The Rise and Fall of the U.S. Class Action

1. The Rise and Fall of the U.S. Class Action Spencer Weber Waller Professor and Director Institute for Consumer Antitrust Studies Loyola University Chicago School of Law

2. Two Different Views of the U.S. Class Action • “A form of legalized blackmail” • Milton Handler, The Shift from Substantive to Procedural Innovations in Antitrust Suits, 71 Columbia Law Review 1, 9 (1970). • “The class action is one of the most socially useful remedies in history.” • Abraham J. Pomerantz, New Developments in Class Actions: Has the Death Knell Been Sounded?, 25 Business Lawyer 1259, 1259-60 (1970).

3. A Brief Overview of the U.S. Class Action • Class Actions Under Siege • (By the Supreme Court Not Movie Terrorists) • But Who Will Save Us? • Hopefully Not Steven Seagal

4. Requirements for U.S. Class Actions • Class Actions in Federal Court Governed by Rule 23, Federal Rules of Civil Procedure as Amended in 1966 • Almost all U.S. States Have Some Form of Class Actions, most Modeled after FRCP 23 with Many Different Variations • Basic Notion is that one or more Class Representatives sue on Behalf of all Persons Similarly Situated

5. Requirements of FRCP 23(A) • All Class Actions Must Satisfy All Four Prongs of FRCP 23(A) • Class Must be So Numerous that Joinder of All Members would be Impractical • There must be Questions of Law and Fact Common to all Members of the Class • The Claims and Defenses of the Class Representatives Must be Typical of the Rest of the Class • The Class Representatives Must Fairly and Adequately Protect the Interests of the Class Members • No Conflicts of Interest • Have Capability to Adequately Conduct the Litigation

6. The Three Types of Class Actions • Even After Satisfying FRCP 23(a), the case must fall within one of three categories listed in FRCP 23(B) • “Automatic” • Injunctive • Catch-All

7. “Automatic” Class Actions Under FRCP 23(b)(1) • Rule 23(b)(1) Allows Class Actions where • There is a Risk of Inconsistent Outcomes or • As a Practical Matter, the Case • Will Dispose of the Claims of Others Similar Situated or • Will Impair their Ability to Protect their Interests • Examples: • Whether a Borrower has Defaulted on the Terms of a Loan or Bond • Where There is a Limited Fund of Assets to Cover Many Claims Arising out of the Same Incident

8. Where Relief Sought is Primarily Injunctive – FRCP 23(b)(2) • Where the Party Opposing Claim has Acted or Refused to act on Grounds Applicable to the Whole Class and Relief sought is Primarily Injunctive, FRCP 23 (B)(2) • Probably the Main Reason Rule 23 was Amended in 1966 • Examples: • Civil Rights • Environmental • Institutional Reform

9. The Catch All Provision • FRCP 23(b)(3) allows Class Actions where • Common Questions of Law and Fact Predominate over Individual Issues and • Class Action is Superior to other Available Means • The court must consider • Interests of Class Members in Individually Controlling the Case • Any other Pending Litigation Relating to the Same Issues • Desirability of Concentrating Litigation in one Forum • Difficulties in Managing the Litigation • Examples: • Large Number of Small Claims • Price Fixing • Statutory Specified Damages • Statutory Torts • Antitrust • Securities Fraud • Consumer Protection

10. Notice and Opting Out • For 23(b)(3) Class Actions Notice and Opportunity to Opt Out is Required to all Potential Class Members at all Key Stages • Certification • Settlement • For the Other Types of Class Actions no Opt Out Available, but Court has Power to Require Notice where Appropriate • Plaintiffs Normally Responsible for Handling Notice and Paying Costs of Notice • Traditional • Media and Electronic • For 23(b)(3) Cases Parties have the right to opt out and pursue claim on their own • More Frequent for Corporate Buyers in Antitrust Cases • Unusual for Individuals or for Small Claims Cases

