Friday, January 20, 2012
The Privatized Attorney General
For years, commentators have compared class action attorneys to "private attorneys general" – a private complement to otherwise overburdened, government actors unable to respond to fraudulent marketing schemes, patterns of employment discrimination, and unconscionable consumer contracts. But, as Myram Gilles and Gary Friedman point out in their forthcoming article in the University of Chicago Law Review, class actions are now “on the ropes.” This is because of the Supreme Court’s April 2011 decision in AT&T Mobility v. Concepcion, which broadly validated arbitration provisions containing class action waivers. The Supreme Court’s ruling means that many of the companies that touch consumers’ day-to-day lives can now place themselves beyond the reach of collective litigation, including “mortgage lenders, health clubs, nursing homes, retail banks ... and the sellers of all manner of goods and services.” After AT&T Mobility, the question remains: who will fill the vast, and growing, enforcement gap once occupied by those “private attorneys general”?
Their intriguing solution: a State Attorney General, with the option to go private. Gilles and Friedman argue that State Attorneys General can represent the interests of their citizens in the same consumer, antitrust, wage-and-hour disputes that have “long provided the staple of private class action practice” through parens patriae lawsuits that are not subject to arbitration clauses. (In parens patriae cases the State AG sues for injunctive relief or damages on behalf of its citizens under common law, or most often, under a state or federal statute.) Although the state generally has to claim that it is seeking funds on behalf of the state, or a substantial population in the state, none of the traditional rules limiting class actions apply. And most intriguingly, those cash strapped or inexpert state AGs can, in turn, hire private attorneys well versed in complex litigation to litigate these cases. That is, AGs can literally deputize the very same private class action attorneys who have long carried the mantle of "private attorneys general." (Perhaps the most famous example of this practice occurred in the course of the national tobacco litigation. Richard P. Leyoub & Theodore Eisenberg, State Attorneys General, the Tobacco Litigation, and the Doctrine of Parens Patriae, 74 Tul. L. Rev. 1859 (2000). But for a recent example, consider the Louisiana AG, Buddy Caldwell, who recently hired private counsel in the multidistrict BP litigation.)
Gilles and Friedman don't claim that class actions are "dead," only on the ropes. Indeed, there still seems to be some signs of life at least for federal actions and even class wide arbitrations. See, e.g., Jock v. Sterling Jewelers, 646 F.3d 113 (2d Cir. 2011) (upholding an arbitrator’s decision to certify an employment class action in arbitration). See also Paul Kirgis' and Jean Stearlight's commentary on the NLRB’s decision to limit waivers in D.R. Horton, Inc. and Michael Cuda. But their article raises several important questions for those interested in the future of complex litigation. If some class actions survive AT&T Mobility, will those class actions and state attorney general suits compete not only for the same funds, but the same private lawyers? How should federal actors -- federal prosecutors and agencies -- who also have power to seek restitution and disgorgment coordinate with state AGs? What mechanisms will ensure that AG’s pick private counsel fairly, transparently and competently? I discuss one more big question, below the jump.
If parens patriae lawsuits take on the role once served by class actions, one big question involves what should happen at the back-end of these big settlements. What happens to the settlement proceeds? Should courts apply the same level of judicial scrutiny as class actions, or a more deferential one in light of the public actors involved? Should victims entitled to receive compensation receive the right to notice or to opt-out? Should there be a res judicata effect on those who do not?
There are some models for what happens on the back end. State AG parens patriae settlements commenced under Hart-Scott-Rodino require “publication” (although not individualized notice), rights to opt out, and have a res judicata effect on those who participate in the settlement. 15 U.S.C. 15(c). There are also offset provisions for duplicative settlements. 15 U.S.C. 15(a).
Other kinds of state AG parens patriae settlements are governed by different state laws. California for one, requires notice, opt-out, and judicial review of attorney general settlements. Cal. Bus. & Prof. Code 16760(b)-(c). However, many, like Washington State, do not. Wash. Rev. Code. 19.86.080. And no state or federal law deals with potential intra-class conflicts.
At first blush, it does not seem like state AGs need to have all procedural safeguards that exist in class actions, which may require more rules to ensure private attorneys adequately represent the interest of non-participating class members. After all, AGs have no independent financial stake in the final settlement. In some cases, Congress has even adopted policies to encourage state AGs to act as watchdogs to ensure class action settlements are fair. Under the Class Action Fairness Act of 2005 (CAFA), for example, class counsel must distribute copies of any class action notice to the DOJ and to all fifty state attorney general offices. See, e.g, 28 U.S.C. § 1715(b) (2006). The rational is that AGs may then intervene to provide an “extra layer of security for the plaintiffs” and to ensure that abusive settlements are not approved without “a critical review.” 151 Cong. Rec. 660 (2005) (statement of Sen. Herb Kohl). To the extent class action rules were designed, in part, to ensure that individuals enforcing the law as “private attorneys general” do so in the public interest, such procedures would seem unnecessary for real attorneys general.
Conflicts will exist, however, even when public officials are charged with representing victims. State AGs may seek quick settlements to resolve embarrassing missteps in regulatory policy, or lack incentives and input to address victims’ interests. Even the most well-meaning AG may lack information necessary to effectively serve different classes of victims. It is, in part, because of those conflicting interests that the Supreme Court has rejected attempts by state attorneys general to recover civil damages on behalf of state residents, absent express authorization from Congress. See Hawaii v. Standard Oil Co., 405 U.S. 251, 266 (1972) (reasoning that there should be sufficient private attorneys to litigate antitrust laws since the statute provides the winning plaintiff with court costs and attorneys fees). But cf. Farmers Grp., Inc. v. Lubin, 222 S.W.3d 417, 422 (Tex. 2007) (discussing insurance-policy class actions which the Department of Insurance, the Attorney General, or a private citizen may bring as authorized by statute).
In the end, the variety of procedural safeguards that exist for parens patriae suits will have to come to grips with the complicated trade-offs that exist in class action litigation between deterrence, compensation, and victim participation. As Gilles and Friedman recognized several years ago, additional procedures to afford victims additional rights to compensation may impact other very important values, like closing the very “enforcement gap” left by the shrinking class action device. See, e.g. Myriam Gilles & Gary Friedman, Exploding the Class Action Agency Costs Myth: The Social Utility of Entrepreneurial Lawyers, 155 U. Penn. L. Rev. 103 (2006).
Posted by Adam Zimmerman on January 20, 2012 at 09:27 AM | Permalink
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You might want to take a look at a very recent decision, State of New York v. Intel Corporation, No. 09-827 (D. Del. Dec. 7, 2011), in which the federal district court dismissed the New York Attorney General's state-law antitrust claims asserted against Intel on behalf of New York consumers.
Posted by: Peters | Jan 20, 2012 10:36:49 AM
I enjoyed this post. The Concepcion case is another move away from the class-action model to enforce the law. I don't think it is dead, but courts and enforcement agencies (see FTC statements from Commissioner Rosch) are increasingly recognizing the abuses and problems of class action law enforcement. A couple years ago I co-authored a law review article on this issue, entitled "The Diminishing Role of the Private Attorney General in Antitrust and Securities Class Action Cases Aided by the Supreme Court." In retrospect, that wasn't a very good title, but you can access it here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1804602
Posted by: Jarod Bona | Jan 20, 2012 5:26:57 PM