Will aggregate litigation come to Europe?

Vanderbilt Law Review

Volumn 62, Issue 1, 2009, Pages 179-210

  Issacharoff, Samuel ^a   Miller, Geoffrey P ^a  

^a NEW YORK UNIVERSITY   (United States)

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EID: 62549154932     PISSN: 00422533     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (114)

1. 521 U.S. 591 (1997) (decertifying class settlement of asbestos claims).
2. 527 U.S. 815, 830 (1999) (same).
3. The settlement agreement is available at http://www.merck.com/newsroom/ vioxx/pdf/Settlement-Agreement.pdf (last visited Jan. 4, 2009).
4. One of us (Miller) confesses that he wishes to do so from time to time.
5. Richard Nagareda discusses this convergence in his Article in this volume. See Richard A. Nagareda, Aggregate Litigation Across the Atlantic and the Future of American Exceptionalism, 62 VAND. L. REV. 1 (2009).
6. See, e.g., Samuel Issacharoff, Group Litigation of Consumer Claims: Lessons of the American Experience, 34 TEX. INT'L L.J. 135, 136 (1999) (discussing mechanisms for aggregating consumer claims);
7. Samuel Issacharoff, Regulating After the Fact, 56 DEPAUL L. REV. 375, 380-81 (2007) (highlighting the effectiveness of class actions in compensating victims of securities fraud);
8. Geoffrey P. Miller, Class Actions, in I NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW 257-62 (Peter Newman ed., 1998) (explaining the economic rationale for class actions);
9. Geoffrey P. Miller & Jonathan R. Macey, The Plaintiffs' Attorney's Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. CHI. L. REV. 1, 8-11 (1991) (same).
10. See DIETMAR BAETGE, CLASS ACTIONS, GROUP LITIGATION & OTHER FORMS OF COLLECTIVE LITIGATION-GERMANY 8-9 (2007), available at http://globalclassactions.stanford.edu/PDF/Germany-National- Report.pdf (summarizing the Deutsche Telekom case).
11. Kapitalanleger-Musterverfahrensgesetz [Act on the Initiation of Model Case Proceedings in Respect of Investors in the Capital Markets], Aug. 16, 2005, BGB1. I at 2437, translated at http://www.bmj.bund.de/kapmug;
12. see also BAETGE, supra note 7, at 12-13 (describing procedures established by Model Case Act).
13. See BAETGE, supra note 7, at 13 (explaining that after an appellate court conducts the model case proceedings, a trial court decides all of the individual cases subject to the model ruling);
14. Laurel J. Harbour & Marc E. Shelley, The Emerging European Class Action: Expanding Multi-Party Litigation to a Shrinking World, 18 PRAC. LITIGATOR 23, 29 (July 2007) ("Under the Capital Markets Act, claimants must opt in and each must file an individual lawsuit.");
15. Deutsch Telekom: Bad Connection, ECONOMIST, Apr. 12, 2008, at 74, available at http://www.economist.com/business/displaystory. cfm?story-id=11021139 ("Even if the model plaintiffs are ultimately successful, all the other claimants must then sue separately in a lower court - a process which could take 20 years.");
16. see also BAETGE, supra note 7, at 20 (noting that "investors who have joined model proceedings at a later stage or have not brought a suit at all are not bound by the model decision").
17. Burgerlijk Wetboek [BW] [Civil Code] arts. 3:305a-b;
18. see IANIKA TZANKOVA & D.F. LUNSINGH SCHEURLEEE, CLASS ACTIONS, GROUP LITIGATION AND OTHER FORMS OF COLLECTIVE LITIGATION DUTCH REPORT 7-9 (2007), available at http://www.law.stanford.edu/display/images/dynamic/events-media/ Netherlands-National-Report.pdf (summarizing the main elements of the Dutch Act on Collective Settlements).
19. See Harbour & Shelley, supra note 9, at 28 (discussing collective settlement actions in the Netherlands);
20. ShellSettlement.com, http://www.shellsettlement.com/ (last visited Jan. 4, 2009) (providing information related to the proposed settlement).