11. Class Members are Bound if They Do not Opt Out • If Party Opts Out They are not Bound by Anything that Happens in the Case but also Cannot take Advantage of the Judgment or Settlement Obtained for the Class • Would Have to Bring their own Claim if They Wish to Pursue • If They do not Opt Out, the Party is bound by Outcome or Settlement • Still has Right to Object to Any Proposed Settlement or Opt Out of Settlement

12. Defining Moment is the Motion to Certify the Class • Supposed to Occur as Early as Possible in the Litigation • Prior to Motion to Certify the Case is Just the Named Plaintiffs versus the Defendants • After Certification Case Becomes Entire Class of Persons Certified by the Judge Versus the Defendant • Can Also Certify Sub-Classes and Certain Issues for Class Treatment • Risk of Mini-Trials of the Merits of the Case

13. Substantive or Procedural? • While Technically a “Procedural” Motion, Certification has a “Substantive” Impact on the Case • More at Stake for the Defendant if Certified • All Members of the Class Bound by Outcome • Rarely Worth it for Plaintiff to Pursue as Individual Case if Certification Denied • Settlement After Certification Can Provide Global Piece for Defendants and All Class Members • Either Side Can Immediately Appeal the Certification Decision

14. Trend to Look Carefully at Merits of Case at the Certification Stage • Fear of Coercing Settlements • Increasing Requirement of Establishing Merits of Claims at Much Earlier Certification Stage • Hydrogen Peroxide Antitrust Litigation • Walmart v. Dukes • Increased Emphasis on Predominance of Common Issues • Walmart v. Dukes • Increasingly Strict Requirements of Showing Class Wide Proof of Liability, Damages, and Expert Opinions • Comcast Corp. v. Behrend

15. Careful Scrutiny of Settlements • Approval of Settlements by Courts Necessary Because All Members of Class Who do Not Opt Out are Bound by the Settlement Once Approved • Court Must Approve Fairness of Settlement, Attorneys Fees, and Costs • Question for Court is Ultimate Value to Plaintiff and Class Members • Analysis of Risks of Litigation and Work of Counsel • Preference for Cash to Plaintiffs rather than Coupons or Discounts • Risk of Collusive Settlements • Concern When Class Recovery is Small and Fees are High

16. The Role of Arbitration • The U.S. Supreme Court Extremely Supportive of Arbitration Clauses in both Merchant and Consumer Contracts • Courts will Enforce Commercial Arbitration under Federal Arbitration Act even if State Law would otherwise Bar Arbitration • CompuCredit • Courts will Only Require Class Arbitration if Arbitration Clause Clearly Allows • Stolt-Nielsen

17. Waivers of Class Arbitration • Supreme Court has Enforced Arbitration Clauses Which Forbid Class Arbitrations even when Contained in Fine Print in Consumer Contracts • ATT v. Concepcion • Supreme Court Now Considering whether Arbitration Clause Waiving Class Arbitrations is Valid even Where Plaintiffs Show that Statutory Rights Cannot be Meaningfully Enforced in Individual Arbitration • American Express Merchant Antitrust Litigation

18. Illustrating the Need for Class Actions A Consumer Protection Example

19. The Telephone Consumer Protection Act of 1991 • Prohibits Telemarketing Abuses Made Possible by Technological Advances in 1908s • Automated Dialing Machines • Fax Machines • Other Protections Now in Place Based on New Intrusive Technology • Fax Modems • Cell Phones • ID Spoofing

20. Enforcement Largely by Private Parties • Limited Enforcement by Federal Communications Commission and State Attorneys General • Vast Majority of Cases by Private Parties • Statute Provides Automatic Statutory Damages of $500 per Violation or Actual Damages • Potentially Trebled to $1500 for Willful Violations • No Attorney Fees for Either Party

