Regulatory litigation in the European Union: does the U.S. class action have a new analogue?

• Author: Strong, S.I.
• Position: B. Regulatory Litigation as a Function of Need 1. Litigation as a Necessary Form of Regulation b. Bottom-up and Top-down Regulatory Litigation through Conclusion, with footnotes, p. 923-972

2. Bottom-up and Top-down Regulatory Litigation

   Once regulatory litigation has been framed as a means of addressing risk, it is possible to distinguish between various types of risk. (137) For example, some types of risks can be anticipated in advance while others cannot. One type of regulatory litigation--that which operates "top down"--focuses on "risks that have already come to pass. In such instances, the law fills the regulatory gaps by providing individuals the means to achieve compensation for their injuries.... [T]he legislature can do so either through the establishment of administrative agencies or through the use of substantive law." (138)

   In these sorts of cases, "courts become regulatory instruments" (139) to the extent that they enforce various statutes and administrative pronouncements. This sort of regulatory litigation is quite common, and "[i]t is for this reason that some authors have suggested that all litigation is regulatory and, in this sense, they are correct." (140)

   One example of top-down regulatory litigation involves the European regulation (141) on passenger rights, which gives airline passengers the right to private compensation arising from delayed or cancelled flights. (142) The risk of cancelled or delayed flights is already known and can easily be anticipated to arise again in the future. Providing passengers with a right to individual compensation serves as a means of regulating the future behavior of industry actors, with the "penalty" of a right to individual compensation acting as the catalyst for airlines to take all reasonable steps to avoid or insure against cancelling or delaying flights in the future. (143) Although the regulation does not currently include the right to pursue claims collectively, that could change as a result of procedures contemplated by the Resolution. (144)

   While injuries arising from delayed or cancelled flights are easily foreseeable, not all risks can be identified in advance. (145) This has led to a second and more controversial type of regulatory litigation, namely the "bottom-up ... use of law by judges and litigants." (146) It is this type of regulatory litigation that is primarily at issue in this Article.

   Bottom-up regulatory litigation shares certain functional attributes with top-down regulatory litigation, in that bottom-up regulatory litigation, "[l]ike legislative efforts to regulate, ... aims to address risk." (147) However, it does so in "a different way," using "the legal remedy or the settlement equivalent in order to influence future, risk-producing behaviors. In cases properly described as regulatory, the remedy is structured either by a party or by the judge with the intent of altering future behavior." (148) Although there is some difference of opinion about certain aspects of bottom-up regulatory litigation, the three critical elements are: (1) intent, meaning "not only the desire to influence behavior as the conscious object of the one who would regulate, but also the desire to prevent some future, risk-producing behavior," (2) a pre-existing substantive norm which is to be enforced by "the litigant, the judge, or the two acting in concert," who "intend to produce some action on the part of the target of regulation because of the risk (and the litigant's or judge's apprehension of the risk) that the target actor's future behavior will fall short of the relevant norm," and (3) a rule, typically in the form of a remedy, "that expresses the norm to the world and attempts to limit the threats (risk) to that norm." (149)

   This definition of bottom-up regulatory litigation is quite useful. (150) Not only does it identify a functional objective that cannot be readily addressed by legislative or administrative bodies (i.e., unanticipated risk), it also provides a principled, predictable basis on which such actions may be based (i.e., a pre-existing substantive norm working in conjunction with a pre-existing rule or remedy). (151) However, application of this standard in cases involving class and collective relief can be somewhat problematic because the definition of remedies has traditionally been considered to refer only to damages, injunctions, and declaratory judgments, not the ability to proceed as a group. (152)

   Some people may see this issue as something of a moot point, given the number of courts and commentators that have suggested that the capacity to proceed as a class or collective is a type of remedy. (153) However, there are other authorities that frame the ability to proceed collectively as a species of right. (154) This is cause for some concern, for although the elevation of a particular concept to the status of a "right" allows that principle to trump or override certain other laws or practices, a sharp distinction is often made between rights and remedies. (155)