21. 516 U.S. 367, 369 (1996).
22. 521 U.S. 591, 628 (1997).
23. John C. Coffee, Jr., Class Action Accountability: Reconciling Exit, Voice, and Loyalty in Representative Litigation, 100 COLUM. L. REV. 370, 422 (2000).
24. 527 U.S. 815, 864-65 (1999).
25. 521 U.S. at 629 ("Rule 23, which must be interpreted with fidelity to the Rules Enabling Act and applied with the interests of absent class members in close view, cannot carry the large load [that the defendants], class counsel, and the District Court heaped upon it.").
26. 472 U.S. 797, 803 (1985).
27. See, e.g., John C. Coffee, Jr., Reforming the Securities Class Action: An Essay on Deterrence and Its Implementation, 106 COLUM. L. REV. 1534, 1535 (2006) (discussing the shortcomings of class actions in achieving compensation for plaintiffs).
28. 521 U.S. at 624 ("No settlement class called to our attention is as sprawling as this one.").
29. See generally Marc Galanter, The Vanishing Trial, 1 J. EMPIRICAL LEGAL STUD. 459, 460-64 (2004) (discussing the declining number of trials in the United States).
30. See, e.g., Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4(b) (2000) (establishing, inter alia, procedure for appointing lead plaintiff with most significant financial stake in the controversy);
31. FED. R. CIV. P. 23(g) (establishing procedures for appointing class counsel);
32. FED. R. CIV. P. 23(h) (establishing procedures for determining attorney fee awards).
33. See Theodore Eisenberg & Geoffrey P. Miller, Attorney Fees in Class Action Settlements: An Empirical Study, 1 J. EMPIRICAL LEGAL STUD. 27, 28 (2004) (showing that regardless of formal compensation system, size of fund is best predictor of attorney compensation).
34. See, e.g., Thomas Burch, Necessity Never Made a Good Bargain: When Consumer Arbitration Agreements Prohibit Class Relief, 31 FLA. ST. U. L. REV. 1005, 1027 (2004) (acknowledging the tendency for potential plaintiffs in consumer cases to be deterred from bringing meritorious claims for small recoveries).
35. Barratry is traditionally defined as the "offence of frequently exciting and stirring up suits and quarrels between [parties]." WILLIAM BLACKSTONE, 4 COMMENTARIES *134. A related offence, champerty, is the division of the proceeds from litigation between the party in interest and a financial backer of the litigation. It is defined historically as a bargain for the "maintenance" of a suit constituting "an officious intermeddling in a suit that no way belongs to one, by maintaining or assisting either party with money or otherwise, to prosecute or defend it." Id. Some jurisdictions in the United States have entirely abandoned the common law claims of champerty, maintenance, and barratry, in favor of laws governing contingency fees, misconduct, and the bringing of frivolous suits.
36. See, e.g., Saladini v. Righellis, 687 N.E.2d 1224, 1224, 1226-27 (Mass. 1997) (declining to recognize the doctrines of champerty, barratry, and maintenance);
37. Osprey, Inc. v. Cabana L.P., 532 S.E.2d 269, 277-78 (S.C. 2000) (abolishing champerty as a defense).
38. Judith Resnik, Money Matters: Judicial Market Interventions Creating Subsidies and Awarding Fees and Costs in Individual and Aggregate Litigation, 148 U. PA. L. REV. 2119, 2127-29 (2000).
39. For a more elaborate treatment of this issue, see Samuel Issacharoff, Regulating After the Fact, 56 DEPAUL L. REV. 375 (2007).
40. Jonathan D. Glater, Class-Action Lawyer Gets 30 Months in Prison, N.Y. TIMES, June 3, 2008, at C3 (discussing plea deals of Melvyn I. Weiss and William S. Lerach for their roles in "concealing illegal kickbacks to plaintiffs").
