Governance v. Property

So in my previous post I paid tribute to Richard Nagareda and, in particular, his contribution to the ALI's Principles of the Law of Aggregate Litigation.  I tried to show that the Principles reflect two major themes of Nagareda's scholarship: (1) mass torts and similar complex litigation all share a common problem of "governance," and (2) correcting this problem requires primarily corrections to the "design" of existing procedures.    

In my current draft, entitled "Mass Torts and Due Process," I argue that "governance" does not fully capture the difficulty of mass torts.  Instead, I argue that mass torts present a "property" problem.  So why do I think "property," not "governance," tells a better story?  To answer that question, I have to take a detour and discuss the work of one of Nagareda's foils, David Rosenberg.

To recap, Nagareda understood mass torts as providing a "governance" problem because they involved parties with interests that were both divergent and interdependent.  Take asbestos litigation.  Due to the mass production of asbestos containing products and long latency periods for asbestos-related injuries (think decades), asbestos manufacturers injured a large number of individuals whose injuries were temporally dispersed.  Some manifested injury relatively quickly (call these the "presents"), while others were exposed to asbestos but took some time to manifest injury, if at all (call these the "futures").  

What if the manufacturer wanted to settle all of its asbestos liability at a given point in time?  It could settle with each of the presents, but cannot do so with the futures, at least not easily.  Suppose, however, that a class action was brought on behalf of a class of all individuals exposed, including the presents and futures?  The manufacturer could reach a global settlement with the class and "quiet title" as to its asbestos liability, so to speak.  Well, the global settlement class action approach was rejected by the Supreme Court in Amchem, and it is easy to see why.  What's to stop the presents from biasing any settlement in their favor?  In fact, what's to stop the class attorneys from selling out the class for pennies on the dollar, a problem that the Court will highlight in a later decision, Ortiz v. Fibreboard.  These conflicts reflect a "governance" problem - how do you set up governing structures to adequately take into account the interests of everyone in the litigation?  Class actions seem only to exacerbate the "governance" problem, not solve it.

David Rosenberg, who is primarily a tort scholar, viewed mass torts differently.  He focused less on the differences among the plaintiffs and more on what they had in common.  In particular, and despite their differences, the plaintiffs all shared a number of fact and legal issues as to liability, such as whether the manufacturer had knowledge of the dangers of asbestos, or whether asbestos caused certain diseases.  A plaintiff going alone will invest in those issues to increase their likelihood of recovery, but only to a point. To take a simple example, if the total recovery runs around $500K, the plaintiff is not going to hire a $1M expert.  The defendant, in contrast, will invest much more on common issues.  The defendant has to account for more than the plaintiff before it.  So if the liability associated with a common issue is $100M, the defendant will not hesitate to hire a $1M expert, or $2M expert, or whoever is the best out there.  Because of these asymmetric stakes, to borrow a phrase by Robert Bone, defendants have an inherent advantage in mass tort litigation.  Rosenberg has discussed this problem of asymmetric stakes in a number of articles, perhaps most forcefully in a response to a piece by Richard Nagareda in the Harvard Law Review.

As I argue in my draft, the problem of asymmetric stakes is best understood as a "property" problem.  The reason the defendant has greater incentive to invest in common issues is because it effectively owns all of the liability associated with those issues.  By contrast, each plaintiff only owns a partial amount of the recovery associated with a common issue.  Thus, the defendant can exploit economies of scale to invest in common issues that the plaintiff cannot, at least alone.  Of course, plaintiffs can aggregate to match the scale of the defendant's ownership, but that is rarely possible.  The futures do not have a "claim" to aggregate until they manifest injury, there are high transaction costs to aggregating, and, most importantly, there is strategic behavior.  Some plaintiffs, frankly, would rather go alone then aggregate with the others, making everyone worse off.  This mismatch in scale between the ownership unit of the resource (the claim for damages) and the scale at which the resource is most efficiently used (collectively, at least for common issues) is a common feature of commons/anticommons situations.  Thus, mass torts present a "property" problem, one caused by the individual ownership of each plaintiff's tort claim.

So why does this matter?  Conceived as a "governance" problem, class actions are disfavored.  But as a "property" problem, class actions can correct the problem of individual ownership of the claims by, in effect, judicially assigning legal title to all of the claims to a third party, class counsel.  In this way class counsel can invest in common issues at the same scale as the defendant.  In fact, to avoid an "anticommons" problem where a plaintiff threatens defection by opting out, the class action ideally would be mandatory.

Of course, reconceiving "mass torts" as a "property" problem does not completely do away with the problems identified by the "governance" lens.  In fact, a mandatory class action will require some plaintiffs to recover less than they otherwise would going alone, and prohibit any escape from the potential inadequate representation of class counsel.  How do I account for these deficiencies?  I will address these points in the next post.