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Thursday, November 01, 2012

Am I Getting What I Want?

I want to thank the good folks at Prawfsblawg for allowing me to blog here this month.  I apologize for not posting more, but I was unusually busy with projects this semester.  

One reason why I was so busy is because I was asked by SCOTUSBlog to cover Comcast v. Behrend, a class action case involving whether admissible, common proof of injury is necessary to certify an antitrust class action.  My argument preview is already up, and can be accessed here.

I had promised to blog on the filibuster, but you will have to wait for my paper to come out, which is co-authored with filibuster expert Greg Koger.  I want to end my stint with a bit of intellectual honesty.  

I have argued in prior articles for the use of mandatory class actions when the stakes are asymmetric, such as in mass tort litigation, where thousands of plaintiffs have to prove some or all of the same elements of liability against a single defendant.  Very briefly, collective actions prevent the plaintiffs from using economies of scale to invest in common issues, and defendants do not have those problems because they are the only one who has to disprove common issues.  The class action solves this problem of asymmetric stakes by empowering the attorney to dispose of all the plaintiffs' claims and giving her a percentage interest in the net recovery.  In doing so, the class attorney has the same incentives to invest in common issues as the defendant.  

The same problem arises in litigation involving small claims, such as antitrust litigation.  Thus, I have argued that courts should not require proof of classwide injury for class certification purposes because the class needs certification to invest in the merits.  Thus, class certification should occur before any merits determination, not after.  

I continue to believe this, but, in an odd way, a requirement of proof of classwide injury for litigaiton involving small claims may result in the very mandatory class action I have argued for in my articles.  Here's how.  The main problem with a nonmandatory, opt-out class action is that class members can opt out and free ride on investments in common issues, thereby reducing the incentives of those who actually invest in those issues.  Because freeriders can't be taxed for benefiting from common investments, the actual investors have less incentive to invest.  But freeriding in a small claims class action is nonexistent - either the case is litigated as a class action or no litigation occurs at all.   "[O]nly a lunatic or fanatic sues for $30."  Moreover, my sense is that competing class actions in small claims litigation rarely occur, at least for class actions based on federal law like antitrust class actions, and thus "reverse auctions" are not prevalent, but I could be wrong on this.

Finally, because the class attorney cannot settle all of the plaintiffs' claim prior to getting class certification, the class attorney has to litigate all the way to class certification.  Because courts after Wal-Mart are requiring proof of the merits for certification purposes, an award of class certification is effectively a merits determination, akin to summary judgment.  If that's the case, then the parties are forced to litigate the class action entirely, which avoids situations where the defendant settles the claim solely to avoid litigation costs unrelated to the merits.  In fact, by preventing settlement prior to the de facto summary judgment hearing, the plaintiff is prevented from filing a meritless class action to extract a blackmail settlement from the defendant.  

Thus, counterintuitively, requiring proof of the merits in a small claims class action may work.  It may result in a de facto mandatory class action where the parties are required to litigate at least through summary judgment.  But, that said, a lot of things have to go right.  Again, there can't be competing class actions to create free-riding opportunities.  Moreover, the class attorney must not sell out the de facto class prior to certification by agreeing to drop the suit for a payment, which, if he is rational and has adequate financing, she would not do.  The class respresentative also cannot agree to drop the suit, which would destroy the de facto mandatory class action I envision, but that is much, much harder (maybe even impossible) to guarantee.   Finally, the de facto merits determination at the time of certification must really be based on the merits.  However, many courts have noted the distinction between proof of classwide injury and proof that "common issues predominate," which is usually how proof of classwide injury comes in.  If courts want something more than the merits, something that effectively makes it impossible to certify a class in a certain area, then this de facto mandatory class action cannot possibly work.

But, if all of these things hold up, and this is a big if, this results in two ironies.  First, mandatory class actions are necessary for mass tort litigation, but not for small claims litigation.  Thus, it should be easier to certify mass tort litigation than small claims litigation, not harder.  Second, defense attorneys have to be careful about what they wish for.  Requiring stricter requirements for certification may result in the very thing plaintiffs' attorneys have wanted for years.  

It has been a pleasure, as always, to blog here.  And I am doubly blessed because I have a job where I think about these issues freely.  I look forward to your comments.

Posted by Sergio Campos on November 1, 2012 at 12:27 PM | Permalink

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