41. Abha Bhattarai, Class-Action Lawyer Given 5 Years in a Bribery Case, N.Y. TIMES, June 28, 2008, at C3 (noting that Richard F. Scruggs, who gained fame for winning a multi-billion dollar settlement from the tobacco industry in the 1990s, was sentenced for attempting to bribe a Mississippi judge in a dispute over an insurance settlement arising out of Hurricane Katrina). Notably, the New York Times could not distinguish between court-supervised class actions, and private aggregations of individual cases - thus the reference to Richard Scruggs, a mass harm plaintiffs' lawyer, as a "class-action lawyer." Id.
42. See, e.g., Julie Kay, Asbestos Attorney Accepts 10-Year Term in Plea Deal, DAILY BUS. REV. (Miami), Apr. 19, 2007, available at http://www.law.com/jsp/article.jsp?id=1176887061450 (noting that Miami attorney Louis Robles was indicted for "misappropriating $13.5 million in settlements").
43. Alberto Ades & Rafael Di Telia, National Champions and Corruption: Some Unpleasant Interventionist Arithmetic, 107 ECON. J. 1023, 1025 (1997);
44. Vito Tanzi, Corruption Around the World: Causes, Consequences, Scope and Cures, 45 INT'L MONETARY FUND STAFF PAPERS 559, 566-67 (1998).
45. Daron Acemoglu & Thierry Verdier, The Choice between Market Failures and Corruption, 90 AM. ECON. REV. 194, 194-95 (2000);
46. Alicia Adsera et al., Are You Being Served? Political Accountability and Quality of Government, 19 J.L. ECON. & ORG. 445, 450 (2003);
47. Simeon Djankov et al., The Regulation of Entry, 117 Q.J. ECON. 1, 35 (2002);
48. Rafael La Porta et al., The Quality of Government, 15 J.L. ECON. & ORG. 222, 239 (1999);
49. Andrei Shleifer & Robert W. Vishny, Corruption, 108 Q.J. ECON. 599, 600 (1993).
50. Djankov et al., supra note 31, at 35.
51. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985).
52. This Section is a pared down version of arguments more fully developed in Samuel Issacharoff & Catherine M. Sharkey, Backdoor Federalization, 53 UCLA L. REV. 1353 (2006),
53. and Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. PA. L. REV. 1649 (2008).
54. New State Ice Co. v. Liebmann, 285 U.S. 262, 311 (1932) (Brandeis, J., dissenting).
55. As expressed in the legislative history of the Class Action Fairness Act: The reason for th[e] dramatic increase in state court class actions cannot be found in variations in class actions rules; after all, the rules governing the decision whether cases may proceed as class actions are basically the same in federal and state courts - and of course, they are the same within states, i.e., the same in "magnet" jurisdictions such as Madison County and St. Clair County, Illinois, as they are in more easily accessible jurisdictions such as Cook County, Illinois. S. REP. No. 109-14, at 13 (2005),
56. reprinted in 2005 U.S.C.C.A.N. 3, 13;
57. see also id. at 21 (discussing the filing of frivolous class actions);
58. John H. Beisner & Jessica Davidson Miller, They're Making a Federal Case Out of It... in State Court, 25 HARV. J.L. & PUB. POL'Y 143, 155 (2001) (finding that "class action lawyers are bringing a large number of cases in a small number of state courts that have become 'magnets' for interstate class actions").
59. This is the effect of the Class Action Fairness Act of 2005 ("CAFA"), 28 U.S.C. §§ 1712-1715 (2000).
60. See 28 U.S.C. § 1407 (2000) (authorizing the Judicial Panel for Multidistrict Litigation to consolidate actions in federal courts "for the convenience of parties and witnesses and [to] promote the just and efficient conduct of such actions").
61. See Samuel Issacharoff, Settled Expectation in a World of Unsettled Law: Choice of Law after the Class Action Fairness Act, 106 COLUM. L. REV. 1839, 1840-44 (2006) (examining conflicts of law in national market cases).
62. Class action procedures obviously vary across European countries. For a useful country-by-country table summarizing major recent developments in aggregate litigation in Europe, see Nagareda, supra note 5, at 21-25.
