NEGOTIATING LEGITIMACY: AN EVALUATION OF THE NEGOTIATION CLASS PROPOSAL.

• Author: Bayly, Camila

INTRODUCTION 1152 I. OVERVIEW OF THE NEGOTIATION CLASS 1152 A Heterogenous Class Problem 1154 B. The Negotiation Class as a Solution 1156 II. THE NEGOTIATION CLASS AS APPLIED: A CASE STUDY 1159 A. Background 1160 B. The District Court's Certification Order 1161 C. The Court of Appeal's Reversal 1162 III. THE NEGOTIATION CLASS IN CONTEXT 1164 A. The Negotiation Class as a Multi-District Litigation Settlement Tool 1164 B. External Governance Concerns 1168 IV. EVALUATING THE VIABILITY OF THE NEGOTIATION CLASS: RULE 23'S REQUIREMENTS 1171 A. The Negotiation Class Exceeds the Text of Rule 23 1171 B. The Negotiation Class Fails the Predominance and Superiority Inquiries 1176 V. ASSESSING THE VIABILITY OF THE NEGOTIATION CLASS: CONSTITUTIONAL REQUIREMENTS 1182 A. Adequacy of Representation 1183 B. Notice and the Opportunity to Be Heard 1188 C. The Opportunity to Exit 1190 CONCLUSION 1192 INTRODUCTION

The opioid epidemic currently devastating the United States has had a myriad of consequences to society. How to redress the harms caused by the ill-advised use of prescription opiates by doctors and public health institutions writ large has become a question that policymakers, scholars, lawyers, and judges are all currently attempting to solve. One proposal, put forth by Professors Francis E. McGovern and William B. Rubenstein, seeks to employ the class action device in a creative manner by enabling parties on both sides of the v. to achieve finality through comprehensive settlements. Their idea, coined the negotiation class, could become a useful tool in complex litigation. To do so, however, it must prove its adherence to the text and structure of Federal Rule of Civil Procedure (FRCP) 23 and constitutional procedural due process principles.

This Comment scrutinizes the negotiation class action proposal, seeking to unearth its intended applicability and assess its viability as an operative tool in federal courtrooms nationwide. In essence, this Comment argues that while the negotiation class idea provides procedural safeguards in certain contexts, it cannot currently be applied as an aggregation device as it exceeds the parameters of Rule 23 as written. However, the negotiation class action idea satisfies the constitutional procedural due process requirements for representative actions. Thus, this Comment concludes that an amendment to Rule 23 would be necessary to allow the negotiation class to become an operative tool.

This Comment proceeds in five Parts. Part I outlines the details of the negotiation class proposal and the way it is intended to operate. Through a case study, Part II illustrates the current objections to the negotiation class and potential roadblocks to its future viability. Part III, in turn, sets the negotiation class in context by focusing on the realm for which it was designed: Multidistrict Litigation. Parts IV and V assess the negotiation class's adherence to the text and structure of Rule 23, and the constitutional requirements of representative actions, respectively. This Comment concludes by building upon the evaluations in Parts IV and V and contending that, because the negotiation class meets the fundamental requisites of due process, an amendment to Rule 23 is warranted to allow the negotiation class to become a viable aggregation mechanism.

1. OVERVIEW OF THE NEGOTIATION CLASS

   In 2020, Professors Francis E. McGovern and William B. Rubenstein proposed an innovative application of the class action device to solve a specific collective action problem inherent in certain aggregate litigation cases. (1) Building on decades of scholarship, McGovern and Rubenstein identified a unique dilemma faced by a particular type of plaintiff class actions: the heterogeneous class problem. (2) Where a class is composed of both small- and large-value claimants, the potential for the latter to opt-out of the collective reduces the peace premium that putative defendants would otherwise be willing to pay in pursuit of global peace. (3) In essence, the collective's potential disunity reduces its potential recovery and renders settlement an elusive goal. (4)

   McGovern and Rubenstein's proposal attempts to solve the heterogeneous class problem by providing a "mechanism for cooperation" (5) for both claimants as a collective, and between claimants and defendants. Their proposal suggests employing Rule 23 in a creative manner by incorporating ideas from the American Law Institute's model for aggregate non-class litigation (6) and bankruptcy. (7) This solution--the negotiation class--attempts to align the parties' incentives by certifying a plaintiff class under Rule 23(b)(3) for the purpose of negotiating a settlement with defendants.

