Assembling class actions.

• Author: Issacharoff, Samuel
• Position: F. Hodge O'Neal Corporate and Securities Law Symposium: The Future of Class Actions

ABSTRACT

Five times in the past few years, the Supreme Court has engaged the propriety of class actions. (1) Taken together, these cases revisit certain core issues in class action law, all turning on the need and justification for grouping individuals as part of a collective entity for litigation purposes. When examined from the perspective of legal treatment of individuals as part of a collective--assembling the class action, in the terminology of the title--three distinct aspects of class organization stand out. First, the existence of a litigation entity requires that someone be in charge, and that in turn raises the problem of how to ensure the faithfulness of the appointed agent. Second, the decision to forge a litigation entity necessarily empowers one side of the dispute relative to the other side, and that requires some justification. And, finally, even when litigation entities exist, class action law must come to terms with the range of individual autonomy that should still be recognized, including the ability to contract out of collective representation.

As developed in the difficult recent class action cases, the questions of leadership, underwriting, and autonomy help define how modern class action practice endeavors to provide equality of treatment and predictability in the interaction between the individual insults of aggrieved citizens and the undiscriminating consequences of mass society.

1. INTRODUCTION

   In his classic work, The Common Law, (2) Oliver Wendell Holmes set about to explain the newly emerging field of tort law. Although the principles of compensation for accidents were well-known at the common law for centuries, only in the 19th century did these principles become recognized as an autonomous and significant branch of legal inquiry. Holmes sought to define the world of reasonable care, duties, and compensation--what we now understand as the pillars of the tort law--by invoking Brown v. Kendall, a noteworthy case written by the highly regarded Judge Lemuel Shaw. (3) Brown v. Kendall involved a classic once-occurring harm in which a man raising a stick to separate two fighting dogs accidentally struck and injured a bystander. (4) For Holmes, the object of the law was to provide incentives toward reasonable care to avoid such haphazard events, and then to provide compensation for the harm suffered by the unfortunate victim. (5)

   Even in its early exposition, however, tort law had to confront sources of harm well removed from the random events of life among strangers. For Holmes, this meant that almost as soon as he set out his basic principles, he had to anticipate that the events giving rise to claims under tort law might have a different origin. In the place of random events, Holmes conjectured that the legal treatment of duties and compensation might not emerge from such a particularized individual quality:

   If ... the ordinary liabilities in tort arise from failure to comply with fixed and uniform standards of external conduct, it is obvious that it ought to be possible, sooner or later, to formulate these standards at least to some extent, and that to do so must at last be the business of the court.... Facts do not often exactly repeat themselves in practice; but cases with comparatively small variations from each other do. (6) Fewer than twenty years later in his The Path of the Law address of 1897, (7) Holmes returned to explore the significance of mass repetitive injury to flesh out this early insight. In so doing, Holmes introduced a deeper account of the object of tort law. This time, his thinking about the objectives of the law had changed, and he abandoned his view that the organizing principle of the field should be chance interpersonal encounters. (8) In its place, Holmes turned to the burgeoning problem of mass society and the apparently inevitable onslaught of injuries thrown off by the progress of industry.

   Our law of torts comes from the old days of isolated, ungeneralized wrongs, assaults, slanders, and the like, where the damages might be taken to lie where they fell by legal judgment. But the torts with which our courts are kept busy to-day are mainly the incidents of certain well known businesses. They are injuries to person or property by railroads, factories, and the like. The liability for them is estimated, and sooner or later goes into the price paid by the public. The public really pays the damages, and the question of liability, if pressed far enough, is really the question how far it is desirable that the public should insure the safety of those whose work it uses. (9) Now, all of a sudden, the injured party might still be unknown ahead of time, and might have personal or even idiosyncratic reactions to the particular injury. But the fact that there would be some individual in this circumstance was known ahead of time as a statistical certainty. The ensuing harm could no longer be seen as simply a random occurrence between the victim and the tortfeasor but was instead a matter of statistical probability. For Holmes, this meant that the tort law acquired the qualities of insurance and accountancy, fields that were learning to fix the cost of accidents within the product market. (10) And, moving forward, as the statistical certainties of injuries in mass society would continue to grow, the individual component of any particular claim would be diminished, even if we would still want our legal systems to honor the individual victim.

   More than a century later the law governing mass harms continues to be torn between the conflicting impulses in Holmes's early rendition of tort law. All Western legal systems take the individual to be the core of their rules, responsibilities, and rights. This individual focus, however, fits uncomfortably with the reality of mass society and poses fundamental challenges to these legal systems, which are designed to protect individual rights and incentivize the behavior of individuals. This is by no means unique to the law of torts or physical harms. Individual consumers, for example, have an inherent inability to protect themselves effectively from the improper or fraudulent conduct of a distant and usually more financially powerful seller. (11) Traditional contract notions premised on negotiation, a bargained offer and acceptance, and a meeting of the minds poorly fit the mass production of goods and services in advanced economies. Such limitations have put pressure on legal systems to innovate in response to the changing needs of society and to expand the traditional, party-bound notion of litigation.

   I will use the core tension in addressing individual rights within the aggregate as an organizing principle around which to discuss three areas of contemporary class action controversies. In a short period, the Supreme Court handed down five significant opinions on class actions (12) that together make the biggest impact on the field since the landmark cases of Amchem Products, Inc. v. Windsor (13) and Ortiz v. Fibreboard Corp. (14) Taken together, these cases revisit certain core issues in class action law, all turning on the need and justification for treating individuals as part of a collective entity for litigation purposes. When examined from the perspective of legal treatment of individuals as part of a collective--assembling the class action, in the terminology of the title--three distinct aspects of collective organization stand out, and will organize the discussion of the new class action jurisprudence. First, the existence of a litigation entity requires that someone be in charge, and that in turn raises the problem of how to ensure the faithfulness of the appointed agent. Second, the decision to forge a litigation entity necessarily empowers one side of the dispute relative to the other side, and that realignment of litigation prospects requires some justification. And, finally, even when litigation entities exist, class action law must still come to terms with the range of individual autonomy that should still be recognized, including the ability to contract out of collective representation.

2. REPRESENTATION AND THE PROBLEMS OF AGENCY

   We can think of the modern era of class action law as taking up where Holmes' early insights left off. Beginning at least with Supreme Tribe of Ben-Hur v. Cauble, (15) class actions not only performed the statistical blending function that Holmes anticipated, but assumed the ability to bind absent parties to the outcome of the litigation. This was a critical move, and one that the Court lost no time in acknowledging represented a departure from the presumption in Anglo-American law of the right of direct participation as a condition for preclusive enforcement of a judgment. (16) As the Court noted once again in Smith v. Bayer Corp., the first of its five recent cases on class action practice, "A court's judgment binds only the parties to a suit, subject to a handful of discrete and limited exceptions." (17)

   Once the Court started down this path to binding absent parties, however, the critical question became the nature of the authority to resolve contested legal claims on behalf of others. The early representative action avoided this problem entirely by allowing parties to join into a collective judgment that was secured for them, but otherwise suffer no adverse consequences. (18) For reasons that have been explored extensively in modern scholarship, (19) that form of one-way intervention created immense strategic imbalances, offering defendants the prospect of conclusive losses but only the briefest of respite in victory. In turn, however, recognizing the force of collective resolution meant committing power to an agent to act as a controlling surrogate, including for adverse results.

   There simply is no escaping the need for agency in collective actions. The American rules of civil procedure anticipate the use of the class action only when the action is not capable of being...