The malleability of collective litigation.

• Author: Lavie, Shay
• Position: Introduction through II. Doctrine-Based Malleability - 'Individualizing' the Class, p. 697-728

In Wal-Mart v. Dukes, (1) Wal-Mart avoided class action because employment decisions were made by local supervisors. However, it was Wal-Mart who chose to delegate discretion; by doing so, it made class litigation less likely. Wal-Mart's choice of business administration, then, substantially reduces its expected liability. This is but one example of a broader, overlooked phenomenon. Mass defendants can control, before the occurrence of damages, the scope of future collective litigation. Collective litigation procedures are malleable, sensitive to the defendant's pre-damages choice of actions. This Article develops and substantiates this insight.

This Article elaborates on two manifestations of this phenomenon. First, defendants can avoid class actions by "individualizing" the prospective class, injecting individual differences that preclude class treatment. Second, defendants can selectively contract with future victims, buying out the stronger, leaving only weak victims with a claimable right, and reducing the prospective class's capacity to litigate. Against this backdrop, this Article proposes an array of mechanisms to strengthen collective litigation procedures, including shifting the burden to defendants to justify the business action that prevented collective litigation, and taxing defendants for making the plaintiffs' case weaker.

TABLE OF CONTENTS INTRODUCTION I. THE CONVENTIONAL STORY AND THE ROLE OF COLLECTIVE LITIGATION A. Mass Defendants' Inherent Litigation Advantages 1. Unequal Economies of Scale 2. Selective Settlements--"Cherry-Picking" Plaintiffs. B. Defendants' Litigation Advantages as a Social Problem C. The Solution: Collective Litigation II. DOCTRINE-BASED MALLEABILITY--"INDIVIDUALIZING" THE CLASS A. The Crucial Class Certification Standards 1. Overview 2. Individual versus Common Questions B. Inducing Factual Differences--"Individualizing" the Class 1. Individualizing Written Contracts 2. Creating Choice of Law Differences 3. Varying Oral Communication 4. Heterogeneous Plaintiffs and Products 5. Decentralizing Action III. SELECTIVE PRE-DAMAGES CONTRACTS A. Ex ante Divide-and-Conquer B. Examples 1. Nuisances 2. Products Liability: Disclaimers and Standard-Form Contracts IV. NORMATIVE IMPLICATIONS A. Litigatory Damages B. Judicial Discretion 1. Certifying Individualized Classes 2. Suspicion toward Waivers and the Contemporary Law C. Class-Wide Solutions 1. Individualizing Course of Action 2. Selective Pre-Damages Contracts CONCLUDING REMARKS. INTRODUCTION

During the 2011 term the Supreme Court ruled on the largest civil rights class action suit in U.S. history. (2) In "one of the most expansive class actions ever," (3) hundreds of thousands of women claimed that Wal-Mart--the world's largest private employer (4)--discriminated against them on pay and promotions in "literally millions of employment decisions." (5) However, the main issue before the Justices was not substantive, but procedural. Courts do not automatically authorize class litigation; they first have to certify a lawsuit as a class action. The Wal-Mart certification debate centered on the following question: whether these scores of women "have enough in common to join together in a single lawsuit." (6) As Wal-Mart conferred pay and promotion discretion on its local managers, the plaintiffs' claims might be too individualized to be pursued collectively. While Wal-Mart argued that plaintiffs "do not have enough in common to warrant class-action treatment," the plaintiffs, naturally, stressed the centralized, company-wide policy behind pay and promotion decisions. (7) These are the rules of the game.

This Article moves beyond the Wal-Mart case, which was decided against the plaintiffs, (8) to examine the rules of the game more closely. As Wal-Mart illustrates, the level of individual vis-a-vis common questions is a crucial factor in the decision to authorize class litigation. However, courts and scholars have overlooked that this essential factor--the commonality of the class--is often under the defendant's control. Defendants can, so to speak, "individualize" the prospective class. Wal-Mart chose to delegate discretion to local supervisors; by doing so, it made class litigation less likely. When class treatment is denied, plaintiffs have to pursue the far less effective individual litigation. Wal-Mart's choice of business administration, then, substantially reduces its expected liability regardless of its actual fault. This is but one example of a broader, and largely undiscussed, phenomenon. In virtue of their position, mass defendants can control, before any damages occur, the scope of prospective collective litigation.

