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Monthly Archives: February 2017

(Almost) Everything You Wanted to Know About Class Actions

With the advent of the new administration, aggregate litigation is under attack again. As of this writing new legislation aimed at limiting class actions has been introduced in Congress. This is the perfect time for Congresspersons and their aids to read John C. Coffee’s book, Entrepreneurial Litigation: Its Rise, Fall, and Future – both friends and enemies of the class action will benefit from reading this fair-minded and nuanced analysis.

Before delving into the reason for this recommendation, a bit of background. In the scholarly literature on class actions there have been two big ideas. The first was that class actions can have a deterrent effect on large institutions by permitting the enforcement of laws when many people suffer a wrong too small to merit bringing a suit. It is easy to forget that this is in large part what class actions are about. The earliest statement of this idea that I know of was in 1941 in a law review article by Harry Kalven, Jr. and Maurice Rosenfeld. The second big idea was the observation that the class action separates ownership of claims from control of claims, much like the corporate form separates ownership from control of the firm, giving rise to agency costs. John C. Coffee, Jr. has long championed this formulation, first presenting it in 1986.

All subsequent work on class actions has built on, refined, and criticized these two big ideas. A prominent and important strand of scholarship on class actions, for example, demonstrates that given the diagnosis of agency costs, class actions must be thought of as posing problems of governance. Another similarly important strand looks at class actions as problems akin to those solved by the administrative state.

Coffee has now published the sum of his work on class actions in this new book, covering almost everything you wanted to know about class actions in clearly written and engaging prose, from the history of attorney’s fees to the European experiment with the device. (I say almost because there is one omission in the book—an omission I will get to at the end of this review.) Coffee promises a “warts and all” look at the class action and he delivers on this promise. The book is critical of plaintiffs’ attorneys, defense attorneys, and judges in class actions; it sees the strengths, weaknesses, and incentives of each of these actors with a clear eye.

This is a minor miracle. Even though they constitute only one percent of the federal docket, and probably less of the state court docket after the Class Action Fairness Act, class actions are a perennial object of attack. They are what political scientists call a “condensation symbol” – a rallying or focal point for our collective anxieties about morality, politics, and the economy. Perhaps for this reason, or perhaps reflecting the general poverty of discourse on difficult policy issues, the debate over class actions has largely generated more heat than light. Either class actions are “blackmailing” corporations into settling meritless cases or they are the only mechanism for the little guy to assert his rights. Coffee presents a balanced account of both the costs and benefits of collective litigation, rightly focusing on the main issue of lawyer incentives to bring and maintain suits. He recognizes that class-action attorneys both realize the public goals of deterrence and benefit from litigation: “No simple epithet – private attorney general or bounty hunter – adequately captures the plaintiffs’ attorneys’ role in high stakes litigation.” He writes, “In truth, the plaintiffs’ attorney does not simply supplement public enforcement but extends and drives the law’s development, sometimes pushing it in directions public enforcers would not have gone.”

The book begins with a history of entrepreneurial lawyering. The insight here is that fee structures drive the structure of the legal profession—had we regulated attorney’s fees, for example, we might have a very different legal system in the United States. As it was, early on the states rejected English limitations on fees and accepted contingency fees and other innovations that encouraged lawyers to find clients and allowed clients who might not be able to afford representation otherwise to hire lawyers. That was the birth of entrepreneurial litigation and it occurred not in 1966 with the promulgation of Federal Rule of Civil Procedure 23, but in the 1850s with the adoption of contingency fees. You might say it is an American tradition. As Coffee puts it, refining his original agency thesis, “the plaintiff’s attorney in large class actions [is] less an agent than a risk-taking entrepreneur, with the class members serving as largely passive partners.”

Especially fascinating is Coffee’s history of the derivative suit. Here he tells stories that I have not seen told elsewhere, such as that of Clarence Venner, a non-lawyer who was a key player in orchestrating campaigns against public corporations as a plaintiff in the early twentieth century, and Abraham Pomerantz, a lawyer who revolutionized plaintiff’s side corporate litigation after the Great Depression. This historical narrative provides a new view of the class action, not as an inflection point in the history of American law between the New Deal regime founded on administrative expertise to a mixed regime that increasingly relied on private enforcement, but instead part of a longer history of individual activism in the courts dating back to Jacksonian populism.

