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Terms: (AUTHOR(Pace) AND TITLE(Group and aggregate litigation in the United States) AND DATE IS 2009-03-01)

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1 of 1 DOCUMENT Copyright (c) 2009 The American Academy of Political and Social Science The Annals of The American Academy of Political and Social Science March, 2009 The Annals of the American Academy of Political and Social Science 622 Annals 32 LENGTH: 4366 words ARTICLE: SECTION ONE: North America: Group and Aggregate Litigation in the United States NAME: By NICHOLAS M. PACE Special Editors: DEBORAH HENSLER, CHRISTOPHER HODGES and MAGDALENA TULIBACKA BIO: Nicholas M. Pace is a staff behavioral scientist at the RAND Institute for Civil Justice in Santa Monica, California. NOTE: The author acknowledges and appreciates the support of the RAND Institute for Civil Justice (ICJ) in the development of this Country Report. Additional information about the ICJ can be found at http://www.rand.org/icj/. LEXISNEXIS SUMMARY: ... While a class action such as one brought under Federal Rules of Civil Procedure Rule 23 is certainly the most well-known mechanism for aggregating large numbers of similar claims, other approaches include mass joinder of parties, mass consolidation of separate cases, or "multidistrict litigation" transfer of federal cases from across the country into a single action for pretrial processing; corporate reorganizations under the U.S. ... Joinder rules similar to FRCP 20 have been adopted in most jurisdictions, though the differences in how various states apply the doctrine can be significant. ... Even when such claims have not been filed as lawsuits or formally aggregated through joinder, consolidation, MDL, or FRCP 23 class actions, an informal group resolution can nevertheless be negotiated with the defendants. ... If they fail to opt out, they will be bound by the outcome of the case and would be unable to file an independent lawsuit concerning similar claims against the same defendant. ... Restitution or disgorgement of monetary damages is often the primary goal in these cases, which can include claims such as those involving mass torts, securities and shareholders, employment, antitrust, or various consumer issues. ... Some believe that having these cases heard by federal judges rather than state judges will result in far fewer certified classes, even though the originating states employ class action rules that match FRCP 23 word for word. ... Some state court asbestos trials involving mass consolidations of thousands of claims, for example, have been criticized for involving out-of-state plaintiffs. ... Other states may similarly decide to limit their own private attorneys general statutes in the years to come. HIGHLIGHT: While a class action such as one brought under Federal Rules of Civil Procedure Rule 23 is certainly the most well-known mechanism for aggregating large numbers of similar claims, other approaches include mass joinder of parties, mass consolidation of separate cases, or "multidistrict litigation" transfer of federal cases from across the country into a single action for pretrial processing; corporate reorganizations under the U.S. Bankruptcy Code; large-scale inventories of clients controlled by a single attorney; government-initiated enforcement actions; and "private attorneys general" litigation brought on behalf of the general public.

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Keywords: class actions; aggregate litigation; group litigation; representative litigation; consolidations joinder; multidistrict litigation (MDL) TEXT: [*32] 1. Overview of Your Country's Legal System The United States is a common law country, though legislatively enacted statutes, regulations promulgated by administrative agencies, and the provisions of state and federal constitutions also play important roles in the development of both substantive and procedural law. Most serious civil and criminal cases are heard in the trial level courts of general jurisdiction in the federal system and in the individual states, though there are specialized courts of limited jurisdiction. Regulatory disputes are adjudicated in some what less formal administrative hearings. In the civil courts of general jurisdiction, the role of judges in the litigation process has [*33] traditionally been limited to ruling upon pretrial motions and overseeing the conduct of trials (juries are typically used to decide questions of fact). Trials are relatively rare, and settlements are by far the most common manner in which a case is terminated. Much of the activity between initiation and resolution involves the discovery process, where the parties have broad powers to obtain documents, data, and statements from the opposing side. With few exceptions (most notably in class actions but also under certain statutorily defined circumstances), each side in a lawsuit is responsible for its own legal expenditures, regardless of the outcome of the case. Common fee arrangements with one's own counsel include payment on an hourly basis, payment contingent on a successful outcome and calculated as a percentage of the recovery obtained, a flat fee, or as a salaried employee. Public financing and third-party funding are rare; contingency fee agreements are the primary way for plaintiffs with resource constraints to obtain representation. 2. Overview of Public Debate regarding New Forms of Representative or Group Litigation There certainly has been a vociferous and continuing debate over various proposals to limit or change the scope and application of class actions in some way, and in some state court systems, steps have been taken to rein in the use of mass consolidations and other large-scale aggregation approaches. Nevertheless, no new forms of representative or group litigation are likely to be introduced in the foreseeable future, though it is possible that the currently employed versions may undergo significant change. 3. Varieties of Representative and Group Litigation Currently Available Formal and informal mechanisms for aggregating similar claims in the United States include class actions similar to those brought under Federal Rules of Civil Procedure (FRCP) Rule 23; joinder, consolidation, or multidistrict litigation (MDL) transfer of distinct but related claims into a single action; corporate reorganizations under the U.S. Bankruptcy Code; "inventories" of clients controlled by a single attorney; government-initiated actions; and so-called "private attorneys general litigation." Each is discussed below. 4. Consolidated or Coordinated Group Litigation Mass joinder. n1 The rules covering "permissive joinder" give a plaintiff the option of including others in the same lawsuit if there are questions of law or fact [*34] common to each and if their rights to relief are related or arise out of the same set of transactions or occurrences. Joinder rules similar to FRCP 20 have been adopted in most jurisdictions, though the differences in how various states apply the doctrine can be significant. There is no bright line when the joinder of multiple parties moves into the world of group litigation, but when a case involves dozens or hundreds of plaintiffs, the terms "mass joinder" or "mass action" are often applied. If such a case goes to trial, the claims could be tried in a manner similar to that employed for mass consolidations (see below). Judges have the discretion to sever one or more of the parties from the case if the joinder fails to satisfy the requirements noted above or if leaving them in

