Rewriting the rules for class actions

Rulemaking has become another front in the tort 'reform' wars

James E. Rooks Jr.

"Rules," Franklin D. Roosevelt once said, "are not necessarily sacred. Principles are." Few lawyers would disagree. Some lawgivers are remembered for millennia—Hammurabi and Justinian, for example—while those who write the rules by which laws are implemented are usually forgotten. Yet all lawyers know that procedural rules can be used to both protect and defeat principles—even "sacred" ones.

So it is with class actions and mass tort litigation. The concept of joining multiple cases to be administered together for greater efficiency holds out a possibility of justice to people who otherwise would not get it. The rules for managing such cases, however, can either assist or hinder this process. Defense lawyers are bound to en courage and use changes in the procedural rules that could increase their chances of winning; plaintiff lawyers must be constantly alert for rule changes that may lead to dramatically different results.

Mass tort cases and class actions have received widespread public attention in the last decade. They have been hailed as ever more powerful tools against wrongdoing that advance vital public interests without cost to taxpayers. They have also been subjected to intense public scrutiny, originating in criticism by judges, academics, and ethicists; in some litigants' dissatisfaction with outcomes; or in public relations campaigns initiated by tort "reform" organizations with links to re peat defendants.

In the latter, class actions are often cynically characterized as convenient mechanisms by which unscrupulous lawyers can generate unconscionable fees,1 and legislative tort "reform" proposals continue to be advanced for the alleged purpose of "correcting" class action and mass tort "abuses." In reality, a number of these proposed "reforms" have threatened to curtail plaintiffs' access to the courts or diminish their ability to prove their cases. One example is the recent congressional interest in federalizing all class actions without regard to the capacity of the federal courts to handle them.2

The federal rulemakers take action

The same "reformers" have repeatedly urged federal court rulemakers to "fix" purported problems with class actions and mass torts by altering the Federal Rules of Civil Procedure. The authority to do so rests with the Judicial Conference of the United States, which continuously studies ways to improve the operation of the federal courts.

Federal court rulemaking is conducted through a process of recommendation, study, drafting, written public comments and hearings, redrafting, and legislative action. The conference has a Standing Committee on Rules of Practice and Procedure, which oversees the Advisory Committee on Civil Rules. After study, the advisory committee submits requests to the standing committee that proposed amendments be published for public comment. A negative response by the standing committee halts the progress of the proposals, at least for the time being. A positive response moves the proposals along their way toward eventual enactment and constitutes powerful (if not always conclusive) support for new rules.3

The effort to change the rules on class actions rests on two assumptions: first, that there are problems serious and widespread enough that the high-level judges, academics, and practitioners on the Judicial Conference's committees should address them; and second, that rulemaking, as opposed to legislation or specific court orders, is the best way to "fix" the problems.

U.S. District Judge David Levi, who chairs the Judicial Conference's civil rules advisory committee, notes that the committee sought "the problems in class action litigation that are redressable by rule," and that it has been studying different aspects of mass torts and class actions since 1991.4 It produced sets of proposed amendments to Rule 23—which regulates class actions— in both 1996 and 2001.

The advisory committee's 1996 efforts provide a valuable lesson for the plaintiff bar: Regardless of the origin of amendment proposals—whether the Judicial Conference, the bar, the public, consumer groups, or corporate lobbyists—changes can be averted by broad-based, well-reasoned opposition.

The 1996 proposals, Levi writes,

focused on the substantive standards for certification of class actions. Advocates for reform advised the committee that in many cases the certification decision was dispositive of the litigation; once a class is certified and the stakes of the litigation are magnified, whatever the merits of the claim, the defendant may conclude there is little choice but to bow to the overwhelming pressure to settle.5

The committee studied two possibilities that would let judges intervene in a case in a manner that would effectively dispose of it at the certification stage: (1) a judicial examination of "the merits and public value of a proposed class litigation as part of the certification decision" and (2) possible certification of classes if they were offered for settlement, even if they would not qualify for certification for trial.6 The 1996 proposals also included a new Rule 23(f), which would have permitted a court of appeals to hear an interlocutory appeal from the certification decision.