21. Individual Enforcement Unrealistic • Few if Any Actual Damages from Unwanted Fax, Home Telephone Solicitation, Cell Phone Call, or Text Message • Statutory Damages too Low to Allow Hiring of Attorney • No Realistic Means of Retaining Attorney to Handle Suit Other than • Pro Brono • Small Claims Court • Violators Would Escape Liability • No Deterrence, No Compensation, No Punishment

22. Enter Class Actions • Amount at Stake Now $500 X # of Unlawful Messages • Cases Often Include Thousands of Alleged Violations • Expected Value of Lawsuit High Given Strict Liability Standard • Plaintiff Counsel Available on Contingent Fee • Attorney Fees Available Following Court Review and Approval • Global Peace for Defendant Unless Plaintiffs Opt Out

23. Systematic Benefits • Determination of Liability • Specific Deterrence • General Deterrence • Compensation • Issue and Claim Preclusion for Future Litigation • Conservation of Public Resources • Avoidance of Risk for Both Sides • Usually No Admission of Liability • Deterrence • Compensation • Binding Effect on Members of Class • Ability of Unsatisfied Class Members to Opt Out or Object If Litigated If Settled

24. The World Takes Note The Search for Collective Action Mechanisms Consistent with Local Law and Legal Culture

25. Growth of Class Actions Outside of U.S. • Ironic That As Class Action Shrink in U.S., Many Jurisdictions Recognize the Need for Some Form of Collective Action • Both Common and Civil Systems Experimenting with Different Types of Collective Actions • Some Limited to Specific Areas of the Law such as Competition or Consumer Cases • Others Available Across the Board

26. Collective Actions in Mexico • Amendments to Book Five of Mexico’s Federal Code of Civil Procedure • Limited to Environmental Claims and Consumption of Goods and Services (including Competition Claims) • Three Types: Diffuse Actions, Collective Actions in the Strict Sense, and Homogenous Individual Actions • Opt-In • Requires at least 30 Members in the Group • Damages are Costs to Repair and Attorneys’ Fees • No Punitive Damages • First Class Action Filed in May 2013 Against BP

27. EU Collective Redress Proposals • Commission Proposal includes both Recommendation and Communication • No Numerical Requirement • Opt-In • Notice Must be Sensitive to Reputation of Defendants • Loser Pays Principle • Injunctions Preferred • No Punitive or Multiple Damages • Limits on Attorneys Fees

28. UK Collective Actions • Background of Failed Football Jerseys Super Plaintiff Action • UK Department for Business Innovation and Skills Released Consultation Paper and Impact Assessment • Opt-Out Actions Under Limited Circumstances • Expands Power of Competition Appeal Tribunal with Discretion to Allow Class Actions and Decide Whether Opt-Out or Opt-in • No Treble or Exemplary Damages • Loser Pays • No Contingency Fees

29. Canada • Differs Among Provinces • Quebec (Civil Law) Has Class Actions Since 1978 • Quebec Class Certification Has Four Requirements: • Related Questions of Law or Fact • Facts Alleged Justify Conclusions Sought • Action Cannot be Brought More Easily through Joinder or by Representative • Class Representative Adequately Represents the Interests of the Group

30. Canada: Continued • British Columbia (1992) and Ontario (1996) Have Similar Class Certification Standards from Statutes • Opt-Out Generally • British Columbia • Opt-Out for Residents • Opt-in for Non-Residents • Used Primarily for Settlements in Competition Cases • Few if Any Trials

31. For More Information • Or Contact: • Spencer Weber Waller • Professor and Director • Institute for Consumer Antitrust Studies • Loyola University Chicago School of Law • swalle1@luc.edu • http://www.luc.edu/antitrust • Symposium: The Future of Class Actions and its Alternatives, 44 Loyola University Chicago Law Journal (2012) • Spencer Weber Waller, The United States Experience with Competition Class Action Certification, in Litigating Conspiracy: An Analysis of Competition Class Actions 209 ( Irwin Press 2006)