   This Section begins by detailing the heterogeneous class problem, focusing on the considerations that prompted McGovern and Rubenstein's proposal for a "new form of class certification." (8) It then discusses the negotiation class's function as a solution to the heterogeneous class problem, and identifies how the idea is meant to operate.

   1. The Heterogenous Class Problem

      In the "conventional" class action, large numbers of potential plaintiffs possess similar claims--in both type and value--against a common defendant. (9) These homogeneous class actions often face a collective action problem: each plaintiff's claim may be of negative value if litigated individually, but the collective's claims may be worth substantially more if litigated as a whole. (10) Essentially, the group benefits if it can pursue the individual claims en masse and spread the cost of litigation. But homogeneous class actions also face a free-rider problem, as "no class member has the incentive to undertake the organizational effort" (11) required for aggregation. (12) Thus, the group needs a "champion." (13) The class action device operates as a tool to overcome both the collective action and free-rider problems "that impair any attempt to organize a large number of discrete individuals in any common project." (14) It solves the collective's problem by providing a means of aggregation that can capitalize on economies of scale and consolidate individual claims that would otherwise be of negative value. (15) In short, the class action mechanism encourages individuals to act as champions.

      The class action device goes further by providing benefits to parties on both sides of the v. (16) For defendants, the prospect of litigating against a large number of individual plaintiffs creates significant transaction costs. (17) Thus, defendants are often willing to pay an additional sum to lump claims and resolve them as a whole. (18) Put simply, defendants "want peace, and they are often willing to pay for it." (19) What they are willing to pay--i.e., the value of a comprehensive settlement achieving global peace--is known in academic literature as the "peace premium." (20)

      Heterogeneous classes, on the other hand, present a distinct problem. Where potential plaintiffs possess claims of different values, some have "enough at stake to do something other than sit back and allow the litigation to run its course." (21) While large-value claimants may remain inactive and stay in the class, they may also decide to exit--hold out--and pursue their own day in court. The latter path creates what Professors McGovern, Rubenstein, and others, call "the adverse selection problem":

      As the possibility that these large claimants will exit increases, the opportunity for a class settlement decreases: the defendant fears making a meaningful settlement offer to the class, only then to have to litigate against the most potent plaintiffs; put differently, the defendant is confronted by an "adverse selection" of litigants. (22)

      In short, "holdouts" are inversely related to the collective's settlement prospects, and to the value of any potential settlement. Potential holdouts reduce the peace premium that defendants are willing to pay in pursuit of global peace.

      The adverse selection problem created by heterogeneous class actions can be viewed as a type of tragedy of the anticommons. As Professor Rave describes, a tragedy of the anticommons in aggregate litigation occurs when "the rights to control [similar] claims are dispersed among the individual plaintiffs," therefore making it "difficult to aggregate [those] into a more valuable collective." (23) In such cases, the "transaction costs that must be incurred to aggregate rights" blocks the highest value for those rights. (24) From this perspective, the negotiation class proposal lowers the transaction costs necessary to pursue the collectives' combined rights to assert their claims by aligning plaintiffs' incentives through a transparent and democratic settlement-negotiation mechanism.

   2. The Negotiation Class as a Solution

      The purpose of McGovern and Rubenstein's proposal is to "harness class members' cooperative instincts [to] enable[] them to work together as a cohesive unit in bargaining with the defendant(s)." (25) The proposal provides a coordination mechanism that permits small- and large-value claimants to stick together and leverage their unity throughout settlement negotiations. It facilitates the ability of class members to make settlement-related decisions on the front-end and promises unity on the back end by binding class members to those decisions. In essence, before moving for class certification, plaintiffs in a negotiation class decide on an allocation formula for distributing settlement among the collective, and a voting procedure for class-wide approval of any proposed settlement. Once certified, class members receive notice and an opportunity to opt out--the only exit window afforded. Thus, following the opt-out period, the class size is presumptively fixed. (26) The class can the proceed to negotiate a settlement with defendants armed with comprehensive information regarding class composition.

      The idea is designed to operate in five stages:

      (1) [A]ctive class...