Disaggregative Mechanisms: Mass Claims Resolution Without Class Actions

• Publication year: 2014

Disaggregative Mechanisms: Mass Claims Resolution Without Class Actions

Jaime Dodge

DISAGGREGATIVE MECHANISMS: MASS CLAIMS RESOLUTION WITHOUT CLASS ACTIONS

Jaime Dodge^*

Abstract

Aggregation has long been viewed as the primary, if not sole, vehicle for mass claims resolution. For a half century, scholars have consistently viewed the consolidated litigation of similar claims as the only mechanism for efficiently resolving mass claims. In this Article, I challenge that long-standing and fundamental assumption. This Article seeks to reconceptualize our understanding of mass claims resolution, arguing that we are witnessing the birth of a second, unexplored branch of mass claims resolution mechanisms—which I term "disaggregative" dispute resolution systems because they lack the traditional judicial aggregation of victims that has been the hallmark of mass claims litigation.

Disaggregation returns to a focus on the individual akin to that of the single-plaintiff system, but uses either procedural or substantive streamlining, or a shift of costs to the defendant, to ameliorate the asymmetries that prompted the creation of class actions. Many of our most innovative claims structures—from the BP Gulf Coast Claims Fund and the fund created in the wake of the Costa Concordia disaster, to the common single-plaintiff arbitration clauses in consumer and employment agreements—use this new, bottom-up model of disaggregative mass claims resolution instead of the familiar top-down aggregative model.

These next-generation systems have been heralded as a significant advancement in mass claims resolution, capable of awarding greater compensation to claimants more quickly and at a lower cost than aggregate

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litigation. But like the single-plaintiff and aggregate litigation systems that preceded it, disaggregation has its flaws. Because the defendant typically designs these systems, they often give rise to questions about legitimacy and the accuracy of compensation. Yet, because these systems are the product of contract, attempts to restrict them have largely failed. This Article tees up not only the problem these privately ordered processes are creating for the enforcement of traditional public mechanisms of aggregation, but also the problems with the public system that drove the private demand for disaggregation. The Responses to this Article published in the remainder of this colloquy begin to explore the consequences of this new approach to mass claims and the array of potential public mechanisms for bringing aggregation and disaggregation into balance.

Introduction............................................................................................1255

I. The Traditional Conception of Disaggregation as a Handmaiden of Aggregation.....................................................1263

A. The Necessity of Disaggregation in Mass Claims Compensation ........................................................................... 1263
B. The Class Action Settlement Process........................................ 1264

1. Barriers to Compensation.................................................. 1265
2. Fixed-Fund Versus Claims-Made Settlements ................... 1266
3. The Hidden Costs of Fixed Funds...................................... 1268
4. Settlement Motivations and Agency Costs.......................... 1269

C. The Impetus for Privatization................................................... 1270

II. The New Generation of Disaggregative Structures............1271

A. Basic Typology ......................................................................... 1273
B. Postdispute Disaggregative Mechanisms ................................. 1275

1. Substantive Offers: Flat-Rate Offers, Grids, and Formulas ............................................................................ 1278
2. Process Offers: Ad Hoc Determinations............................ 1280

C. Predispute Creation of Disaggregative Mechanisms ............... 1283
D. Common Features Across Structures ....................................... 1286

III. The Specter of Dysfunction in Disaggregation.....................1287

A. The Compensatory Function of Law........................................ 1288

1. Pure Procedural Streamlining........................................... 1289
2. Substantive Streamlining .................................................... 1293

B. Optimal Enforcement and Deterrence...................................... 1302

1. Fractional Participation..................................................... 1302
2. Reverse Preference Enforcement ....................................... 1305

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C. Process Function and Legitimacy Values ................................ 1306

1. First-Level Dysfunction: Defendants as Systems Designers ............................................................................ 1306
2. Second-Level Dysfunction: Public Checks upon Disaggregation ................................................................... 1308

D. Constitutional Actors and Disaggregative Mechanisms .......... 1311

Conclusion................................................................................................1316

Introduction

Aggregation was arguably the single most important procedural innovation of the past century.¹ It held the promise of remedying previously irremediable harms;² it was the device to which we entrusted our most important cases, from catastrophic mass torts like Agent Orange³ and asbestos,⁴ to the school desegregation of Brown v. Board of Education⁵ and the quest for workplace equality.⁶ Yet, if aggregation was the innovation of the past century, what could be the innovation of this century?