Coffee addresses four types of class actions: derivative suits, securities suits, merger-and-acquisition class actions, and mass-tort class actions. When I first read the book, I thought giving mass-tort class actions a chapter was a mistake, because they were defunct. But reports of the death of the mass-tort settlement class action have been greatly exaggerated, as the NFL Concussion and Deepwater Horizon cases demonstrate. His analysis of each of these areas of the law focuses on incentives – those of the defendant, plaintiff, and, importantly, judges. These include the defendant’s side desire for global peace, the plaintiff’s attorney’s incentives created by the structure of fee awards, and judges’ incentives to avoid protracted litigation or a flood of cases. Coffee describes a dynamic of one step forward and a half step back – a cycle in which attorneys succeed, overreach, and face a counter-reaction.

After reviewing the problems in class actions, Coffee sets the stage for considering reforms. Overall, the problems he focuses on can be put into three categories: (1) structural problems, such as overlapping multiple jurisdictions permitting duplicative litigation; (2) incentive problems, such as the size of the lawyer’s fee in class actions, which can lead to overzealous prosecution of class actions, and the creation of limits such as the “loser pays” rule adopted by some corporations in their bylaws, which can lead to under-prosecution; and (3) accountability problems, including the fact that private attorneys general are not democratically accountable as public attorneys general are. These observations tie with common themes in discussions of litigation and politics in the U.S. more generally: the tension between the establishment and the people, between centralization and decentralized decision-making, and between regulation and deregulation. In the final chapter, Coffee proposes greater public/private partnerships in the prosecution of civil cases – not giving public agencies veto power, but perhaps adding some greater regulation of private lawyers than merely the existence of a substantive legal regime provides.

It is not surprising that Coffee describes class actions the way that he does, as an entrepreneurial enterprise with a long American tradition, given that he is a corporate law scholar in his other life. His description is convincing, novel, and important to current policy debates that present entrepreneurial litigation as an anomaly in our history. He focuses on sectors that are important not only financially but also in American political life. As Lizbeth Cohen demonstrated convincingly in The Consumer’s Republic: The Politics of Mass Consumption in Postwar America (2003), after the Second World War the country took a turn from understanding citizenship as a political act to understanding it as an economic one: the best thing we can do for our country is buy more.

Bringing the insights of corporate law to class action litigation is Coffee’s strength, but also a weakness, because it ignores how the class action, and the controversy surrounding it, extends beyond corporate litigation. Derrick A. Bell, Jr. originated the analysis of agency costs and of the lawyer having his own agenda (the core of the idea of the “entrepreneur”) in his 1976 article Serving Two Masters: Integration Ideals and Client Interests in School Desegregation Litigation. Thurgood Marshall and the NAACP Legal Defense Fund, about whom Bell wrote, might be described as ideological entrepreneurs. And like the rest of the class action regime Coffee describes so well, civil rights class actions are under threat. Here a public/private partnership will cure little, as the whole point of many civil rights actions is to sue the government itself on behalf of those with limited political power: those denied the right to vote, the homeless, foster children, and prisoners, to name but a few groups. (The government ought to have a role in enforcing civil rights, but an independent bar is a necessary watchdog.) It is important to remember that overreaching limitations on civil rights class actions are at least as dangerous to civil society as too harsh limits on consumer and corporate suits.

Coffee, who was for many years a colleague of the civil rights pioneer Jack Greenberg, is no doubt aware of this omission and it does not diminish the importance of this book.  His insights into the costs and benefits of the class action device will continue to be crucial for anyone thinking about the class action: legislators, judges, lawyers, students, and academics.

Cite as: Alexandra D. Lahav, (Almost) Everything You Wanted to Know About Class Actions, JOTWELL (February 21, 2017) (reviewing John C. Coffee, Jr., Entrepreneurial Litigation: Its Rise, Fall, and Future (2015)), https://courtslaw.jotwell.com/almost-everything-you-wanted-to-know-about-class-actions/.

Eight Is Enough

In February 2016, shortly after the death of Justice Antonin Scalia, progressives, including progressive law professors, salivated at the prospects for the Supreme Court. President Barack Obama would fill a vacancy (the third of his presidency and the same number Reagan had appointed), shifting a 5-4 conservative Court to a 5-4 liberal Court. And with the expected election of Hillary Clinton to potentially replace three Justices who were 78-years-old or older, a 6-3 liberal Court—unseen since the 1962-68 heyday of the Warren Court—seemed possible. Visions of vigorous liberal constitutionalism, especially on “Culture War” issues, danced in the heads of constitutional scholars and advocates.

It was not to be, of course. Those dreams died in stages, with first the success of Senate Republicans’ 300-day inaction on President Obama’s nomination of Merrick Garland, then Donald Trump’s unexpected election in November 2016, then his January 2017 nomination of Tenth Circuit Judge Neil Gorsuch to fill the vacancy.