The legal definition and structure of collective litigation procedures, therefore, are not exogenous, given facts of life; rather, they are manipulable and sensitive to the defendant's pre-damages choice of actions. I refer to this phenomenon as the ex ante malleability of collective litigation. This Article develops and substantiates this insight, and discusses its legal implications. In doing so, it elaborates on two ways in which mass defendants can frustrate, in advance, collective litigation. The first, a direct extension of the Wal-Mart example, stems from doctrinal gaps that enable defendants to avoid class actions; the second results from the capacity of prospective defendants to selectively contract with future victims.

The perspective taken in this Article is in contrast with existing views, which tend to take certification standards and, more broadly, the very existence of collective litigation, as independent of the defendant's behavior. More generally, this Article attempts to shift attention to what defendants can do to avoid litigation ex ante, before the occurrence of damages. Marc Galanter famously pointed to mass defendants' capacity to "come out ahead," using their post-damages litigation advantages. (9) This Article discusses how mass defendants can come out ahead ex ante as well, even before the occurrence of damages. In fact, although the literature has focused on the post-damages setting, taking pre-damages prophylactic measures to reduce the odds of successful litigation may well be more effective, from defendants' perspective, than resisting collective litigation after damages occur. (10)

The notion that firms conduct their businesses with an eye toward collective litigation does not mean that the desire to block litigation is the only motivation for their behavior. Wal-Mart--although in general notorious for its centralized decision making (11)--may well have had independent commercial reasons, other than preventing class actions, to decentralize pay and promotion decisions. Nevertheless, collective litigation considerations presumably factor into mass defendants' calculus. There is no reason to think that, anticipating liability, defendants do not attempt to avoid costly collective litigation, at least to some extent. Defense lawyers, for example, advise their clients to change their course of action to reduce the risk of collective litigation. (12) Contractual waivers of class litigation, which are inserted to standard-form contracts to reduce liability, proliferate after the Court authorized such waivers. (13) And after Wal-Mart the incentives for firms to decentralize are likewise larger. (14)

This ex ante perspective to collective litigation procedures, the focus of this Article, entails various legal implications. The capacity of defendants to manipulate, in advance, collective litigation procedures is socially undesirable. Collective litigation procedures (or the threat thereof) are aimed at flattening the litigation inequalities between mass defendants and individual plaintiffs, promoting deterrence and fairness; in their absence defendants can often pay less than the harm they inflicted on the group of plaintiffs. Defendants who frustrate collective litigation procedures create, in essence, litigatory damages--the plaintiffs' case is worth less, and sometimes much less, than it should be. In order to rectify this externality, this Article offers a menu of responses, ranging from attention to concrete attempts to avoid collective litigation, to a greater inclination to overcome individual differences among the would-be plaintiffs.

This Article proceeds as follows. Part I presents the conventional view regarding the role of collective litigation. Where one defendant faces individual plaintiffs, the defendant has inherent litigation advantages--it enjoys better economies of scale and can settle selectively with plaintiffs. These litigation advantages mean that the defendant pays less than the harm it inflicted on the plaintiffs. Collective litigation is a procedural tool that largely overcomes these difficulties. This is the common perception, viewing collective procedures as a vehicle to effectively vindicate rights that are otherwise not worth pursuing.

Against this backdrop, this Article further shows that in many situations the defendant is in the position to control, before the occurrence of damages, the creation of successful collective litigation--i.e., the very procedures that are aimed at preventing the defendant from exploiting its litigation advantages. Part II discusses doctrine-based malleability--how defendants can manipulate the commonality requirements to avoid class certification. Courts--Wal-Mart is but one example--are hesitant to authorize class litigation where it raises too many individual questions. Defendants, however, can individualize the class, injecting factual differences among the prospective plaintiffs to avoid future certification. Decentralizing discretion is one way to do so. Other examples include inducing modifications in written contracts, creating artificial choice-of-law differences among future plaintiffs, and orally communicating with the would-be plaintiffs. The...