   The debate between rights and remedies will be taken up more fully later in this Article. (156) However, at this point it is sufficient to note that concerns about whether and to what extent class or collective relief constitutes a remedy need not bar class or collective actions from being defined as a form of bottom-up regulatory litigation, since traditional types of remedies--injunctions, damages, or declaratory judgments--can be combined with class and collective relief in such a way that a number of class actions fall within the definition of bottom-up regulatory litigation. (157) Not only is this useful for purposes of this Article, in that it allows both U.S. and possibly European forms of class and collective relief to constitute a form of regulatory litigation, but it is consistent with conclusions reached by commentators under other sorts of analyses indicating that some, but not all, class actions contain a regulatory element. (158)

   A few examples based on Rule 23 of the Federal Rules of Civil Procedure will serve to illustrate this point. (159) To begin with, injunctions clearly constitute the kind of forward-looking remedy contemplated by the definition of bottom-up regulatory litigation used in this discussion. (160) Therefore, actions proceeding under Rule 23(b)(2) of the Federal Rules would qualify as bottom-up litigation, since that rule provides for injunctive relief on a classwide basis. (161)

   Next, class requests for money damages are often said to constitute a form of regulatory litigation, (162) based on empirical research showing that:

   Despite their distaste for class litigation and their dismay about rising numbers of lawsuits, many corporate representatives ... said that ... class litigation had caused them to review financial and employment practices. Likewise, some manufacturers noted that heightened concerns about potential class action suits sometimes have a positive influence on product design decisions. (163) However, it is important to identify precisely how this regulatory effect comes about. (164) For example, it is possible to argue that the high level of compensatory damages associated with a large class constitutes a sufficient disincentive to those who would otherwise be inclined to act in an unlawful manner, particularly in situations where it is unlikely that individual compensatory suits would be brought in the absence of class or collective relief. (165) However, experience shows that there are times when large-scale compensatory relief will not be sufficient to regulate wrongful behavior because the cost associated with providing compensation is less than the cost of avoiding harm. (166) In those cases, compensatory damages are an insufficient deterrent to illegal behavior. (167)

   The second and more likely alternative is that the regulatory effect in cases involving money damages arises by combining the class-expanding aspects of Rule 23 with various statutory or common law means of imposing treble or punitive damages. (168) Various background principles of law, such as the easy availability of contingency fees and the broad scope of pre-trial discovery, also contribute to the deterrent effect, since such measures not only allow class lawsuits to be brought in the first instance but also increase opportunities for expanding the size of the class, exposing other causes of action and/or providing the means of prevailing on the merits. (169) Therefore, it is the combination of these various factors--a broad class-expanding mechanism, a substantive law that provides for damages multipliers and a variety of pro-plaintiff principles of basic civil procedure--that provide not only the incentive to bring damages class actions but also provide much of the regulatory effect. (170) Given that one of these necessary elements--money damages--clearly constitutes a type of remedy, this species of class action falls squarely within the definition of bottom-up regulatory litigation. (171)

   Although these two types of class actions appear to act in a regulatory manner, the same cannot necessarily be said of all forms of large-scale legal relief used in the United States. For example, Rule 23(b)(1) of the Federal Rules of Civil Procedure allows parties to bring class actions so as to avoid potentially inconsistent judgments or the diminution of other parties' rights. (172) Although these disputes include some of the same elements seen in Rule 23(b)(3) cases--i.e., the class-expanding mechanism and various litigation incentives as a matter of basic procedural law--it is not clear whether damages multipliers would always be available in these types of disputes. (173) While plaintiffs could attempt to certify an individual damages dispute under Rule 23(b)(1) or Rule 23(b)(2) simply as a means of avoiding the more onerous notice provisions under Rule 23(b)(3), such efforts are less likely to succeed given the U.S. Supreme Court's recent decision in Wal-Mart Stores, Inc. v. Dukes. (174) Therefore, cases arising under Rule 23(b)(1) appear to focus more on concerns about fairness and efficiency than on regulation, although a...