Although a self-described progressive, Eric Segall spent this interregnum attempting to steer the conversation and the political process in a different direction. In Eight Justices Are Enough (a paper I read and commented on in draft), the culmination of a series of op-eds, blog posts, and talks, Segall argues that Congress should permanently establish the status quo since Scalia’s death that may continue for the duration of the current Term: An eight-Justice Court, evenly divided between Democratic and Republican appointees. Each seat would be designated (or at least understood) as “belonging” to that party and to be filled by a nominee of that same party, regardless of the appointing President. In essence, Segall argues, the Supreme Court should be staffed the same way as the Federal Election Commission or the Court of Appeals for the Armed Forces (a non-Article III court).

Segall’s proposal seizes on an unprecedented political moment: An even number of Justices with an even ideological divide adhering to the party affiliations of their appointing Presidents and, presumably, of the Justices. That last part is important, because previous sharply divided Courts have not followed partisan lines. The four-Justice “liberal” wing from 1994-2009 consisted of two Republican appointees. So did the liberal majorities on the Warren Court. One of the “Four Horsemen” voting to declare New Deal legislation invalid was a Democratic appointee, while three of the regular dissenters were appointed by Republicans Presidents.

This proposal also reflects Segall’s scholarly approach to the Supreme Court, which he has long labeled a political rather than judicial institution in his own writing and his work with Judge Richard Posner. If a Justice’s politics dominates how she decides cases, Segall suggests, it is better to bring party affiliations into the open and make them an explicit part of the Court’s structure.

The change could be implemented deceptively easily and immediately. Congress determines the size of the Court and can reduce the number of seats from nine to eight by ordinary legislation; Article III does not command a minimum or maximum size for the Court, nor that there be an odd number of Justices. The trickier piece is ensuring same-party nominees. One way is through legislation, like that establishing the FEC, providing that “no more than four members of the Court may be affiliated with any particular party.” Although Segall does not mention it, this would not be without constitutional uncertainty, going to whether Congress can legislate limits on eligibility for a seat on the Court. Article III famously does not establish eligibility qualifications or limitations for a federal judge, not even that she be a lawyer. Alternatively, the Senate could enact an internal rule that it may confirm only a nominee from the same party as the prior holder of the seat and must refuse to confirm a nominee not of the same party, ensuring that there are never more than four Justices from one party. Segall does allow for possible confirmation of an independent, or someone who refuses to disclose party affiliation, by a supermajority.

Segall does not require the President to nominate a member of a particular party, which would trigger sticky constitutional questions about the scope of the President’s Article II appointment powers and congressional power to limit presidential prerogatives. But the President would know that if he nominates a Republican to replace Justice Ginsburg (or if President Clinton would have nominated a Democrat to replace Justice Kennedy), the Senate would not confirm.

Segall identifies three broad benefits in his proposal. First, it ensures at least a minimum of bipartisan support for any significant constitutional decision, since at least one Justice from the other party is necessary to create a majority. While an excess of constitutional decisions from a closely divided Court can be troubling, the problems of perception are exacerbated when the divide tracks partisan lines. Instead, Justices will work harder to avoid ties and to achieve some bipartisan agreement, perhaps by rendering narrower (“minimalist,” in the parlance) decisions. Second, the proposal removes incentives for partisan gamesmanship in timing retirements. A Democratic Justice has no incentive to time her retirement for when a Democrat is in the White House (or to hold on until a Democrat returns to the White House) if her successor on the Court will be a Democrat, regardless of the appointing President. Third, Segall rebuts arguments that the proposal would be detrimental to the uniformity of federal law. Because only a small portion of the Court’s decisions are 5-4, it is likely the eight-Justice Court would be evenly divided and unable to decide only on a similarly small number of cases. More importantly, having an evenly divided Court devolves decisionmaking power to the lower courts, which include a larger number of judges, who are politically, educationally, socially, geographically, and experientially more diverse.

Segall’s proposal creates some downstream effects that may prevent it from achieving its purposes. It theoretically could produce more moderate nominees, as a Republican President will appoint the most moderate (i.e., least liberal) Democrat he can find for a Democratic seat (and vice versa, for a Democratic President with a Republican seat). Segall regards this as a long-term benefit, a way to reduce the role of partisanship in the Court’s decsionmaking by getting less-partisan Justices. But that also means Justices will not entirely lose the incentive for gamesmanship in timing their retirements. Justice Ginsburg still may try to hold on to allow a Democratic President to replace her with a similarly liberal Democrat, rather than allowing a Republican President to replace her with a moderate Democrat. The difference is merely one of degree. Segall addresses this concern by requiring that any nominee be approved by a majority of that party’s members on the Senate Judiciary Committee. In theory, this forces a Democratic President to appoint, and Senate Democrats to vote to confirm, someone who is “Republican enough” to satisfy the Senate GOP caucus. That, of course, may undermine the goal of appointing moderate Justices.

