HAPPY 50TH ANNIVERSARY, RULE 23! SHOULDN'T WE KNOW YOU BETTER AFTER ALL THIS TIME?

Author:Hensler, Deborah R.
Position:Special Issue on Class Actions
 
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INTRODUCTION 1599 I. TAKING THE MEASURE OF THE BEAST 1604 II. MEASURING EFFICIENCY 1607 III. MEASURING COMPENSATION PERFORMANCE 1611 IV. MEASURING DETERRENCE EFFECTIVENESS 1614 V. WHY WE DON'T KNOW MORE ABOUT RULE 23 CLASS ACTIONS 1615 A. Unknowable Facts 1615 B. Lack of Reporting or Misreporting 1616 C. Barriers to Data Access 1617 D. Challenges of Linking Court Data to Other Records 1620 E. Limited Desire for More Information 1621 1. "How would that information help me?" 1621 2. "That information might hurt the causes and institutions I care about" 1622 CONCLUSION 1622 INTRODUCTION

A popular trope about long marriages is that they survive because over time the partners come to know each other's good and bad characteristics, to appreciate the good and to tolerate the bad and to decide--consciously or unconsciously--that staying together is better than the available alternatives. As a nation, the United States has been married to class actions for a quite long time: depending on one's definition of the procedure, since the early years of the Republic, (1) the 1938 adoption of the Federal Rules of Civil Procedure, (2) or the 1966 amendment of Rule 23, the adoption of which this conference celebrates. But the liaison has always been uneasy, for the notion of resolving individual rights and property claims through a representative action on behalf of absent parties has always raised due process concerns. (3) The joining of group litigation with a legal regime based on individual autonomy was long considered mainly a marriage of convenience, justified by the inefficiency of resolving large numbers of claims arising out of the same facts and law in individual proceedings. (4) And like other marriages in which the partners seem ill-suited, the amended Rule 23 evoked sharp concern among many contemporary onlookers, who foresaw dire consequences. (5)

As time passed and fracture lines in the marriage of class actions to traditional dispute resolution became apparent, there were efforts to repair Rule 23 in a dramatic fashion by eliminating (b)(3) damage class actions entirely or eliminating the rule's tri-partite structure, (6) or less ambitiously, by adopting incrementally modest changes to the existing provisions. (7) In time Congress got into the act, passing the Private Securities Litigation Reform Act of 1995, (8) intended to rein in securities class actions, and the Class Action Fairness Act of 2005 (9) ten years later, intended to subject class certification to heightened judicial scrutiny, by facilitating removal of state-law based class actions to federal court. At the time of this writing, Congress is poised to act again. H.R. 985, the Fairness in Class Action Litigation Act of 2017, (10) introduced in the House in February 2017 and passed a month later with little debate, is plainly aimed at making it increasingly difficult to certify money damage class actions on the grounds that they are abusive. (11)

As in many acrimonious marriages, over time there has been considerable airing of dirty linen, which has taken the form of charges of "abuse." (12) Like the partners in longlasting acrimonious marriages, the critics and supporters of Rule 23 have trotted out the same charges and countercharges over and over again. Recently, even the neighbors have weighed in, with advocates of adopting class actions outside the United States explaining that while they believe collective litigation could play a beneficial role in their respective jurisdictions, they are not promoting what they perceive as dysfunctional "American-style class actions." (13)

Notwithstanding the vigorous policy debate over the benefits and costs of class actions and the substantial jurisprudence that has developed in response, there has been no comprehensive sustained empirical effort to monitor the consequences of the 1966 amendments to Rule 23. Astonishingly, although critics often point rhetorically to a "flood of frivolous litigation" as a reason for curbing class actions, fifty years after the adoption of the 1966 amendments no one knows how many class action complaints are filed annually in the United States, (14) much less what sorts of substantive legal claims are most likely to give rise to class actions, what their modes of disposition are or what their outcomes are. Through the diligent efforts of researchers at the Federal Judicial Center, (15) and scholars such as Eisenberg and Miller, (16) Fitzpatrick, (17) and Baker, Perino and Silver, (18) we have learned about characteristics of federal class actions at certain points of time; short-term consequences of certain rule changes; key features of Rule 23 (b)(3) settlements approved by federal judges; and trends in filings and outcomes of specific case types. However, judicial and legislative reformers have little empirical evidence to support assertions that general rule changes are necessary and only speculation to guide consideration of what the consequences of these changes might be. A good therapist might advise that it is way past time to uncover the facts related to the stresses in our marriage to Rule 23.