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would cause delay or prejudice or adversely impact trial convenience or judicial economy. The exercise of this discretion has varied greatly between different jurisdictions and between different judges, though in recent years, courts appear to be increasingly reluctant to hold a mass trial of all joined claims, especially in the context of personal injury litigation. Mass consolidations. n2 In contrast to permissive joinder, consolidation can be a judicially initiated aggregation. When separate actions are pending before the court and involve at least one common question of law or fact, the judge can order the cases consolidated for all purposes, consolidated only for the conduct of discovery and motion practice, or consolidated just for trial to resolve one or more issues (consolidation can also occur as a result of a motion from either a plaintiff or a defendant). Consolidation rules similar to FRCP 42 have been adopted in most jurisdictions, though the differences in how various states apply the doctrine can be significant. Courts tailor consolidated trials as they see fit, perhaps by dividing up the plaintiffs into much smaller groups; holding "bellwether" trials with small numbers of related plaintiffs (such as by the type of claimed damages), either to determine crosscutting issues such as liability or to help provide benchmarks for subsequent settlements; or bifurcating the trial into two parts, with a liability phase involving questions of law and fact common to the defendants and a subsequent causation/damages phase either involving questions common to all the plaintiffs or each plaintiff individually. A key limitation on traditional consolidations at the federal level is the requirement that if a consolidated trial is desired, the cases must have been filed in the same federal district. Some states have similar restrictions, prohibiting consolidation of cases unless they were all filed in essentially the same local courthouse. A related approach involves the use of case management orders (CMOs) that apply to an entire body of litigation before all the judges in the same courthouse or judicial system. While formal consolidation does not take place and the actions can proceed simultaneously before different judges, the practical effect of these CMOs is to manage the pretrial process so that discovery, settlement conferences, requirements for filing pleadings and documents electronically, hearings on dispositive motions, and other events take place in a coordinated and uniform manner across a single jurisdiction. [*35] Federal multidistrict processing. n3 When cases involving related claims are filed in different federal district courts, the Judicial Panel on Multidistrict Litigation (MDL Panel) determines if they should be transferred to a single location and then consolidated for centralized pretrial processing, usually before a single judge. The cases have to share at least some common questions of fact, and the transfer must enhance judicial economy and the collective convenience of parties and witnesses. Unlike the procedures for joinder and non-MDL consolidations, common questions of law alone would not be a sufficient basis for transfer. Because of the national reach of this type of consolidation, a single MDL docket can contain tens of thousands of individual cases. The MDL statute (28 USC 1407) requires that individual cases must return to the transferring courts at the conclusion of their pretrial processing if they have not been resolved first, but in actual practice, the very low frequency of cases that actually go to trial means that the transferee court is likely to be the final stop. It should be noted that outside of the bankruptcy process, no formal mechanism exists for coordinating similar cases filed in different state courts or filed in both state and federal courts. Bankruptcy. n4 In terms of aggregate numbers of claims affected, one of the most widely used of the non-FRCP 23 aggregation devices has been corporate reorganization under Chapter 11 of the U.S. Bankruptcy Code. A company faced with overwhelming exposure can seek bankruptcy protection from past judgments, current lawsuits, and anticipated future claims. Three primary mechanisms provide for protection in a mass litigation context. First, the filing of a petition in bankruptcy court triggers an "automatic stay," which suspends all collection activities against the debtor and its properties (including activities arising from cases that already resulted in a verdict or other judgment) and freezes ongoing litigation. Second, the court has the ability to collect existing cases in state or federal court that are related to the bankruptcy. This includes cases filed against the debtor as well as those in which the debtor was not a party but where the outcome might affect the debtor's estate. The court can then consolidate some or all such claims into a mass

