The decline of class actions.

• Jurisdiction: United States
• Date: 01 April 2013
• Author: Klonoff, Robert H.

ABSTRACT

This Article argues that in recent years courts have cut back sharply on plaintiffs' ability to bring class action lawsuits, thereby undermining the compensation, deterrence, and efficiency functions of the class action device. Starting in the mid-1990s, courts began expressing concern about the pressure on defendants to settle after a decision certifying a class. The business community also raised concerns that many multi-state class actions were brought in pro-plaintiff, state-court venues. Federal Rule of Civil Procedure 2309, adopted in 1998, enabled defendants to obtain interlocutory review of federal district court decisions certifying class actions, anal the Class Action Fairness Act (CAFA), adopted in 2005, had the effect of shifting most major class actions to federal court. There is now a large body of federal appellate court case law, and as a result of that case law, several disturbing trends have emerged.

First, many courts now require that plaintiffs prove substantial portions of their cases on the merits at class certification. Second, several of the class certification requirements (class definition, numerosity, commonality, adequacy of representation, Rule 23(b)(2), and Rule 23(b)(3)), are now considerably more difficult to establish. Third, a number of courts have rejected class settlements by rigidly applying the requirements for class certification, even though the settlement eliminates the need for a trial. Fourth, a number of courts have essentially nullified so-called "issues classes" under Rule 23(c)(4) by requiring courts to examine whether the case as a whole satisfies the predominance requirement of Rule 23(b)(3). Finally, the Supreme Court has upheld binding arbitration clauses that prohibit resolution of disputes on a classwide basis.

Although some class actions remain viable, such as certain securities fraud, wage and hour, and antitrust class actions, the overall impact of these case law trends has been to curtail substantially the ability of plaintiffs to obtain class treatment. This Article thus concludes by urging courts, rule makers, and Congress to return to a more balanced approach to classwide adjudication.

TABLE OF CONTENTS INTRODUCTION I. FROM 1966 TO ADOPTION OF RULE 23(F) IN 1998 II. REFORMS IN APPELLATE REVIEW AND FEDERAL JURISDICTION A. Federal Rule of Civil Procedure 23(f) B. The Class Action Fairness Act III. NEW RIGOROUS FEDERAL CASE LAW A. Heightened Evidentiary Burdens 1. Resolving Merits-Based Disputes at the Class Certification Stage 2. Resolving Conflicting Expert Testimony 3. Reactions to the Szabo/Hydrogen Peroxide Approach 4. Resolving Challenges to Admissibility (Including Daubert Challenges) at the Class Certification Stage B. Stringent Requirement of a Class Definition C. Heightened Scrutiny of Numerosity D. Heightened Scrutiny of Commonality E. New Approaches to "Adequacy of Representation". F. Cutting Back on Rule 23(b)(2) G. Heightened Scrutiny of Predominance 1. Fraud Cases 2. Choice-of-Law 3. Individualized Damages Issues H. Settlement Certification I. Issues Classes J. Defendants' Ability to Eliminate Class Actions Through Arbitration Clauses IV. THE CURRENT STATE OF CLASS ACTIONS AND AVENUES FOR REFORM A. Exceptions to the Trends B. Possible Approaches to the Recent Trends CONCLUSION INTRODUCTION

The class action device, once considered a "revolutionary" vehicle for achieving mass justice, (1) has fallen into disfavor. Numerous courts have become skeptical about certifying class actions. Some have emphasized the pressures on defendants to settle after class certification is granted, stating that such pressure "is a factor [the court] weigh[s] in [the] certification calculus." (2) These court decisions impact virtually every element of the class certification process. Even requirements that defendants rarely disputed in the past, such as "numerosity" (3) and "commonality," (4) are now potential impediments to class certification. Moreover, many courts now require that plaintiffs put forward considerably more evidentiary proof at the class certification stage than ever before. (5) In some instances, to obtain class treatment, plaintiffs must now prove major portions of their cases on the merits, as opposed to simply showing that they possess evidence capable of convincing a jury of classwide liability and damages.6 As a result of these developments, experienced class action defense counsel can frequently identify a number of promising arguments to defeat certification, even in fairly routine cases. (7)

