Class settlements under attack.

JurisdictionUnited States
AuthorIssacharoff, Samuel
Date01 June 2008

INTRODUCTION I. THE PROBLEM OF THE ANOMALOUS COURT A. National Markets and the Anomalous Court B. The Strategy and Judicial Federalism of Class Settlements After CAFA C. Regulatory Mismatch II. THE MULTIPLE MEANINGS OF ADEQUATE CLASS REPRESENTATION A. Structural Defects 1. Intraclass Conflicts a. Which Conflicts Matter b. Intraclass Conflicts and the Settlement Endgame i. Differences Created by the Settlement ii. Differences Dissipated by the Settlement 2. Class Counsel Conflicts B. Performance Defects C. The Jurisdictional Confusion III. THE FORMS OF REVIEW A. Direct Review by a Fiduciary Court 1. Fiduciaries and the Right of Appeal 2. Limitations B. Alternatives to Collateral Attack 1. Rule 60(b) 2. Malpractice C. Proper Preclusion in Collateral Attacks 1. Structural Defects 2. Performance Defects 3. The Settlement Forum CONCLUSION INTRODUCTION

Settlements dominate the landscape of class actions. The overwhelming majority of civil actions certified to proceed on a class-wide basis and not otherwise resolved by dispositive motions result in settlement, not trial. (1) This is far from unusual in civil litigation generally, where observations about "the vanishing trial" have become commonplace. (2) Seemingly, the paucity of actual trials should have been integrated into the core structures of the class action. That, however, is not so, and the failure to integrate the fact of settlement into class action law permeates the difficulties now facing the field.

In its most obvious form, the question of trial remains at the core of the certification of class actions under Rule 23(b) (3). (3) So long as the prescribed inquiry speaks to the "manageability" of the aggregated proceeding at trial and so long as a court must assess the "predominance" of the aggregate issues versus the individual ones in the case, procedural law inevitably directs the attention of the litigants to the hypothetical scenario of a class-wide trial. (4) The Supreme Court recognized this tension in Amchem Products, Inc. v. Windso, (5) mildly distancing settled cases from any stringent proof as to the manageability of an ultimate trial, but the issue persists across the perennial certification battles.

This Article focuses on a second, and less explored, consequence of the fact of settlement over trial as the primary form of case resolution. It is commonplace by now to understand the class-certification decision as setting the value of the asserted legal claims. Some cases have value when aggregated but are simply not viable--they have "negative value," in the modern economic parlance of class action law--as individual claims. But the value of claims is established not just at the front end, where the conditions for certification dominate the case law and the academic literature, but also at the back end; inevitably, part of the value generated by the resolution of a claim through settlement (or even at trial) is the finality it may offer to the litigants.

One would think that a world in which settlements comprise the endgame for class actions would have produced, with relative ease and rapidity, a consensus on the legal principles that govern the preclusive effect of those settlements. At the end of the day, all litigation is ultimately about repose. The value of a claim, whether litigated or settled, is a function of the price of peace on the disputed issue. That price may be as low as zero for meritless claims, but for claims that have at least some viability, the value corresponds directly to the finality that resolution offers the defendant. The purpose of a judgment, whether litigated or settled, is precisely the certainty that finality offers the parties.

Our aim in this Article is to provide a cohesive framework for establishing the finality of class actions under the real-world conditions of settlement. This is far from a secondary issue in class action litigation. One of the major flashpoints in class action law for some time has concerned the proper parameters for collateral attacks on the binding effect of class settlements. While less contentious for most parties than the initial decision to certify a class, the context of collateral challenge exposes many of the critical frailties of the class action. Further, we shall contend, the policy implications of collateral challenge raise many of the same concerns as animated the Class Action Fairness Act of 2005 (CFA). (6)

We should begin with the foundational basics. In a collateral attack, an absent class member sues the settling defendant, advancing claims that the class settlement purportedly resolved. The defendant responds that the new lawsuit is barred by claim preclusion. The collateral attack plaintiff then seeks to parry by arguing that the judgment said to lend preclusive effect to the class settlement is defective on federal constitutional due process grounds--characteristically, because the plaintiff was inadequately represented in the class proceedings. (7) At least for the class action in its modern form, (8) a determination of adequate representation is a precondition to the entry of a class-wide judgment. (9) Collateral attacks ask what latitude the plaintiff should have to revisit the adequacy question--usually, in a court different from the one that entered the class judgment said to be binding.