These proposals would have allowed judges to intervene ahead of the much-feared certification order to find that a case lacked merit or to authorize a settlement that would in effect deprive class members of the leverage that would come from certification. They also would have given both sides a way to appeal a certification order without proceeding to trial.

AAJ objected strongly to the published 1996 proposals, arguing that the substantive merits of class actions must be determined from the record at trial, not decided by a single judge assigned by the luck of the draw; that certification of "settlement classes" was an invitation to collusion between defendants and lawyers for the class, and in many cases would amount to adjudication of the rights of individuals who had not yet suffered any injury; and that allowing interlocutory appeals from certification orders would prolong class action litigation for years.7

Numerous other legal and consumer organizations, judges, and practitioners also weighed in against one or more of the proposals, and a group of nearly 150 law professors signed a letter condemning the settlement class proposal.8 Summaries of the written and oral hearing comments filled four thick volumes of advisory committee working papers, and the committee eventually decided that "the questions surrounding certification standards were not ripe for rule making."9

But despite objections to the interlocutory appeal procedure under Rule 23(f), the new rule was approved by the standing committee, the Judicial Conference, and the Supreme Court. Following the statutory period of congressional review, it took effect in 1998.

2001 'judicial oversight' proposals

The most recent class action proposals, published in August 2001, also include controversial changes. Some were published outside the usual statutory rulemaking channels to gather informal reaction. They focus on "the persistent problem areas in the conduct of class suits, including oversight, the appointment and compensation of class counsel, and the disruptions caused by duplicative and competing class litigation. . . . The rule amendments seek to provide the court with the tools, authority, and discretion to closely supervise class actions."10

By the time the advisory committee was studying this latest round of proposals, it had at its disposal "an unusually rich record"11 that included the voluminous public comments on the 1996 proposals, a 1996 Federal Judicial Center (FJC) empirical study of class actions,12 a 2000 study by the RAND Institute for Civil Justice,13 and a 1999 joint report of 800-plus pages by the advisory committee itself and the Judicial Conference's Working Group on Mass Torts.14

Levi cautions that "nothing has become simpler or less controversial" since the last proposed amendments, but he asserts that "all of the [formally published] proposals have at least some support from leading members of the class action bar."15 Indeed, some AAJ members who attended an October 2001 conference on the proposals in Chicago said most of them largely reflect current practice.

An outline of the proposals follows.

Timing of certification decision and notice. Rule 23(c)(1) would be amended to require a decision on certification "at an early practicable time" instead of merely "as soon as practicable." This has prompted some worry among plaintiff lawyers that the new standard would invite extensive precertification discovery and delay the decision.

Certification orders would have to define the class and identify its claims, issues, and defenses. The order could be amended at any time until the final judgment, instead of until "the decision on the merits" as stated in the present rule. Rule 23(c)(2) would require class notices to be in "plain, easily understood language." This requirement is supported by an FJC project to develop model notice forms.16

Judicial oversight of settlements. A replacement Rule 23(e) would take several steps to strengthen the courts' power to review and approve proposed settlements. It would require court approval of any precertification termination of an action, whether by settlement, voluntary dismissal, or withdrawal of claims. It would require notice of a proposed settlement if class members would be bound by it. It would set a standard for approval—that the settlement be shown to be "fair, reasonable, and adequate" based on detailed findings.

It would allow courts to order disclosure of "side agreements" that sometimes accompany proposed settlements. (While several academics attending the committee's Chicago conference favored such disclosure, practitioners on both sides largely opposed it.) Finally, it would let the court allow class members to request exclusion from proposed settlements—a concept favored by plaintiff lawyers but not defense attorneys.

