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Product Details
| ISBN-13: | 9780226816739 |
|---|---|
| Publisher: | University of Chicago Press |
| Publication date: | 02/19/2022 |
| Edition description: | First Edition |
| Pages: | 272 |
| Sales rank: | 812,312 |
| Product dimensions: | 6.00(w) x 9.00(h) x 0.90(d) |
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CHAPTER 1
The Ironic History of Class Actions
A class action is a special lawsuit. Most of the time you file a lawsuit, you are suing only for yourself. You are not allowed to sue, say, for your neighbor, too, unless your neighbor has given you the power of attorney over him or her. If you have ever written a will, you know that giving someone power of attorney over you is a big deal and involves lots of paperwork. The class action cuts through all this red tape. It permits you to sue, not just for yourself, but for everyone else who was injured by the same wrongdoing. It does not matter if that means hundreds of people, thousands of people, or even millions of people: one person can sue for all of them. If a corporation steals $100 from one thousand people, the class action permits one person to sue the corporation for all one thousand. No power of attorney is needed.
We don't let just anyone file a class action lawsuit. There are special procedures in place to make sure the person who filed it and his or her lawyer are qualified to represent all the other class members. In addition, we let most class members exit the lawsuit if any of them want to. Moreover, the person who sues on behalf of everyone else is not allowed to keep all the money; he or she has to share it with the others. Still, it is not hard to see the special power of the class action lawsuit. In the example just given, it transformed someone's measly $100 lawsuit into a $100,000 lawsuit. A $100,000 lawsuit is a lot scarier to a defendant than a $100 lawsuit is. It is hard to find a lawyer who will file a lawsuit for $100. It is not hard to find a lawyer willing to file one for $100,000.
Although many class action lawsuits are filed against governments and government officials, most of the defendants in class actions are corporations. Class actions against corporations will be the focus of this book because those are the class actions that conservatives love to hate the most. Suing the government is not as unpopular on the right; indeed, we are often the ones bringing those lawsuits.
As you can imagine, big corporations hate class actions. Honestly, I don't blame them. They have literally paid out hundreds of billions of dollars in class action judgments over the last fifty years. If the class action had never been invented, they would have kept almost all that money for themselves. As I said, no one is going to sue a corporation for $100 on his or her own; without the class action, corporations would keep all the hundreds of dollars they take from us.
And that is not all. As I will explain in a later chapter, many class actions force companies, not to cough up money, but to change their behavior, relief that we lawyers call an injunction. Most injunctive class actions are filed against governments, but many of them are brought against companies, too. Companies don't like these class actions either.
But being forced to defend themselves when they do something wrong is not the only reason corporations don't like class actions. Corporations complain that class actions force them to pay up or change their behavior even when they don't do something wrong: because class actions are so expensive and risky to defend, they say they have no choice but to settle them. And there's some truth to that. No one thinks the class action lawsuit is perfect, least of all me.
The Invention of the Modern Class Action
You would think, then, that big corporations would have had a lot to say when the class action was invented in 1966. I say invented in 1966 because that's when the class action of today was created. There was a class action device before then, but it was not as powerful: class members either could win only injunctive relief or had to go through the trouble of opting in to the action in order to win money damages. Since 1966, class members have been included unless they go through the trouble of opting out. Because so few people bother to opt in or opt out when they have lost only small amounts of money, the change from opt in to opt out transformed class actions from lawsuits that no one joined to lawsuits in which everyone was joined.
It seems pretty obvious that this change would increase the liability corporations face for their misdeeds. As I said, you'd therefore think corporations would have had their lobbyists out in full force to stop it. You'd think they would have run commercials on television and taken advertisements out in newspapers and magazines declaring that America would go down the drain if the new class action wasn't stopped. Those are the things big corporations do today when they don't like something. Remember the Harry and Louise commercials they ran to stop Bill Clinton's health care plan?
So what did the corporations say back in 1966 when the new class action was created? Very little. The class action became the law without much more than a whimper. What happened?
