, rather than farming them out to a multiplicity of courts for a period of market maturation under the Seventh Circuit model.
With respect to Rhone-Poulenc's articulation of a "hydraulic" pressure on defendants to settle class actions far in excess of the aggregate values of their constituent individual claims, (33) the Klay court sided with the Second Circuit's view on these matters, noting that "[m]ere pressure to settle is not a sufficient reason for a court to avoid certifying an otherwise meritorious class action suit." (34) In the Klay view, settlement pressures had already been taken into account in the structure of Rule 23, through the enactment of the Rule 23(f) appellate provision, "which allowed the defendants to pursue this appeal in the first place." (35) As Klay tartly noted, "Having already used settlement pressure as a basis for getting into this court on interlocutory appeal, the defendants cannot continue to rely upon it as the basis for overturning the underlying certification ruling." (36)
Finally, the Klay court observed that the hydraulic pressure to settle supposedly created by class certification operates in two directions. Overturning an otherwise proper class certification decision for fear of imposing hydraulic pressures on a defendant does not equalize the stakes in a litigation; rather, it turns the hose full force on the plaintiff: "while affirming certification may induce some defendants to settle, overturning certification may create similar 'hydraulic' pressures on the plaintiffs, causing them to either settle or--more likely--abandon their claims altogether." (37) In short, the Klay court recognized that class certification decisions are not supposed to be about the merits, and courts considering class certification in the first instance, or reviewing a class certification decision on appeal, must not choose sides or allow their sympathies to guide their hand in placing a thumb on one of the scales of justice.
The mass production and nationwide marketing of standard products and services creates the potential for massive liability in cases of intentional wrongdoing, negligence, or sometimes mere error. This massive risk goes with the territory in our mass market economy. (38) Voluntary entrants into the market should not expect the courts to protect them from that entrance's consequences. (39) The overarching import of Klay is that, in rejecting the Rhone-Poulenc approach, it recognized the inherent artificiality and unreality of a supposed free market of litigation or a tort maturation process. The civil justice system is one realm in which the vagaries of the market are not intended to hold sway, because the purpose of civil litigation is to correct, not exacerbate or ignore, the harms and errors that sometimes result from market activities.
It is worthwhile to ponder whether the diametrically opposed approaches of Rhone-Poulenc and Klay could be reconciled with some form of a low-stakes, diffuse-market model used to inform the parties of juries' perceptions of the value and merits of the claims before all-or-nothing decisions must be made. A literal Rhone-Poulenc approach is not practicable: the conduct of many trials in many courts throughout the country takes too long, costs too much, and is too disrespectful of the rights of litigants for reasonably cost-effective and expeditious determinations of their claims to be truly feasible, especially in an era in which each side may spend in excess of $1 million in out-of-pocket costs alone, discovery and trial preparation consumes several years, and the trial itself may take weeks or months in each individual case. The asbestos litigation that was the subject of Amchem and Ortiz itself constitutes a horrible example of mass litigation consigned, for much of its life span, to a decentralized litigation marketplace. (40)
Yet, if procedures could be harnessed to mimic the marketplace in a more cost-effective and efficient fashion--if litigation could reach maturity before killing off or bankrupting the litigants--plaintiffs and defendants alike would certainly be interested in the opportunity. There are, fortunately, a number of procedures, many of them developed as alternative dispute resolution mechanisms, that may be employed. A dramatic example of the effectiveness of the "summary jury trial" device, for example, is the recent utilization of a one week mini-trial in the Teleetronics certified class action that was not binding on defendants or the class, but provided both sides with sufficient information to enable them to negotiate a fair and reasonable classwide settlement. (41)
II. MASS WITHOUT CLASS: EXISTING JOINDER ALTERNATIVES UNDER THE FEDERAL RULES
A. Rule 20: Permissive Joinder
Unlike Rule 23(b)(3), the "joinder" rules (42) contain no requirement that common issues predominate. (43) For plaintiffs to be joined, Rule 20 requires simply that their claims arise out of the same transaction or occurrence, or series of transactions or occurrences. While Rule 20 is often presumed to be the functional equivalent of Rule 23(a)(2), which requires that there be one or more "questions of law or fact common to the class," courts have tended to interpret the Rule 20 "transaction" requirement to allow only those claims that share a number of common characteristics to proceed together. The fact that all injuries stem from the use of the same defective product, for example, or the fact that all damages arise from the same discriminatory policy may often, surprisingly, be viewed as insufficient to support joinder. Some cases require no more than exposure to the same injurious product, or, in an employment discrimination case, an injury resulting from a company-wide discriminatory policy. But there is insufficient jurisprudence on Rule 20 joinder in the modern mass tort or complex commercial litigation contexts to declare as established a flexible, open interpretation of the transaction requirement for joinder.
1. General standards for Rule 20 favor joinder
The general standards for the applicability of Rule 20 favor the broad and flexible use of joinder. Rule 20(a) provides, in pertinent part:
All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action. (44)
As the rule suggests, there are two requirements for plaintiff joinder: "First,...
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