Attorney appointment and compensation. A new Rule 23(g) would require a court to appoint counsel for each class it certifies. Class counsel would have to "fairly and adequately represent the interests of the class," as distinguished from the interests of individual members of the class, emphasizing that "class counsel [has] special, paramount responsibilities to the class as a whole."17

The rule would also establish a procedure for appointment of class counsel, requiring formal applications from attorneys and letting courts require applicants to specify a basis for awards of fees and costs in advance. These procedures, the committee reasons, may result in more competitive applications for appointment and avoid fee disputes. Appointment through an auction process has sparked interest, and the FJC Research Division has catalogued instances in which courts have used this technique.18

Attorney fees. Finally, a new Rule 23(h) would enhance the judicial role in regulating attorney fees, so that fee awards might better reflect the benefits conferred on class members through the attorney's work.19 The fee awarded is to be "reasonable," and the court is to determine the specific amount. Motions for fees would be made when directed by the court, and notices of the motions would be provided to class members. Class members could object to the motion, and a hearing could be held.

A note sets out the "factors that courts have recently, and consistently, found important to consider in determining whether the fee sought is 'reasonable.' "20 In this process, the court would act as a kind of fiduciary to the class—a difficult task if the litigation has already been concluded.

2001 'preclusion' proposals

Separate from the proposals published formally through the public comment process, the committee has solicited comment on several draft proposals that became controversial even while the advisory committee was still studying them. Committee members have described these in various ways, but in essence they would allow federal judges to preclude action on class actions filed in other courts—including, presumably, state courts.

Judge Lee Rosenthal, who chairs the advisory committee's class action subcomittee, reasons that, during the 10 years the committee has been studying class actions,

class actions themselves have changed. . . . More cases are filed. In recent years, there has been a proliferation of competing and overlapping class suits, pending simultaneously in federal and state courts. As federal courts have raised the certification and settlement bar, the proliferation of parallel suits raises a number of issues. One concern is the potential of such filings to frustrate judicial scrutiny of certification motions, settlements, and fee requests as the means of overseeing class action practices. Another concern is that competing groups of attorneys may file overlapping class actions to seek advantages through earlier class counsel appointments, different rulings on threshold motions, different discovery timetables and requirements, and the opportunity to seek compensation as the price of ending competing suits. . . . While competing federal class actions can be consolidated for pretrial purposes by the Judicial Panel on Multidistrict Litigation (MDL), neither MDL consolidation nor similar intrastate consolidation provisions can address the problem of competing class actions in different states, or in both federal and state courts. Present procedural mechanisms appear inadequate to provide effective relief or coordination.21

The committee has circulated its response to these perceived problems in a 19-page memorandum drafted by the committee's reporter, Professor Edward Cooper of the University of Michigan Law School.22 It sets out three proposals:

Prohibiting certification. The first draft proposal would allow a court that has denied a motion for certification to enter an order prohibiting any other court (presumably including state courts) from granting certification unless a difference of law or a change in facts creates a new certification issue.23 Possible variations on this rule include directing the order to counsel for the class, not other courts, presumably to avoid federalism problems or complications with the Anti-Injunction Act, which forbids federal courts from entering injunctions to stay state court proceedings in most cases.24

Prohibiting settlement approval. The second draft proposal would authorize a court that has disapproved a settlement to order other courts (again, presumably including state courts) not to approve it. The proposal "keeps parties from 'shopping' a settlement that a court has rejected as inadequate or unfair, to the detriment of class members."25 As with the first draft proposal, an alternative might be to order class counsel not to offer the same proposed settlement to other courts.

Prohibiting case filing in other courts. The third draft proposal would authorize a federal court that has certified a class (or has been asked to do so) to order class members not to file—or pursue—the same claims in a class action in any other court.26 An exception would be made for class actions filed in state courts "on behalf of persons who reside or were injured in the forum state and who assert claims that arise under the law of the forum state."27

Preclusion orders would require a finding that other litigation would interfere with the federal court's management of the case, and the draft proposal would let the federal court "coordinate with the state court or stay the federal action to avoid inefficiency and conflict."28

Some critics of the preclusion proposals have argued that they would be unconstitutional or would violate the Anti-Injunction Act or the Rules Enabling Act, which authorizes rulemaking by federal courts.29 Rosenthal acknowledges that the draft proposals "add federalism and the limits of the [two federal statutes] to the already challenging problems of class action reform." She writes that legislative solutions are also being considered, including amendments to the statutes "to permit limited preclusive or preemptive actions by a federal court presiding over a class action." She adds that the committee is willing to consider other approaches, whether they involve rule amendment, legislative action, or some combination.30

Initial reactions

The advisory committee's class action subcommittee issued the preclusion proposals in March 2001, and they were immediately controversial. The Dow Chemical Co. supported them, but AAJ, some academics, the Association of the Bar of the City of New York, the National Association of Securities and Commercial Law Attorneys, the Committee to Support the Antitrust Laws, and even members of the advisory committee itself opposed parts of them.