It's hard to say exactly because so much time has passed now, but we know a few things. The first thing we know is that the advent of the new class action was not a well-publicized affair. It was not created by Congress or by a state legislature. There were no public hearings, no newspaper editorials, no marches on Washington. The class action was created by an obscure committee of lawyers, law professors, and judges. The committee was appointed by the chief justice of the US Supreme Court to propose to the Court new procedural rules for the federal court system. One of the committee's proposals was to overhaul the class action. The overhaul was controversial among the committee members because it was a new idea to allow someone to represent you without your explicit permission. The opt-in class action had required such permission; the opt-out class action does not. After all, if your representative does a bad job and loses the class action case, you lose your right to sue on your own; you rise or fall with some stranger you may not know and may not ever have heard of. Although the committee included safeguards in the new class action — you have the right to be notified and to opt out — what if you never received the notice and didn't know someone else was controlling your rights? The new class action binds you to whatever happens in the case just the same. Many of the members of the committee did not like this. They thought this new class action rule would be an affront to people's autonomy, to people's right to control their own legal claims.
But most of the committee members thought this was not that big of a problem, and they submitted their proposal to the Supreme Court without much fanfare. They sent copies of it to some law schools, law firms, and judges. But they didn't widely advertise it. They never published it anywhere. As a result, not many people may have known about it. A fewlawyers and lawyers' groups sent letters to the committee — most of them opposing the new class action — but not many. As far as I can tell, corporate America had little to nothing to say. Maybe the business community didn't stop the new class action because it didn't know about it?
Or maybe the business community knew about it but didn't understand what it would do to it? As obvious as it seems today, the truth of the matter is that not many people seemed to understand what the new class action would do, including the members of the committee. It didn't occur to many of them that there was a big difference between opt in and opt out for people who had been harmed only a small amount because, as I said, such people would not bother going through the trouble to opt in or out of a class action. The old system basically excluded all such people from class action lawsuits; the new system would include all such people. Moving from opt in to opt out was like flicking on a light switch of corporate liability for small harms. But not many people seemed to understand that back then.
In fairness, I can see why. There were not a whole lot of laws back in 1966 that people could use to sue corporations in a class action even if they had wanted to. There were antitrust laws and some fraud laws that shareholders and consumers could use, but it was not until later that many of the laws we use today were put on the books. Thus, even if people had appreciated the significance of the new class action for small harms, there weren't that many small-harm legal claims to bring back then.
I have never found these conventional hypotheses fully satisfying. For one thing, it is hard to believe that there weren't at least some corporations aware of the new class action proposal; after all, their law firms were aware of it and wrote letters to the committee about it. Moreover, although corporate America didn't have the lobbying apparatus back then that it has today, it knew how to fight legal changes it didn't like even then (and, indeed, it was involved in other legal fights around this time). Finally, although it is true that much of the grist for the class action mill arose after 1966, as I noted, there were several laws that everyone at the time understood would form the basis for class actions against corporations.
I have always wondered whether some corporations may have suspected that the new class action was going to be a good thing for them and that is what stayed their hand. Although it seems hard to fathom today, there is at least a bit of evidence pointing in that direction in 1966: several members of the committee that proposed the new rule said as much. That's one of the reasons I call this chapter the ironic history of class actions.
Why did some people think the new class action might be good for corporations? Class actions provide companies something academics call global peace — they can resolve their liabilities to a bunch of people in one fell swoop. Some thought corporations would take advantage of class actions to obtain global peace on the cheap by colluding with the class action lawyers who sue them; some feared corporations would bribe class action lawyers into accepting a lowball settlement offer in exchange for the promise of a big fee award. The committee put a mechanism in the rule to stop sweetheart deals like this: no class action can be settled and no fees awarded without the approval of a judge. But the dissenters worried that wasn't good enough because corporations could collude with class action lawyers to bring the cases in favorable courts with pushover judges. There were even some cases back then in which corporations had apparently attempted to do such things under the old class action rule but were stymied by the opt-in requirement: who would opt in to a bad settlement? But, once the class action became opt out, the dissenters worried corporations could trap class members into bad settlements if they were not paying close attention to what was going on. As fanciful as all this might seem, it's not so fanciful that people don't still worry about collusive settlements even today.
But whatever the reasons, letting the new class action become law was no doubt the biggest mistake corporate America has ever made with regard to our system of civil justice. If there have been any collusive settlements over the last fifty years, they have been far, far, far outnumbered by noncollusive ones.
Almost immediately, too, corporations realized their mistake. Only six years after the new class action became law, one of the lobbying organizations for corporate defense lawyers sent the committee that proposed the new class action a scathing report criticizing what it had done. All the complaints we hear today about class actions can be found in the 1972 report: "judgments of astronomical size"; "legalized blackmail"; "ransom"; "no reasonable alternative other than settlement ... regardless of the merits"; "[no] procedural and substantive fairness to the party opposing the class"; "the [class] attorney's potential fee." The lobbyists begged the committee to change the class action rule back to opt in.