63. For more extensive comparative analysis of current European law, see JULES STUYCK ET AL., AN ANALYSIS AND EVALUATION OF ALTERNATIVE MEANS OF CONSUMER REDRESS OTHER THAN REDRESS THROUGH ORDINARY JUDICIAL PROCEEDINGS (2007), http://ec.europa.eu/consumers/redress/reports-studies/comparative-report-en.pdf;
64. see also RACHAEL MULHERON, REFORM OF COLLECTIVE REDRESS IN ENGLAND AND WALES: A PERSPECTIVE OF NEED 79-120 (2008), http://www. civiljusticecouncil.gov.uk/files/collective-redress.pdf.
65. See Fabrizio Cafaggi & Hans-W. Micklitz, Collective Enforcement of Consumer Law: A Framework for Comparative Assessment, 16 EUR. REV. PRIVATE L. 391, 417 (2008) ("The majority of Member States in Europe start from the premise that consumer organizations should be given a role in administrative and/or in judicial enforcement.");
66. Harbour & Shelley, supra note 9, at 28 (discussing approaches of Spain and the Netherlands). A recent exception is Spain, which does not restrict lead plaintiff rights solely to organizations - groups of individuals acting through a single lawyer can also maintain group actions.
67. See FED. R. CIV. P. 23(a) (listing the prerequisites for class actions). Additional requirements apply in securities fraud cases, as we will discuss below.
68. See Geoffrey P. Miller, Competing Bids in Class Action Settlements, 31 HOFSTRA L. REV. 633, 634 & n.2 (2003) (citing literature indicating that "representative plaintiffs are usually mere eponyms").
69. For a perceptive analysis stressing the problems of accountability for consumer organizations, see Cafaggi & Micklitz, supra note 41, at 391 ("Consumer associations empowered with enforcement need to become more accountable towards members and the general public.").
70. Harbour & Shelley, supra note 9, at 28 (noting that Spain permits consumer organizations to bring actions on behalf of both their membership and unidentified victims).
71. In the United States, for example, class actions have been brought against a company that manufactures chewing tobacco, claiming that the defendant illegally manipulated the market in this product. E.g., In re Mass. Smokeless Tobacco Litig., No. 03-5038-BLS1 (Mass. Sup. Ct. Apr. 7, 2008). Because chewing tobacco is often considered to be a dangerous product, one could imagine that no consumer organization would take this case because the result, if the case succeeded, is that chewing tobacco would be cheaper and easier to obtain. One of us (Miller) has acted as an expert witness in a number of these cases.
72. 15 U.S.C. § 78u-4 (2000).
73. H.R. REP. NO. 104-369, at 31 (1995) (Conf. Rep.) (noting "abusive practices committed in private securities litigation," including "routine filing of lawsuits against issuers of securities and others whenever there is a significant change in an issuer's stock price, without regard to any underlying culpability of the issuer").
74. Id. at 34-35.
75. See Michael A. Perino, Institutional Activism through Litigation: An Empirical Assessment of Public Pension Fund Participation in Securities Class Actions 1 (St. John's Univ. Sch. of Law Legal Stud. Research Paper Series, Paper No. 06-0055, 2006), available at http://papers.ssrn.com/abstract=938722.
76. Id.
77. See Stephen J. Choi & Robert B. Thompson, Securities Litigation and Its Lawyers: Changes During the First Decade After the PSLRA, 106 COLUM. L. REV. 1489, 1489 (2006) (finding that "individual law firms' market shares . . . suffered no appreciable change in the wake of the PSLRA").
78. See id. (finding that "few plaintiff law firms either entered or exited the market after the enactment of the PSLRA").
79. WILLIAM SHAKESPEARE, KINGQ LEAK act I, sc. 4.
80. See Cafaggi & Micklitz, supra note 41, at 391 ("Pecuniary and non-pecuniary incentives need to be provided for plaintiffs' lawyers. These may not be only market driven, but also public policy oriented, thus affecting the selection of claims to be litigated.").