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trial to determine common questions or other issues. Third, the reorganization plan itself can include the creation of a claim resolution or creditor's trust. Such trusts, often used in the context of mass tort liability, can administratively adjudicate the value of claims as well as manage assets such as liability insurance proceeds or contributions by joint tortfeasors. Attorney inventories. n5 Plaintiffs' attorneys can collect large inventories of clients, sometimes across multiple jurisdictions, who have similar claims against one or a handful of defendants. Even when such claims have not been filed as lawsuits or formally aggregated through joinder, consolidation, MDL, or FRCP 23 class actions, an informal group resolution can nevertheless be negotiated with the defendants. Calculation of the recoveries in these large-scale settlements can vary from a flat fee for each claimant regardless of individual losses to the development of complicated matrices that adjust the level of compensation by a variety of factors. [*36] 5. Representative Litigation by Associations The closest analogue would be the so-called private attorneys general suits that can be brought by any individual or organization to enforce certain state and federal statutes on behalf of groups of citizens, the public at large, or even the government itself. n6 Examples of such laws include various federal civil rights acts, state overtime labor statutes, state unfair competition laws, and the federal False Claims Act. n7 The relief sought in these suits is often equitable in nature and usually the plaintiffs' attorneys' fees, and some costs can be recovered if successful. Other incentives for bringing these suits may include the potential for recovering treble damages or the imposition of fines on the defendants (though when awarded, much of the money may go directly to the government). 6. Representative Litigation by Public Officials Government-initiated suits n8 brought by state or federal attorneys general can seek to enforce provisions of unfair competition acts, consumer protection statutes, and certain other laws with the goal of obtaining injunctions, fines, or the payment of monetary restitution from defendants alleged to have harmed the public. These laws usually have an express authorization for the government to enforce through civil, rather than criminal, litigation. In some instances, most notably in recent tobacco-related litigation, the attorneys general appoint private practice lawyers to bring the actions on a contingency fee basis. Suit can also be brought to advance the government's "quasi-sovereign" interests of protecting the health, welfare, and natural resources of its citizens, for example, by suing to enjoin pollution-creating activities, in a neighboring state or to prevent exploitation of its citizens who seek migrant work beyond its borders. In these so-called parens patriae actions, states and the federal government may seek restitution or injunctions to further the public interest. Although the application of this doctrine is far from uniform, in many jurisdictions parens patriae actions need not be predicated upon any particular statutory authority. 7. Representative Litigation by Individuals Who Come Forward Voluntarily Overview of class action litigation FRCP Rule 23 is the basic authority for federal class action litigation, but similar rules are used in many individual states (state-to-state differences in the wording, interpretation, and application of the doctrine can be significant). A typical [*37] FRCP 23-type class action n9 might begin with an attorney filing a civil complaint in which a limited number of representative plaintiffs n10 are individually named. Language in the complaint indicates that the named plaintiffs are seeking to recover losses or force changes in the defendants' behavior on behalf of both themselves and others similarly situated. A motion for class certification would come later, describing the characteristics of the desired class and requesting that a judge review the proposed class definition and the relief sought with the goal of formally certifying a plaintiff class. If a class is so certified, one or more of the plaintiffs' attorneys will be named as class counsel, and any subsequent dispositive resolution (such as a settlement or a verdict at trial) would apply to the claims