Faced with that opposition, the committee announced after further study that it would not ask that the preclusion proposals be published for public comment, and would rely for the time being on the Reporter's Call for Comment, distributed at the Chicago conference.

AAJ challenged the preclusion proposals on several grounds:

Insufficient evidence of a problem redressable by rule. The March 2001 committee meeting minutes noted that "de tailed data [on the effect of parallel or overlapping actions in different courts] do not exist and will be hard to generate,"31 and examples of the phenomenon cited in a memo supporting the preclusion proposals paralled complaints by corporate class action defendants and/or their attorneys.32

Court congestion. The preclusion provisions threaten to further clog the already overworked federal courts. FJC researchers found that 46 percent of federal class actions they studied had been filed in state courts but were removed to federal courts by defendants.33

Thus the removal mechanism is al ready a major source of the federal courts' class action workload, and the preclusion measures, if enacted, would increase the problem.34

Federalism issues. AAJ argued that

it would be unwise, unfair, uncollegial (perhaps even provocative), and very likely unconstitutional, to attempt to regulate state judges' decisions or state class action practice from the federal courts. . . . Precluding other court actions would often halt state class actions without any examination of their merits, and it would erect a major barrier to legitimate proceedings to contest such a preclusive effect. Preclusion, in short, looks like an attempt to merely stop class action litigation in the state courts.35

Summarizing AAJ's concerns, then-president Fred Baron told the rulemakers that if the proposals were adopted,

several parts of them will likely be held to be unconstitutional—or, at a minimum, to violate the Rules Enabling Act. Until such time as that conclusion is reached through the courts (conceivably as much as 10 years from now), these proposals would wreak havoc in class action practice. They would deter attorneys from taking on meritorious cases and, even in cases that are filed, deny access to justice to countless victims of similar widespread harms.36

Corporate protection from electronic discovery

The final rulemaking concern for trial lawyers is the application of the discovery rules to computer-based material, often called "electronic discovery." Examples include corporate correspondence and internal documents, databases, test data, and operational software such as computer simulation programs. The classic example is the internal business e-mail message that constitutes, or points toward, "smoking gun" evidence that supports liability. This subject relates less directly to mass tort cases and class actions than does Rule 23, but electronic discovery can greatly affect such litigation because these cases depend so much on evidence from corporate records.

The advisory committee's subcommittee on technology has been considering this matter for some time, prompted largely by complaints from lawyers for corporations. Specifically, they claimed that requests for discovery of documentation stored on clients' computers had become oppressive, and that the remedy should include cost-shifting orders—in effect, "pay to play" rules requiring the parties requesting discovery to pay for its production and internal review by lawyers.

Members of the plaintiff bar, however, feel that judges already have all the power necessary to solve most problems that arise. They believe that what the "reformers" really seek is to limit electronic discovery or to dramatically increase the cost of obtaining it, and to secure judicial blessing of typical corporate document destruction policies.

Two technology-subcommittee conferences have explored these contentions, but most attendees appeared to oppose changing the rules now.37 The FJC is conducting an empirical study of how electronic discovery is being handled under the current rules. As part of the study, FJC researchers seek to identify concluded federal cases involving electronic discovery in which they can interview both plaintiff and defense counsel, and the judge.

But it is uncertain when the FJC study's will end, and tort "reform" advocates are pressing for changes by appealing directly to state judges and rulemakers. Thomas Allman, general counsel of the multinational chemical corporation BASF and a leading proponent of specific electronic-discovery rules, is pushing a model state rule that would

• limit a corporation's duty of production to "those records that can be secured in the ordinary course of business, as is the practice in hard-copy discovery,"

• make the requesting party pay for more extensive information, and

• require a preservation order after a good-cause showing that satisfies standards for an injunction before deletion of computer records could be prohibited or halted.38

Opportunities to comment on the proposed amendments

Those who make the rules for the federal courts constitute an important line of defense in the struggle to maintain the rule of law. But all that's needed for approval of antiplaintiff procedural rules for the federal courts is that they be suggested, refined, and published for comment in the ordinary course of rulemaking—and for principled members of the bar to do nothing.

