The class action counterreformation.

• Author: Cabraser, Elizabeth J.
• Position: The Civil Trial: Adaptation and Alternatives

INTRODUCTION: REFORM VERSUS COUNTERREFORMATION I. THE AMERICAN COURTS' CONTRASTING ATTITUDES TOWARD "CLASSIC" CLASS ACTIONS II. MASS WITHOUT CLASS: EXISTING JOINDER ALTERNATIVES UNDER THE FEDERAL RULES A. Rule 20: Permissive Joinder 1. General standards for Rule 20 favor joinder 2. Courts have reached divergent conclusions on application of Rule 20's "transaction" requirement B. Rule 22: Interpleader C. Rule 42: Consolidation/Severance for Common Questions Trials III. CLASS NOUVEAU: EMERGING VARIATIONS ON THE CLASS ACTIONS THEME A. Rule 23(c)(4)(A): "Issues Classes " B. Classwide Punitive Damages Determinations C. The New and Implied Preference for Class Actions over "Representative Actions" in Consumer Cases D. The Class Action Fairness Act (CAFA) E. The "Opt-In" Class CONCLUSION INTRODUCTION: REFORM VERSUS COUNTERREFORMATION

Class actions have been reformed to death. In Amchem Products Inc. v. Windsor (1) and Ortiz v. Fibreboard Corp., (2) the Supreme Court transformed Federal Rule of Civil Procedure 23(b)(3)'s "superiority" requirement into a mandate of perfection, and reformalized the "limited fund" doctrine beyond practical utility. In the case of Amchem, the perfect was the enemy of the good: the multibillion-dollar settlement, rejected by the Supreme Court, was lost forever, and thousands of claimants who would gladly have traded their pristine due process rights for substantial monetary compensation have been consigned to the endless waiting that characterizes asbestos bankruptcies. The $1 billion in contested insurance coverage that Ortiz attempted to capture for the benefit of asbestos victims has similarly evaporated. Sometimes, reform hurts most those whom it is invoked to assist.

On the legislative front, perennial congressional efforts to "reform" class actions by expanding federal diversity jurisdiction and removing the class action procedure from our state court systems were again revived in light of the outcome of the most recent election. (3) The admitted goal of congressional class action "reform" is to save class actions by destroying them as viable state court proceedings and transferring them (at the whim of any single class member or defendant) to the federal system, where, the lobbyists in favor of "reform," at least, have promised the suits will languish and die. (4)

There have been a few nonpartisan, functional additions and refinements to Rule 23: in the past six years the federal class action rule (5) has gained a discretionary appeals feature, (6) and the 2003 amendments include detailed provisions for governing the content and dissemination of class notice, (7) the appointment and compensation of class counsel, (8) and the specifics of the judicial review and approval process for class action settlements. (9) The states have engaged in their own class action innovations. For example, effective January 1, 2002, California enacted a uniform system of class action-specific Rules of Court that govern procedures in all class actions from the filing of the complaint through discovery, case management, class certification, class notice, trial, settlement, and dismissal. (10)

Unfortunately, the extreme wing of the movement for class action reform has also successfully waged war with fact. A recurring motif, for example, in mass media attacks on class actions is that class action attorneys' fees are too high, despite a massive body of empirical evidence that court-awarded fees in class actions are substantially lower than private contingent fee agreements. (11) Class action fees are substantially lower in real terms (as a percentage of dollars recovered) than private contingent fee contracts (which can range from 30% to 40% of recovery--and higher, in especially risky cases) because judicial recognition of the economies of scale inherent in class actions and judicial sensitivity to class members' interests and public sentiment have caused percentage fees to trend downward as class lawyers' efforts achieve ever larger settlements. (12)

As these "reforms" demonstrate, it is far easier to curb class actions than to avoid or reduce the mass frauds and disasters that create mass misery and the need for workable aggregate litigation mechanisms. Making asbestos victims wait longer for compensation or for their much-vaunted "day in court" does not correspondingly lengthen their life spans, nor increase their tolerance for delay. A new social covenant, fondly desired by corporate interests, would dismantle effective civil litigation enforcement in return for an unenforceable corporate promise to tell only the truth and sell only safe products for fair prices. In effect, it is an offer to replace justice with "just trust us." This "bargain" appears too close at hand for comfort.