The committee took these complaints seriously, and it studied its new class action rule for several years. But, in the end, it decided to keep the opt-out class action. Still, every few years since then, lobbyists for corporate America have asked the rulemaking committee to go back to opt in — and, every few years, those requests are refused. Indeed, even though no one anymore really expects the committee to ever go back to opt in, to this day, corporate lobbyists still ask for it. These efforts have not been entirely for naught; committees have tweaked the class action rule a bit over the years to benefit corporate defendants. But the big change — the 1966 change — has survived intact.
The Class Action in Congress
With little success to show before the rulemaking committees, corporate America has gone to Congress. Congress has the power to change or even eliminate the class action rule in federal court. Hence, corporate lobbyists have asked Congress over and over again to return the class action to opt in or, short of that, to weaken the class action in all sorts of other ways. But, like the rulemakers, Congress has done little to help. In 1995, Congress enacted a law making it easier for courts to throw out meritless securities fraud class actions. And, in 2005, it enacted a law moving more class action lawsuits from state court (where the judges are often thought more anticorporation) to federal court. But that's pretty much it. Even in the most conservative and Republican of Congresses, no one seriously considered going back to opt in.
Indeed, there is something interesting to note about these conservative Republicans in Congress. Until the 1980s, they didn't seem to have much of a beef with class actions at all. Indeed, during the 1970s, most of the bills to weaken class actions were introduced by Democrats and not Republicans. For example, in 1978, a bill was introduced that would have ended small-harm class actions altogether. It was introduced by Ted Kennedy. At the behest of the Carter Administration. What happened?
As I explain in a later chapter, there had been a long tradition among conservative intellectuals and politicians in favor of private enforcement of the law over government enforcement of the law. As late as the 1960s and 1970s, it was not uncommon to see Republicans in Congress support new legal rules on the condition that they would be enforced only by private lawsuits and not the government. Democrats, as is their wont, were more interested in government. Hence, the Carter administration's 1978 bill would have not just abolished small-harm class actions; it would have replaced them with government enforcement.
Things changed in the 1980s. Republicans finally came to the realization that we regulate the economy way too much; they stopped going along with new legal rules. But what to do about the old laws that went too far? It was not politically feasible to get rid of them. Instead, Republicans set their sights on the next best thing: rolling back their enforcement. Since that time, Republicans have tried to weaken, not only class action lawsuits, but all manner of private lawsuits that enforce the law. Many of these Republicans say they would rather have the government enforce the law — not because they love the government, but because they know the government won't enforce the law as much as the private bar does. As these efforts came to fruition, the lawyers who make their livelihoods bringing the private lawsuits fled to the Democratic Party, thereby moving that party into the embrace of private enforcement. Hence, the partisan divide we have today: we have now come to the unlikely place where Democrats advocate for the private sector and Republicans advocate for the government sector when it comes to enforcement of the law. This is another reason why I have entitled this chapter the ironic history.
As I noted in the introduction, much of the conservative opposition to class actions stems from this second-best strategy of deregulating our economy by neutering enforcement of the legal rules. But, as I also noted, I think the second-best strategy paints with far too broad a brush. Even if it is indeed true that we still cannot roll back the substantive laws we do not like, it does not follow that we should throw out the class action altogether. At the very least we should preserve it for the laws we do like. And, as I explain in the next chapter, we do like some laws!
Moreover, unlike getting rid of the substantive laws we don't like, getting rid of the class actions we don't like is a politically feasible position. If we want to keep only some parts of the class action and not others, liberals have no choice but to go along with us. We hold all the class action cards.
(Continues…)
Excerpted from "The Conservative Case for Class Actions"
by .
Copyright © 2019 Brian T. Fitzpatrick.
Excerpted by permission of The University of Chicago Press.
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Table of Contents
Acknowledgments Introduction Chapter 1 The Ironic History of Class Actions Chapter 2 The Conservative Case for Regulation Chapter 3 The Conservative Case for Private Enforcement Chapter 4 The Conservative Case against Private Enforcement Chapter 5 Why Private Enforcement Needs Class Actions Chapter 6 Are Class Actions Meritless? Chapter 7 Do Class Action Lawyers Get All the Money? Chapter 8 Do Class Actions Deter Wrongdoing? Chapter 9 The Conservative Class ActionNotes Bibliography Index