Involvement of concerned lawyers is crucial to complete the record on which the rulemakers will base their actions. Several opportunities exist:

• The rulemakers solicit written comments on the proposals after they are published, and these comments are closely studied.

• At a National College of Advocacy educational program on rulemaking—February 9 during AAJ's 2002 Winter Convention—federal rulemakers will present their case for the current proposals (including the draft preclusion proposals), and attendees can provide input based on actual experience.

• State rulemakers follow procedures similar to those followed by their federal counterparts, and rulemaking authorities in every state can be expected to receive suggestions for special rules on electronic discovery based on the model state rule mentioned above. Concerned trial lawyers need to be involved in those deliberations both individually and through their state trial lawyer organizations.

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Notes

1. AAJ has addressed allegations of class action and mass tort litigation abuse, as well as proposals for "reform," in two policy statements adopted by its Board of Governors. AAJ has articulated support for class members' rights to access to the courts, to trial by jury, and to choice of counsel of undivided loyalties. AAJ has also opposed collusive settlements, "settlement classes," "limited fund" class actions, and use of procedural rules to facilitate such abuses. See American Association for Justice, Policy on Class Actions, on opposite page, and American Association for Justice, Policy on the Adjudication of Mass Tort Claims, July 28, 1994, available at www.justice.org/policyMT.pdf (visited Dec. 19, 2001).

2. A February 2001 news story on contemplated federal legislation, similar to a bill that passed the House in 1999 but later died in the Senate, stated that measures then being developed "would stop class action plaintiffs in multiple jurisdictions from bringing suit in state courts, referring those cases to the federal judiciary, where the proponents of the bill say the cases can be better handled." Tatiana Boncompagni, Businesses, Lawyers Gird for Tort Battle, LEGAL TIMES, Feb. 14, 2001 (emphasis added).

3. An excellent summary of the federal courts' rulemaking process and current interests of the rulemakers appeared in the October 2001 issue of The Third Branch, a newsletter published by the Administrative Office of the United States Courts. See Interview with Judge Anthony J. Scirica, available at www.uscourts.gov/ttb/oct01ttb/interview.html (visited Dec. 19, 2001).

4. Memorandum from Hon. David F. Levi to the Standing Committee on Rules of Practice and Procedure, Judicial Conference of the United States, at 3-4 (July 31, 2001) [hereinafter Levi Memorandum], available at www.uscourts.gov/rules/comment2002/8-01CV.pdf (visited Dec. 19, 2001). Levi is a member of the U.S. district court in Sacramento, California.

5. Id. at 4 (emphasis added).

6. Id.

7. AAJ Policy on Class Actions.

8. Proposed Rule 23 Change Would Allow Class Action Certification for Settlement Purposes Only, 3 Civ. Just. Dig., Fall 1996, at 4, available at www.justice.org/foundations/pound/cjdigest/9610/c96acour.html.

9. Levi Memorandum, supra note 4, at 4-5.

10. Id. at 3.

11. Id. at 5.

12. THOMAS E. WILLGING ET AL., FED. JUDICIAL CTR., EMPIRICAL STUDY OF CLASS ACTIONS IN FOUR FEDERAL DISTRICT COURTS: FINAL REPORT TO THE ADVISORY COMMITTEE ON CIVIL RULES (1996).

13. DEBORAH R. HENSLER ET AL., RAND INST. FOR CIVIL JUSTICE, CLASS ACTION DILEMMAS: PURSUING PUBLIC GOALS FOR PRIVATE GAIN (2000).

14. JUDICIAL CONFERENCE OF THE UNITED STATES, WORKING GROUP ON MASS TORTS AND ADVISORY COMMITTEE ON CIVIL RULES, REPORT ON MASS TORT LITIGATION (1999).