81. Bundesverfassungsgericht [BVerfG] [Federal Constitutional Court] Dec. 12, 2006, Entscheidungen des Bundesverfassungsgerichts [BverfGE] 1 BvR 2576/04, available at http://www.bverfg.de/entscheidungen/rs20061212-1bvr257604. html.
82. Since the 1990s, England and Wales have allowed the conditional fee model, which takes two forms: a "no win no fee" agreement and an uplifted fee if the case is successful. In either case, the size of the increased fee is independent of the award or settlement in the case. CHRISTOPHER HODGES, GLOBAL CLASS ACTIONS PROJECT COUNTRY REPORT: ENGLAND AND WALES 27-28 (2007), available at http:// globalclassactions.stanford.edu/PDF/England-Legislation.pdf. Other European nations have experimented with, or are considering, introducing this system of financing litigation.
83. Winand Emons, Conditional Versus Contingent Fees, 59 OXFORD ECON. PAPERS 89, 89-90 (2007).
84. For a detailed history of the adoption of the conditional fee system in England, see Richard L. Abel, An American Hamburger Stand in St. Paul's Cathedral: Replacing Legal Aid with Conditional Fees in English Personal Injury Litigation, 51 DEPAUL L. REV. 253, 253-57 (2001) (outlining the history of and policy behind the adoption of contingent fees in England).
85. See IMF (Australia) Ltd Home Page, http://www.imf.com.au/ ("IMF is a publicly listed company providing funding of legal claims and other related services where the claim size is over $2 million.") (last visited Jan. 4, 2009).
86. The Australian Supreme Court upheld such arrangements against the claim that they violate rules against champerty and maintenance. See Campbells Cash & Carry Pty Ltd. v. Fostif Pty Ltd. (2006) 229 A.L.R. 58, available at http://www.austlii.edu.au/au/cases/cth/HCA/2006/41.html ("By 'organising' persons into a legal action for the vindication of their legal rights, representative proceedings are not creating controversies that did not exist.").
87. Cf. KATHLEEN M. SULLIVAN & GERALD GUNTHER, CONSTITUTIONAL LAW 64 (15th ed. 2004) ("Third-party standing is thus more likely to be allowed the closer the relationship and the greater the identity of interest with the rightholder . . . .").
88. One such case famously occurred in the United States. See Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348, 1349 (7th Cir. 1996) (involving a class action settlement case in which class members were paid a settlement award, but after the attorneys' fees for obtaining the settlement were deducted from their award, many class members yielded a net loss).
89. Subsequently Congress banned the practice under the Class Action Fairness Act. See 28 U.S.C. § 1713 (2000) (allowing court to "approve a proposed settlement under which any class member is obligated to pay sums to class counsel that would result in a net loss to the class member only if the court makes a written finding that nonmonetary benefits to the class member substantially outweigh the monetary loss").
90. Free rider problems can also be problematic. If the consumer organization is allowed to seek compensation for all injured consumers, not just those who are members of the organization, then consumers would lose the incentive to join the organization in the first place because by doing so they would be subsidizing class members who did not join.
91. The opposite problem may also be present. If an organization has strong views on controversial topics, the provision of government funding could represent a potentially troublesome subsidy by the government of private ideological activism.
92. Quebec has apparently come close to this approach by limiting class members' liability to nominal costs. Garry D. Watson, Class Actions: The Canadian Experience, 11 DUKE J. COMP. & INT'L L. 269, 274 (2001). Ontario has established a public corporation charged with reimbursing unsuccessful lead plaintiffs for cost obligations.
93. Id. at 274-75.
94. Legislative Decree, Sept. 6, 2005, No. 206, art. 139 (Italy), available at http://www.sviluppoeconomico.gov.it/pdf-upload/documenti/ phphBdUES.pdf;
95. Stefano Capiello, Supervision and Class Action Against Conflicts of Interest in Universal Banking: The U.S. Experience vis-à-vis Recent Italian Initiatives 21-25 (N.Y.U. Hauser Global Law Working Series, Paper No. 03/2007, 2006), available at http://papers.ssrn.com/sol3/papers.cfm? abstract-id=949896.