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of all class members. If a class is not certified, the matter could continue to be litigated, but the outcome would affect only the individually named plaintiffs. In certain types of certified class actions such as those primarily seeking monetary damages, the class members are given notice (perhaps directly through the mail or indirectly through published advertisements) of the fact of certification and informed of a time-sensitive opportunity to opt out of the case. If they choose to opt out, they may pursue an individual action against the defendants. If they fail to opt out, they will be bound by the outcome of the case and would be unable to file an independent lawsuit concerning similar claims against the same defendant. In other class actions, primarily those involving civil rights or seeking injunctive relief, no right to notice of certification exists and no opportunity to opt out is provided. If the matter proceeds to trial, the claims of the representative plaintiffs will be decided by the trier of fact, and the verdict will apply to all class members. In the far more common situation where the parties have negotiated a settlement, the agreement is presented to the judge, who must decide whether the terms are fair, reasonable, and adequate. This is one of the relatively uncommon instances in the U.S. system of civil justice in which a privately negotiated settlement is subject to judicial review. Prior to such a determination, the class is notified of the fact that a settlement has been reached, and the members are given an opportunity to comment on or object to its terms. If the judge approves the agreement, n11 then he or she will also determine the size of the fee award and reimbursable expenses to be paid by the defendant to class counsel. The fees can be calculated as a percentage of the monetary benefits obtained on behalf of the class or as a function of the hours expended and a reasonable hourly rate subject to various adjustments for difficulty or risk. If the class members are to receive any compensation, the monetary benefits can be distributed automatically, but in many instances, each of the class members will have to submit a claim for his or her individual share. Claims-made distributions in which large fractions of the estimated size of the class fail to submit claims are not uncommon. It should be kept in mind that just about any civil lawsuit in the United States has the ability to morph from one with a limited number of individual parties to one where entire classes of plaintiffs or defendants are involved. Depending on the jurisdiction (and there is great variation in this regard), class actions might be prohibited in some administrative proceedings, in certain taxpayer challenges, in particular instances [*38] where enhanced types of damages are available, in small claims courts, in domestic relations or probate matters, or in cases brought under statutes with specific restrictions; but these exceptions are usually quite narrowly defined. For the most part, as long as there are questions of law or fact that are common to a large group of individuals or entities in a civil case, FRCP 23 can be invoked to create a class. The specific requirements of Federal Rule of Civil Procedure 23 FRCP 23 describes four prerequisites to any class action: numerosity, commonality, typicality, and adequacy of representation. A judge must initially find that the members of the proposed class are "so numerous that joinder of all members is impracticable"--in other words, that naming each individual member of the class as a separate party in the lawsuit would be problematic or logistically inconvenient. It should be noted, however, that classes of just a few dozen members have been certified. n12 Second, there must be "questions of law or fact common to the class." Courts have held that just a single question in common can satisfy this prerequisite. The third requirement is that "the claims or defenses of the representative parties are typical of the claims or defenses of the class." Should the matter reach the trial stage, the class representative's individual claims would be decided by the jury or judge, and the outcome would essentially be applied to the entire class. As such, the class members' and the representative plaintiffs' common claims need to be based on the same legal theories of liability and arise from the same events or practices. Alignment of interests is also involved in Rule 23's final requirement that the representative plaintiffs "fairly and adequately protect the interests of the class." This is to ensure that the representative plaintiffs' interests would not be in conflict with those of the class members and that their attorneys be sufficiently qualified, experienced, unconflicted, and able to vigorously prosecute this type of litigation.

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Rule 23 also holds that a class action can be maintained only if all of the above prerequisites are met and the proposed class falls into one of four subcategories listed under Rule 23(b), which can be grouped for the sake of simplicity into those with "mandatory classes" and those with "opt-out classes." In mandatory class cases certified under Rule 23(b)(1)(A), Rule 23(b)(1)(B), or Rule 23(b)(2) (often matters involving civil rights or seeking social change or institutional reform), judges are not required to give class members the option to exclude themselves, and there is no requirement to provide notice to the absent class members of the fact of certification. These cases primarily seek injunctions or declaratory judgments (rather than the recovery of monetary damages), and because such equitable relief would be indivisible and work to the benefit of all who met the class definition, arguably it makes no difference whether they exclude themselves from the class or even know that they are members. Other justifications for mandatory classes include the potential that the defendant might be subject to inconsistent or varying adjudications of the issue if opt-outs were permitted and situations where a very limited pool of funds is available to pay all claimants. [*39] Opt-out cases under Rule 23(b)(3) give the class members notice that a class has been certified and that they have the option of excluding themselves from any resolution. Restitution or disgorgement of monetary damages is often the primary goal in these cases, which can include claims such as those involving mass torts, securities and shareholders, n13 employment, antitrust, or various consumer issues. These so-called "money damage" cases have two additional requirements: the judge must find "that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members" (the predominance test) and "that a class action is superior to other available methods for the fair and efficient adjudication of the controversy" (the superiority test). 8. Future Developments One reasonable assumption is that FRCP 23 and its state equivalents will remain essentially unchanged, though other statutes, court rules, and legal doctrines that shape how they are applied may undergo significant modification. For example, the federal Class Action Fairness Act of 2005 liberalized the rules for transferring state court class actions with interstate implications into the federal courts. Some believe that having these cases heard by federal judges rather than state judges will result in far fewer certified classes, even though the originating states employ class action rules that match FRCP 23 word for word. Another important change in the environment (rather than the rule itself) may involve how appellate courts eventually decide on the application and validity of mandatory arbitration clauses in consumer contracts. If these clauses are generally held to prevent contracting consumers from being part of an FRCP 23-type class, class litigation involving consumer transactions may be severely curtailed. It is also possible that some state legislatures might scale back consumer statutes (unfair insurance claims practices acts, for example) that have provided the legal foundation for the claims asserted in many class actions. State courts and legislatures may also attempt to narrow the application of their joinder and consolidation rules so that the individual claims involved have, arguably, a greater nexus to the state's citizens and economy. Some state court asbestos trials involving mass consolidations of thousands of claims, for example, have been criticized for involving out-of-state plaintiffs. New venue requirements that would apply to all litigation in a state's courts may also significantly impact attempted mass aggregations of geographically diverse litigants. Finally, private attorneys general laws have received some criticism, especially in relation to the way the doctrine was liberally employed in California under a former version of its unfair competition law. The statute was subsequently amended to restrict the ability of individuals to bring such actions if they have not personally suffered the types of damages alleged in their lawsuits. Other states may similarly decide to limit their own private attorneys general statutes in the years to come. Legal Topics: For related research and practice materials, see the following legal topics: Civil ProcedureVenueMultidistrict LitigationCivil ProcedurePartiesJoinderPermissive JoinderCivil ProcedureJudicial OfficersJudgesGeneral Overview