15. Levi Memorandum, supra note 4, at 5.

16. The FJC has already produced forms for securities and products liability class actions. They may be viewed at www.fjc.gov, at the class action notices page at "Current FJC Activities" (visited Dec. 19, 2001).

17. Levi Memorandum, supra note 4, at 14.

18. LAURA L. HOOPER & MARIE LEARY, FED. JUDICIAL CTR., AUCTIONING THE ROLE OF CLASS COUNSEL IN CLASS ACTION CASES: A DESCRIPTIVE STUDY (2001).

19. "The disparity between the large size of the attorney fee award and the small or meretricious 'coupon' recoveries by class members in some consumer class actions brings the civil justice system into disrepute." Levi Memorandum, supra note 4, at 35.

20. Id. at 16.

21. Hon. Lee H. Rosenthal, Proposals for Further Study: The Reporter's Call for Comment, at 1, summary prepared for AAJ National College of Advocacy program on federal court rulemaking, 2002 AAJ Winter Convention, Feb. 9, 2002 [hereinafter Rosenthal Summary].

22. Edward H. Cooper, Reporter's Call for Informal Comment: Overlapping Class Actions. Although it is intended to address the draft proposals embodied in the Reporter's Call for Comment, the discussion of those proposals contained in this article is based on the Rosenthal Summary. Rosenthal stresses that the draft proposals do not constitute firm positions of the class action subcommittee—only "an effort to gain a broad response from diverse viewpoints to help the committee at this earlier stage of its deliberative process."

23. To reduce the potential for confusion among the rule numbers, the draft proposals that are set out in the Reporter's Call for Comment are described in this article merely as the "first," "second," and "third" proposals.

24. 28 U.S.C. §2283.

25. Rosenthal Summary, supra note 21, at 2.

26. A federal court in Cleveland made an analogous, highly controversial ruling on Sept. 17, 2001, attempting to halt all litigation nationwide involving hip implants manufactured by the Swiss firm Sulzer Medica. The case is now before the Sixth Circuit. See Bob Van Voris, Blasted as Unfair, Nationwide Hip Implant Settlement Is in Trouble, NAT'L L.J., Nov. 14, 2001, at A1.

27. Rosenthal Summary, supra note 21, at 2.

28. Id. at 3.

29. 28 U.S.C. §2072(a).

30. Rosenthal Summary, supra note 21, at 3.

31. Advisory Committee on Civil Rules, Judicial Conference of the United States, Draft Minutes of Meeting, Mar. 12, 2001, at 12.

32. Advisory Committee on Civil Rules, Judicial Conference of the United States, Background Memorandum on Preclusion Proposals, Apr. 23-24, 2001, at 14.

33. Thomas E. Willging, FJC Research Division, Background Memorandum (Apr. 11, 2001), distributed at advisory committee meeting, Apr. 23-24, 2001.

34. In 1995, the Judicial Conference's Long Range Plan for the Federal Courts projected that, by 2020, the federal courts could find civil case filings increased from 239,000 to 1 million. Yet, while tort "reformers" press Congress to federalize all class actions, the Judicial Conference continues to be frustrated by Congress's lack of action on unfilled judgeships. See, e.g., Judiciary Voices Frustration . . . Politely, THE THIRD BRANCH, Oct. 2001, available at www.uscourts.gov/ttb/oct01ttb/frustration.html (visited Dec. 19, 2001).

35. Letter from Frederick M. Baron, AAJ President, to Judge David F. Levi, Chair, Advisory Committee on Civil Rules, Judicial Conference of the United States (Apr. 20, 2001)(emphasis in original).

36. Id.

37. Prof. Richard L. Marcus, Report on Brooklyn Law School's Conference on Electronic Discovery, published as part of agenda materials for advisory committee's meeting of Apr. 23-24, 2001.

38. Thomas Y. Allman, A Proposed Model for State Rules re Electronic Discovery, Presentation to General Counsel Committee of the National Center for State Courts, Nov. 15, 2001, available at www.kenwithers.com/articles (visited Dec. 19, 2001).

James E. Rooks Jr. is senior policy re search counsel at the Center for Constitutional Litigation in Washington, D.C.