96. DIETMAR BAETGE, CLASS ACTIONS, GROUP LITIGATION & OTHER FORMS OF COLLECTIVE LITIGATION: GERMANY 31 (2007), available at http://globalclassactions.stanford.edu/PDF/Germany-National- Report.pdf.
97. See Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objectors in Class Action Litigation: Theoretical and Empirical Issues, 57 VAND. L. REV. 1529, 1532 (2004) (deriving this figure from a study examining several thousand class action decisions between 1993 and 2003).
98. Age Discrimination in Employment Act of 1967, 29 U.S.C. § 626(b) (2000) (establishing the opt-in requirement for ADEA).
99. Fair Labor Standards Act of 1938, 29 U.S.C. § 216(b) (2000) (establishing the opt-in requirement for FLSA).
100. Equal Pay Act of 1963, 29 U.S.C. § 206(d) (2000) (establishing that the EPA is subject to the opt-in provisions of 29 U.S.C. § 216(b)).
101. See, e.g., Su v. Elec. Arts, Inc., No. 6:05-cv-131-Orl-28JGG, 2006 WL 4792780, at *1 (M.D. Fla. Aug. 29, 2006) (finding 76 members out of 110 members in the class joined FLSA class action);
102. Lenahan v. Sears, Roebuck & Co., Civ. No. 02-0045, 2006 WL 2085282, at *13 (D.N.J. July 24, 2006) (finding 7500 of 16,252 class members joined FLSA class action).
103. James D. Cox & Randall S. Thomas, Letting Billions Slip Through Your Fingers: Empirical Evidence and Legal Implications of the Failure of Financial Institutions to Participate in Securities Class Action Settlements, 58 STAN. L. REV. 411, 412 (2005).
104. Nienaber v. Citibank (South Dakota) N.A., No. Civ. 04-4054, 2007 WL 752297, at *2 (D.S.D. Mar. 7, 2007).
105. Defendants apparently prefer the opt-in rule, notwithstanding its impact on their ability to obtain a comprehensive settlement, because of the substantially lower damages they expect to pay under this procedure, a point we address below.
106. See supra note 7.
107. FED. R. CIV. P. 23(e)(2).
108. See Geoffrey P. Miller & Lori S. Singer, Nonpecuniary Class Action Settlements, 60 LAW & CONTEMP. PROBS. 97, 106 (Autumn 1997) (examining reverter clauses). Reverter clauses offer the benefit that they may be valued, for purposes of calculating percentage attorneys' fees, as if the entire benefit had gone to the class, even though the defendant expects to receive some of the settlement consideration back.
109. See Boeing Co. v. Van Gemert, 444 U.S. 472, 481-82 (1980) (ruling that class counsel attorneys' fees may be calculated based on the total funds potentially available for relief rather than the actual payout).
110. This is probably due to the fact that the PSLRA requires that percentage fees be based on the amount of any damages "actually paid to the class." 15 U.S.C. § 78u-4(a)(6) (2000). This provision reverses the presumption in Boeing Co. v. Van Gemert that fees can be based on the full amount that would be paid if all class members filed claims. 444 U.S. at 481-82.
111. The term itself is formulated in 1 FRIEDRICH A. HAYEK, LAW, LEGISLATION AND LIBERTY: RULES AND ORDER 95 (1973). Hayek attributed this view to a Cartesian belief that all advances in human society and knowledge were the product of reasoned design. Id. at 10-12.
112. Id. at 118-22.
113. See RICHARD A. POSNER, LAW, PRAGMATISM, AND DEMOCRACY 275-76 (2003) (analogizing Hayek's "spontaneous order" theory to Darwin's theory of natural selection).
114. See Paul G. Mahoney, The Common Law and Economic Growth: Hayek Might Be Right, 30 J. LEGAL STUD. 503, 504 (2001) ("[Friedrich Hayek] argues vigorously that the English legal tradition (the common law) is superior to the French (the civil law), not because of substantive differences in legal rules, but because of differing assumptions about the roles of the individual and the State.").