Until relatively recently, defendants faced three major roadblocks in challenging class certification:

First, for many years following the adoption of the modern federal class action rule (Rule 23) in 1966, most courts believed that the class action device was a salutary tool for the administration of justice. (8) This perception has changed to a significant degree, in part because of judicial experience in applying Rule 23, and in part because of isolated--but highly publicized--instances of abuse in which class attorneys obtained handsome fees while class members received meager recoveries or worthless coupons. (9)

Second, prior to the adoption of Federal Rule of Civil Procedure 23(f) in 1998, defendants typically could not seek immediate appellate review of an order granting class certification. (10) If plaintiffs convinced the district court to certify the class, defendants generally settled prior to trial without the ability to challenge class certification on appeal. (11) Now, under Rule 23(0, defendants can seek discretionary interlocutory review of an order granting or denying class certification. (12) As a result, federal appellate courts (including the U.S. Supreme Court) now play a major role in developing class action jurisprudence.

Third, class counsel with state-law claims often filed their cases in a relatively small number of pro-plaintiff state-court jurisdictions. These cases were handled by elected judges who frequently lacked experience in class actions and were not sympathetic to large, out-of-state defendants. Because of strict limitations on removal in diversity cases, defendants could rarely remove state-law cases to federal court. That situation changed significantly in 2005, when Congress enacted the Class Action Fairness Act (CAFA). (13) The majority of sizable class actions are now brought in federal court in the first instance or immediately removed to federal court. (14)

Rule 23(f) and CAFA have altered the procedural landscape. Defendants can now secure a federal forum much more frequently, and they now have a tool for obtaining immediate appellate review of an order certifying a class. With many more class actions in federal court, and with more class certification decisions being reviewed by appellate courts, federal courts have created new hurdles for plaintiffs seeking class certification. As explained below, these rulings have impacted multiple requirements for class certification. (15) In addition, as discussed below, it is now exceedingly difficult for plaintiffs to secure arbitration on a classwide basis in cases involving signed arbitration agreements.

A critical event leading to Rule 23(f) and CAFA occurred in 1995 when the Seventh Circuit decided In re Rhone-Poulenc Rorer Inc. (16) In an opinion authored by Judge Posner, the Seventh Circuit granted mandamus and reversed a decision certifying a class of hemophiliacs who had received transfers of blood contaminated by the HIV virus. The Seventh Circuit found that mandamus was justified in part because the potentially bankrupting classwide verdict put the defendant "under intense pressure to settle." (17) The Supreme Court and several federal circuits quickly followed Rhone-Poulenc with important decisions curtailing class actionsJ8 These decisions, in turn, created a climate for the adoption of Rule 23(f) and CAFA.

This Article analyzes the key developments that have impacted modem class action law. Part I briefly describes the period from the enactment of modern Rule 23 in 1966 to the mid-1990s. It shows that for much of this period, courts were generally receptive to class actions, even for sprawling mass tort cases such as asbestos suits. Part II describes events leading to the adoption of Rule 23(f) in 1998 and the enactment of CAFA in 2005. Part III identifies and critiques the most important changes in the case law that have taken place. These include federal district court and appellate decisions that:

* apply heightened evidentiary standards that require the court to resolve disputed issues bearing on class certification, even if those issues overlap with the merits;

* impose more demanding criteria in evaluating the class definition;

* find Rule 23(a)'s numerosity requirement unsatisfied based on a lack of supporting evidence in circumstances where, as a matter of common sense, the class includes far more than the minimum number necessary to establish numerosity;

* heighten the commonality requirement under Rule 23(a) by requiting not only a common question of law or fact but a question that is central to the outcome of the case; reject class certification out of fear that, because plaintiffs have not brought all possible claims, class members may be later barred from bringing those claims as a result of issue or claim preclusion--and therefore the class representatives and counsel are inadequate to represent the putative class;

* reject class certification under Rule 23(b)(2) because monetary claims are included with claims for declaratory and injunctive relief, even though the declaratory and injunctive claims are the most important part of the case;

* reject class certification under Rule 23(b)(3) because individualized issues are involved, without analyzing whether the common issues outweigh the individualized issues; reject class settlements by rigidly applying the criteria for class certification, as if the case were...