Prospective injunctive relief and class settlements.

Author:Sheley, Erin L.
Position:Introduction through II. Courts Have No Expertise in Evaluating Regulatory-Style Injunctive Remedies C. Hot Fuel Litigation, p. 769-800
 
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INTRODUCTION I. THE PROBLEMATIC AND PERVERSE INCENTIVES OF CLASS ACTION SETTLEMENTS II. COURTS HAVE NO EXPERTISE IN EVALUATING REGULATORY-STYLE INIUNCTIVE REMEDIES A. The Consent Decree as Historical Foundation B. Regulation through Civil Litigation C. Hot fuel Litigation D. Pearson v. NBTY E. American Express Merchant Litigation III. PROSPECTIVE INJUNCTIVE REMEDIES MAKE BAD LAW AS WELL AS BAD POLICY A. Improper Regulatory Preemption of Future Claims B. Violation of Counsel's Fiduciary Duty to Absent Class Members C. Potential Violations of Rule 23(a)(4) D. Standing Problems IV. COUNTERARGUMENTS CONCLUSION INTRODUCTION

In 2012 the District of Kansas approved the settlement of a class action against Costco brought on behalf of its gasoline customers. (1) Gasoline, like most liquids, is sold by volume, rather than weight. And, like most liquids, gasoline is subject to the laws of physics that dictate that it will expand as the temperature increases if pressure is held constant. (2) Plaintiffs sued dozens of retailers for failing to disclose this effect of increasing temperatures on the number of gasoline molecules present in a gallon of gas. (3) Under the plaintiffs' theory, because motor fuel expands when heated, "[a] consumer who buys a gallon of fuel at a warmer temperature unknowingly receives less fuel (fewer molecules and less mass) than a consumer who purchases a gallon of that same fuel at a cooler temperature." (4)

As part of the settlement--which paid zero dollars to the millions of absent class members, while the plaintiffs' attorneys filed a still-pending fee request for $10 million--Costco agreed to convert its motor fuel dispensers in states where it purchases fuel on a temperature-adjusted basis to "automatic temperature compensation" (ATC) dispensers and to install ATC dispensers at any new retail stations it opens. (5) The upshot of this development is that customers who purchase gasoline at higher temperatures now have a better deal than they used to and those who purchase it at lower temperatures a worse deal. It should be clear that for many repeat customers over time this is likely a wash, except insofar as all consumers must now absorb, through increased prices, the costs of the new pumps. (6)

At first blush, Costco's expensive conversion of its fuel equipment appears to be a typical instance of the now well-established phenomenon of social policymaking through class action litigation. Scholars of mass torts have spent the better part of the last half-century debating whether the class action suit enabled by Rule 23 of the Federal Rules of Civil Procedure should be considered a device for "the private litigant who is motivated in his attempt to serve the public interest primarily, if not exclusively, by idealistic or communitarian concerns," (7) the case of "a rent-seeking entrepreneur pursuing her own interests with little oversight by her principals," (8) or some combination of the two. (9) Despite the controversy and criticism, however, the class action is alive and well. And specifically the injunctive remedy--requiring, as consideration for class members' release of claims in lieu of or in addition to cash, the defendant to change some aspect of its business practice--has become a common feature of class action settlements. (10) Yet the Costco settlement presents a taxonomicallv distinct remedial category of injunction that has, as of vet, not generally been considered by courts and scholars as such: the prospective injunctive remedy--that is, the injunction that functions solely with respect to future transactions between the defendant and its customers, be they class members or not. This Article will demonstrate how the prospective injunctive remedy operates and argue that, in light of the unique policy and legal problems it creates, judges should rarely approve private-party class action settlements containing one.

