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:

Thisarticle argues that class actions should never be certified solely for purposesof settlement. Contrary to the widespread “settlement class action” practicethat has emerged in recent decades, contrary to current case law permittingsettlement class certification, and contrary to recent proposals that wouldextend and facilitate settlement class actions, this article contends thatsettlement class actions are ill-advised as a matter of litigation policy andillegitimate as a matter of judicial authority. This is not to say thatdisputes should not be resolved on a classwide basis, or that class actionsshould not be resolved by negotiated resolutions. Rather, this article contendsthat if a dispute is to be resolved on a classwide basis, then the resolutionshould occur after a court has found the matter suitable for classwideadjudication regardless of settlement. 

HME