In this Article, I propose a research agenda for systematically investigating the frequency and key characteristics of class action litigation, and assessing how well Rule 23 meets the goals its proponents have long held out for inefficient management of mass claims, efficient and fair compensation of losses due to defendants' negligence or statutory and regulatory violations, and optimal deterrence of illegal behavior. My intention is to begin a conversation about such an agenda, not to set the agenda myself. Parts I-IV identify the types of data we should be collecting and reporting and discuss the challenges different types of data collection present. (19) Part V considers the primary barriers to embarking on sustained systematic empirical research on class actions. (20) This Article concludes by challenging the federal judiciary to promote empirical analysis of the consequences of Rule 23.

  1. TAKING THE MEASURE OF THE BEAST

    More than three decades onwards from Professor Arthur Miller's attempt to demolish the dueling depictions of Rule 23 class actions as "Frankenstein monsters" and "shining knights," (21) we still do not have sufficient data to know what the 1966 revision of Rule 23 effected. As I discuss further, assessing the character of class actions--are they monsters or knights?--presents challenging empirical problems. But the monster appellation connotes something large and out of control, which in turn suggests that the sheer number of class action filings should disturb us, regardless of their character. It seems odd, therefore, that we have gone so long without knowing how many class action filings there are. (22)

    Sound policy analysis begins with measurement of the phenomenon of interest. That measurement may take many forms, but usually the first step is to determine the magnitude and shape of the target. Numbers do not tell us everything we ought to know about class actions (or other phenomena of policy concern), but they do help us to determine what is worth arguing about. Moreover, many charges about the negative consequences of class actions, such as the assertion that the risks of class actions are so great that they force defendants to settle non-meritorious claims--so called "blackmail settlements"--rest on empirical assumptions about the pattern of disposition of class complaints, which have also gone largely untested.

    Many lawsuits filed in the form of class actions are dropped, dismissed or otherwise resolved without class certification. Over time, judges, lawyers and parties have come to refer to these lawsuits as "putative class actions." These lawsuits, signaled by the filing of a class complaint, constitute the research population of interest. At a minimum, policymakers concerned about class actions ought to know:

    1. The number of class complaints filed annually, by case type (e.g. securities, anti-trust, consumer fraud, product liability), party characteristics, venue and category of certification (i.e. (b)(1)(a), (b)(1)(b), (b)(2), or (b)(3)).

    2. The mode of disposition of these complaints, whether dropped, dismissed, decided by summary judgment, tried to verdict or settled. (23)

    3. Time to disposition. (24)

    4. Whether or not these complaints were ever certified as class actions, either for all purposes or for settlement only.

    5. Whether certification occurred prior to or following judicial decision on pre-trial dispositive motions.

    6. Whether there were Daubert or other evidentiary hearings on certification.

    7. Whether the complaint was resolved as part of a multi-district litigation (MDL). (25)

    8. Whether there was appellate litigation related to the certification decision and the outcome of this litigation.

    9. Whether the final outcome of the complaint at the district court level was appealed and the outcome of the appeal.

    Data on filings and mode of disposition ought to be reported in the same form as data on filings and mode of disposition of all civil filings so as to permit calculations of the fraction of claims within case type categories that generate class claims and class-wide resolutions and comparison of disposition patterns between ordinary and class litigation.

    Compiling and reporting annual data would permit empirically-based analyses of trends, including analysis of the consequences of doctrinal and legislative changes and rule amendments. (26) For example, reporting the number of class complaints filed annually, by case type and venue, would contribute to an objective assessment of political charges that the federal courts generally or some federal districts in particular are overrun with class actions. (27) Reporting the pattern of dispositions by mode of disposition and the timing of different events would contribute to an objective assessment of political charges that the "in terrorem" effect of Rule 23 leads to...

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