Yet recently, there has been a judicial awakening, a dawning recognition that class actions were not the sole remaining barrier to utopia and that class action reform may have been "carried to an excess, that itself will need reforming." (13) The counterreformation has begun. It is taking several forms. First is the path of least resistance, utilizing alternatives to traditional, formal class certification to accomplish at least some of its aggregative and preclusive advantages. (14) This is done through adopting, and adapting, the joinder and aggregation alternatives that exist, most notably, in Rules 19 through 24 of the Federal Rules of Civil Procedure. (15) The second, more straightforward, path is the reclamation and revitalization of "partial" or "issues" class certification under Federal Rule of Civil Procedure 23(c)(4)(A).

Intersecting with this approach is a neoclassical analysis that recognizes practicality as a touchstone and rejects the insistence on perfection as the functional equivalent of superiority under Federal Rule of Civil Procedure 23(b)(3). The most recent judicial example of this trend, the decision affirming class certification in Klay v. Humana, Inc., (16) is discussed in this Article. The neoclassical approach adheres to the textual requirements of class certification under Rule 23 and draws upon decades of jurisprudence to restore rational, comparative analysis to the inherently relativistic (but too often absolutist) determination of Rule 23(b)(3)'s "predominance" and "manageability" requirements. (17)

The last, and newest, approach focuses not on the development of judicial choices through "issues class" analysis under Rule 23(c)(4)(A), or on Rule 23(b)(3) superiority criteria, but on the mechanics of class member choice, harnessing the inherent authority and equity jurisdiction of federal courts to engraft alternative procedures, such as the "opt-in" class, that are neither expressly provided for, nor precluded by, the text of Rule 23 itself.

1. THE AMERICAN COURTS' CONTRASTING ATTITUDES TOWARD "CLASSIC" CLASS ACTIONS

   The most recent major opinion on nationwide class action certification authored by a federal appellate court is the Eleventh Circuit's comprehensive decision in Klay v. Humana, Inc., which issued on September 1, 2004. (18) In Klay, a unanimous panel of the Eleventh Circuit affirmed the district (trial) court's certification of a nationwide class of over 600,000 physicians alleging violations of the federal civil RICO (antiracketeering) statute, in connection with major U.S. health care insurers' alleged refusal to make full payment for the physicians' professional services. (19) The Klay class is one of the very largest classes ever certified in U.S. commercial, nonsecurities litigation. Klay signifies the continuing willingness of at least some American appellate courts to recognize the utility and vitality of the representative suit to fairly, efficiently, and cost-effectively provide consistent and binding adjudication of common, recurring questions of fact or law. In recent years, by contrast, some American courts have withdrawn from affirmative embrace of the class action mechanism, in no small part because the mechanism is effective: risk-averse litigants and passive courts seem reluctant to decide important issues in one fell swoop, preferring instead to nibble away at the issues in protracted litigation, hoping that a comprehensive solution will emerge through "market forces." (20)

   What is most striking about the Eleventh Circuit's Klay decision is the policy declaration that concludes it. In Klay, the defendants claimed that a class action was inferior to a host of individual suits in resolving the recurring issues of the litigation, invoking the conventional "free market" multitrial approach to mass litigation to argue that "a single jury, in a single trial, should not decide the fate of the managed care industry." (21) An influential 1995 decision, In re Rhone-Poulenc Rorer, Inc., by the Seventh Circuit, had advanced just such a premise in reversing certification of a mass tort class action, because, with a class action,

   [o]ne jury, consisting of six persons ... will hold the fate of an industry in the palm of its hand. This jury ... [may] hurl the industry into bankruptcy.... [This] need not be tolerated when the alternative exists of submitting an issue to multiple juries constituting in the aggregate a much larger and more diverse sample of decision-makers. (22) To this, the Klay court responded: We find such reasoning unpersuasive and contrary to the ends of justice. This trial is not about the managed care industry; it is about whether several large HMOs conspired to systemically underpay doctors. The issue is not whether managed care is wrong, but whether particular managed care companies failed to live up to their agreements. The plaintiffs are seeking nothing more than the compensatory damages to which they are contractually entitled, and the treble damages to which they are statutorily entitled. We have nothing but the defendants' conclusory, self-serving speculations to support their claim that this trial could devastate the managed care...