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FOOTNOTES:

n1 No reliable estimates are available for the number of cases where permissive joinder was employed.

n2 No reliable estimates are available for the number of cases that were subject to consolidation procedures.

n3 Approximately twenty thousand federal cases were consolidated for pretrial purposes only during the fiscal year ending on September 30, 2007, as part of MDL Panel proceedings. Judicial Panel on Multidistrict Litigation, Statistical Analysis of Multidistrict Litigation 2007 (Washington, DC: October 2007).

n4 About fifty-three hundred Chapter 11 bankruptcy petitions were filed by businesses during fiscal year 2007, but it is not known how many lawsuits and other claims were affected by such filings. Administrative Office of the United States Courts Statistics Division, Business and Nonbusiness Bankruptcy Cases Commenced, by Chapter of the Bankruptcy Code, during the Twelve Month Period Ended Sep. 30, 2007 (Washington, DC: The Division, n.d.).

n5 The number of cases and claims resolved in a group manner as a result of attorney inventories is also unknown.

n6 No reliable estimates exist for the number of instances when suits are brought in the nation's courts under the private attorneys general doctrine.

n7 Note that in some jurisdictions, the private attorneys general doctrine is an equitable rule that allows courts to award attorneys' fees to those who have vindicated certain public rights, even if no statute provides express authorization to do so.

n8 No reliable estimates exist for the number of instances when suits are brought by attorneys general or other government representatives.

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n9 No reliable estimates exist of the total number of class action filings, certifications, or settlements in the nation's courts, outside of some narrow types of litigation (such as securities fraud). It is estimated that about thirty-three hundred new class actions are initiated in federal courts annually. The total number in the various state courts are unknown but is generally presumed to be considerably larger than the federal count. Thomas E. Willging and Emery G. Lee III, The Impact of the Class Action Fairness Act of 2005: Fourth Interim Report to the Judicial Conference Advisory Committee on Civil Rules (Washington, DC: Federal Judicial Center, April 2008).

n10 It should be noted that Federal Rule of Civil Procedure (FRCP) 23 is more or less "party neutral" and so defendant classes are certainly possible, though in actual practice they appear to be quite rare. In this brief overview of U.S.-style aggregation, we focus exclusively on plaintiff classes.

n11 If the judge declines to approve, the parties are free to submit a revised agreement or proceed toward trial.

n12 At the other extreme, some believe that nearly 100 million individuals made up a class of current and former tobacco users in one certified case. Glenn Collins, "Big Publicity Effort Seen in Tobacco Class Action," New York Times, March 9, 1995. http://query.nytimes.com/gst/fullpage.html?res=990CE2D81E3DF93AA35750C0A963958260# (accessed May 17, 2008).

n13 It is beyond the scope of this brief overview, but it should be noted that while FRCP 23 provides the foundation for securities-related class action litigation, such cases operate under a very different set of rules than other opt-out money damage class actions. The provisions of the federal Private Securities Litigation Reform Act of 1995 and the federal Securities Litigation Uniform Standards Act of 1998 play a major role on how these cases are litigated.