The proposal also creates some perverse incentives for actors to avoid or delay acting to fill a vacancy for a lengthy period. If the new status quo is an evenly divided eight-person Court, a vacancy necessarily produces a seven-person Court with a 4-3 partisan advantage for one side. And partisan actors on that side might prefer to keep that edge for some period of time. Thus, President Trump might leave Justice Ginsburg’s seat unfilled to maintain a 4-3 Republican Court, rather than appoint a new (even moderate) Democrat. Or he can strip the force from the Democratic veto on the Senate Judiciary Committee—if they do not go along with his conservative-Democrat nominee, he is happy to leave the seat vacant. Or a Democratic Senate majority might refuse to confirm a Republican nominee to fill Justice Kennedy’s seat, leaving a 4-3 Democratic Court. Or a Democratic Senate minority might filibuster Kennedy’s replacement, producing the same result (or forcing Republicans to eliminate the filibuster). The Justices themselves might prevent this manipulation by conditioning their resignations on confirmation of a replacement. But that option disappears with an unexpected vacancy created by death, illness, or incapacity.

Finally, the proposal places downward political pressure on lower-court appointments. These have become nearly as politicized as Supreme Court appointments, as demonstrated by Republicans’ deliberate strategy to leave more than 100 unfilled vacancies for President Trump. Segall’s plan could exacerbate the problem. If SCOTUS’s inability to get a majority empowers lower courts to resolve more national issues within their geographic regions, each political party wants to increase the likelihood of favorable decisions being affirmed by that evenly divided Court. Both parties thus must maintain and strengthen majorities on lower courts, as appointment obstruction and gamesmanship trickle down to the lower courts. The new system also may prompt those lower-court judges to flex their powers, as by issuing and affirming universal (or nationwide) injunctions, binding the federal government to the decision of a single local court and essentially creating nationwide law, never to be reviewed or resolved by SCOTUS. Whether these are features or bugs, and whether as bugs they outweigh the merits of Segall’s proposal, is a matter for political debate.

Segall’s is only the newest among numerous proposals to alter the makeup and selection of the Supreme Court, both to fix the broken confirmation process and to depoliticize the Court as an institution (as perceived, if not in reality). The Paul Carrington Proposal would establish de facto eighteen-year term limits by statutorily providing for regular biennial appointments to the Court, with cases heard by the nine junior-most Justices. Others have proposed constitutional amendments to eliminate life tenure in favor of term limits. Others propose eliminating permanent Justices, staffing the Supreme Court with randomly selected rotating judges assigned from lower courts. Segall’s proposal has the benefit of simplicity in enactment—it involves small sub-constitutional changes, codifies the Court’s familiar status quo from the past year, and does not alter the terms or conditions of any sitting Justice’s appointment. It also is the most honest—reappropriating the partisanship that Segall argues exists in the Court and incorporating it into formal institutional structures.

The political reality, of course, is that none of these proposals is likely to be enacted. It would require unilateral disarmament by one party at the height of power (in this case, Republicans, who control the Senate and the White House and, but for the filibuster, can put anyone they want on the Court). That power might shift in two or four years will not affect that calculus. And the window for Segall’s plan is especially narrow, tied as it is to the Court’s current partisan moment. If Gorsuch is confirmed and the next vacancy comes via a retiring Justice Breyer, the resulting eight-person Court would not contain an even partisan divide for Congress to codify.

On the other hand, legal scholars must not run from bold ideas simply because other legal institutions are not on board. And Segall’s proposal is unique enough to look attractive should the current appointment stalemate continue. Senate Democrats have murmured about filibustering any Trump nominee, payback for Republicans’ having “stolen” the appointment from President Obama. If Senate Democrats are serious and committed enough to maintain that stance for several years, Senate Republicans may face a choice—either eliminate the filibuster (as Democrats previously did for lower-court appointments) or look for a solution that accepts the stalemate and finds benefits in retaining it.

Cite as: Howard M. Wasserman, Eight Is Enough, JOTWELL (February 3, 2017) (reviewing Eric J. Segall, Eight Justices Are Enough: A Proposal to Improve the United States Supreme Court (2017)), https://courtslaw.jotwell.com/eight-is-enough/.