In recent years, we have increasingly sought to resolve our nation's greatest tragedies and harms without aggregate litigation. In the aftermath of the terrorist attacks, congress created the September 11th Victim compensation Fund for the express purpose of removing cases from the traditional litigation system—insulating the airlines from the costs of defense and streamlining the costs of public funds dissemination through the creation of a non-Article III claims tribunal.⁷ Private defendants have likewise eschewed aggregate

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litigation, as exemplified most prominently by the BP Gulf Coast Claims Fund (GCCF) created in the wake of Deepwater Horizon's explosion.⁸

But companies do not only bypass aggregation in addressing national tragedies and mass disasters. Increasingly, companies seek to avoid aggregation before and after more ordinary disputes arise as well. With the Supreme Court's blessing, companies have begun to include arbitration clauses as a predispute mechanism for precluding aggregation, ensuring individual processing of employment⁹ and small-value consumer claims.¹⁰ Putative defendants have also adopted mass compensation schemes to resolve contract and mass tort cases, ranging from disputes over seats at the Super Bowl to the running aground of the Costa Concordia cruise ship, in a postdispute effort to prevent or weaken postdispute aggregation.¹¹

Yet our scholarship continues to conceive of mass claims resolution through the lens of aggregate litigation—class actions and, in recent years, multidistrict litigation and "quasi-class action" settlements.¹² As a

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consequence, many of these innovations are dismissed as ad hoc responses to extraordinary situations.¹³

I argue that a far more fundamental transition is underway: We are witnessing the birth of an entirely new branch of nonaggregative mass claims resolution systems, of which these mechanisms are mere exemplars.

These emerging systems are based upon a wholly different dispute resolution methodology than those described in the existing literature—one that bypasses the determination of common questions, at the core of aggregate mechanisms, entirely.¹⁴ Instead, these mechanisms use individualized claims determination as the vehicle for mass claims resolution.¹⁵ I therefore term this new, second, unexplored branch of mass claims resolution mechanisms "disaggregative" dispute resolution systems. While "disaggregation" has typically referred to the breaking down of an aggregate class into smaller subclasses,¹⁶ this Article posits a far more radical form of disaggregation, in which the would-be class is broken into individual claims. The consequences of this pure disaggregation are far more extreme, but also create a very

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different set of normative concerns than the more restricted form of disaggregation occurring within the public aggregation mechanisms.¹⁷

The public class action device contributed to "a sea change in our understanding of both substantive and procedural law,"¹⁸ generating an entirely new field of legal scholarship.¹⁹ The rise of private disaggregation has the potential to create an equally dramatic shift in the legal landscape, as this new approach to dispute resolution is driving many of the most innovative claims structures emerging today.²⁰

In the mass claims context, individual plaintiffs often lack the incentive to bring suit, and where they do bring suit, they often rationally underinvest in litigation compared to the defendant.²¹ This resource asymmetry led to the creation of aggregation mechanisms, but created a new set of undesirable results, from nuisance suits to sweetheart deals.²² Disaggregative mechanisms are thus a next-generation attempt to correct the resource asymmetries of the single-plaintiff era, without generating the familiar problems of aggregation.

Disaggregative systems often streamline procedure or substantive inquiries, or shift the costs of litigation to the defendants, allowing the pursuit of claims that could not rationally be pursued in the pre-Rule 23 world because the litigation costs exceeded the potential recovery.²³ As a result, there is no need

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for the aggregation of claims; each individual can autonomously decide whether to...