Rule 23(b) (11) allows for injunctive remedies under all three subsections. Subsection (b)(2) provides the easiest path to certification where a class seeks mainly equitable or injunctive relief. (12) By contrast, claims for monetary damages must normally be certified under either subsection (b)(1) or (b)(3), though both types of actions may also contain injunctive components. Classes may be certified under subsection (b)(1) when bringing together all similarly situated claimants in one proceeding is necessary to protect the defendant from inconsistent adjudications (13) or to protect the rights of absent class members. (14) Subsection (b)(3) requires a showing that common issues "predominate" over individual issues and that a class action is the "superior" method of adjudicating the claims. (15) A (b)(3) class is also the sole non-"mandatory" class; the Rules require that the settling parties give the class "the best notice that is practicable under the circumstances" and that the court "exclude from the class any members who require exclusion." (16) No such opt-out rights from injunctive relief exist under (b)(1) or (b)(2). (17)

Injunctive relief can be broadly categorized as being either retrospective or prospective depending upon whether the injunction serves to cure a wrong in past transactions, or affects future relationships between a defendant and its customers. Courts generally ignore this distinction but, as we will show, much is at stake in it. Unlike retrospective injunctive relief, which ostensibly benefits members of the plaintiff class (for example, an automobile recall to fix a defect), prospective relief does nothing to directly benefit actual plaintiffs or to redress their alleged injuries. Were we to pretend that the new fuel pumps actually imparted some value on future customers, we would still have no idea whether any of the class members would ever purchase Costco gasoline again and therefore have occasion to enjoy them. Moreover, to the extent a settlement reflects a bargained-for exchange, class members receive nothing incremental in consideration for their waiver of a right to compensatory damages for alleged past injury. This is because the prospective injunctive relief applies to class members and non-class members alike. Prospective injunctive relief is effectively an impermissible return to the doctrine of fluid recovery. (18)

Such remedies are, therefore, entirely unmoored from the basic relational nature of a tort or contract claim. Tort and contract law are distinct from criminal law because they provide a forum for plaintiffs to be personally, civilly vindicated for wrongs or contract breaches done to them. (19) Because prospective injunctive relief runs counter to these basic functions, plaintiffs' lawyers justify being paid millions of dollars for obtaining it by styling themselves "private attorneys general." (20) This label suggests that class action plaintiffs' lawyers benefit society as a whole in the same way as states' attorneys general acting in parens patriae, (21) by getting judges to implement social policy through such prospective settlement terms. Yet, as Brian Wolfman and Alan Morrison have argued, deterrence goals must not eclipse the system's basic duty to provide compensation to victims. (22) In their proposal for changes to the Federal Rules to better achieve real compensation for "unrepresented" class members, they outline the numerous risks of mass justice "unjustly submerging] the interests of some, for the benefit of others." (23)

Furthermore, the parties to a class action settlement have no incentive to achieve--and courts have no institutional competence to evaluate--the public deterrence benefits that purportedly justify the absence of compensation. As we discuss in detail below, the ATC devices forced on Costco will have, if anything, a negative effect on both class members and gas purchasers in general. This explains why every state weights-and-measures regulator that considered the devices rejected them in the first place. Moreover, even if gasoline vendors and regulators had already universally used ATC instead of selling gasoline volumetrically, plaintiffs' attorneys could have brought the mirror lawsuit, claiming consumer fraud (because some customers buying a temperature-adjusted "gallon" would be receiving less than a gallon in volume) and demanding prospective injunctive relief to switch to volumetric measurements.

Similar problems accrue in other settlements for prospective injunctive relief.

This Article will argue, for reasons of both law and policy, that courts in civil cases between private non-governmental parties should observe a presumption against approving settlements that contain provisions for prospective injunctive relief. In Part I we show how the parties to a class action have, in general, no incentive to benefit either absent class members or society at large. This requires courts to police them to ensure justice. In Part II we describe the public law underpinnings of prospective injunctive relief and provide three case studies of consumer class actions that demonstrate how and why courts fail to accurately police this relief in the private law context. We compare the approved relief in these cases to the regulatory regimes they disrupt to argue that courts in this way inevitably allow class action litigation to produce bad public policy. In Part III we explore the ways in which these prospective remedies likewise produce bad law--namely through the inappropriate creation of regulatory preemption and the potential violations of attorney-client fiduciary duty, and through ignoring the adequacy requirement of Rule 23(a)(4) and constitutional standing requirements. In Part IV we consider counterarguments, and in Part V we conclude our discussion.

  1. THE PROBLEMATIC AND PERVERSE INCENTIVES OF CLASS ACTION SETTLEMENTS

    When parties to a class action come to the settlement table, the defendant's incentives are clear: to dispose of the litigation for as small a figure as possible...

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