The binding effect of a class settlement is ultimately a question of proper preclusion--in less formal terms, of what it should take tot the law to regard the binding of an absent class member to a class settlement as fundamentally fair, such that she may not sue the defendant anew. Not surprisingly, courts have attempted to address this topic through application of ordinary preclusion principles to the class action setting. This process of application has not run smoothly, however. Prescriptions in case law run the gamut of the usual preclusion categories. Some judges urge the application of claim preclusion principles, asking whether the collateral attack plaintiff had a "full and fair opportunity" to raise the alleged constitutional defect in the class-settlement court. (10) Others point to issue preclusion principles, asking whether the asserted defect was actually litigated in and determined by the rendering court. (11) Still others advocate no preclusion, positing that the collateral-attack court should determine the constitutional question de novo. (12) In a long-running series of articles, commentators have splintered similarly over how to handle collateral attacks. (13)

For its part, the Supreme Court appeared poised to lend greater clarity to this area in 2002. The Court granted review to consider a collateral attack on the binding effect of a much-discussed class action settlement concerning latent-disease claims in tort related to the Vietnam War era defoliant Agent Orange. (14) But the eight sitting Justices split four to four, (15) thereby frustrating any hopes for clarification.

This Article frames the ongoing debates over collateral attacks on class settlements as part of an unresolved conflict between the individualist premise of our inherited tradition of civil litigation and the reality of circumscribed litigant autonomy in aggregate litigation, most notably in class actions. Of necessity, aggregation in any form limits the control that any litigant may exercise over her claims or defenses. Class actions further compromise litigant autonomy, for absent class members typically express their consent to a binding settlement not affirmatively but only tacitly, through their failure to withdraw from the class representation. (16) Class settlements accordingly present a paradox. They require the same certainty of termination as any other case where legal claims are surrendered in exchange for a payment or a release. Yet the contractual terms that underlie class settlements are deeply problematic because the contracting party is an agent--class counsel--who can claim only indirect authorization to represent the absent class members.

Our claim is that the binding effect of a class settlement cannot be resolved simply within our inherited litigation vocabulary. In a landmark 1989 case involving a civil rights consent decree, for example, Justice Stevens, in dissent, tried to limit the scope of potential challenges to a class settlement to only those grounds that would justify relief from a conventional settlement, such as fraud or collusion. (17) This argument was necessarily unavailing where the persons seeking to challenge the impact of a decree upon them--the white incumbent firefighters of Birmingham, Alabama--were not even nominally represented in the prior action. But even non-participation in a prior litigation does not necessarily delimit the controversy. In the seminal 1940 case of Hansberry v. Lee, (18) a judgment enforcing a racially restrictive covenant would necessarily implicate the rights of aspiring African American homeowners in the future, a concern that bewildered the Court as it sought to disengage from the legal protection of American racialism. (19)

We urge a new approach that is more responsive to the realities of class action settlements: proper preclusion in the class action setting flows from proper coordination of what we term the "where," "what," and "how" of class-settlement review. More specifically, challenges to the preclusive effect of a class settlement implicate the forum for the class action, the structure of the representation, and the form that the particular challenge at hand may take. Each of these dimensions speaks to distinctive features of the class action as a form of aggregate litigation in an integrated national market for goods and services. Our account seeks to advance the literature in two ways: first, simply by laying out the three pertinent dimensions as the appropriate terms for the debate, and second, by explaining how proper preclusion consists of the necessary coordination of these three dimensions...

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