Class actions remain a work in progress in many jurisdictions around the globe. Several amendments to Federal Rule 23 took effect on December 1, 2018, after more than four years of deliberation by the Advisory Committee on Civil Rules. The Ontario Law Reform Commission is in the final stages of an eighteen-month comprehensive review of class actions, the first in the class action statute’s history in that province. Likewise, the Australian Law Reform Commission recently submitted its report to the Attorney General recommending amendments to its class action procedure, while the Victorian Law Reform Commission’s report on Litigation Funding and Group Proceedings was tabled in the Victorian Parliament in June 2018. Efforts at legislative reform in the United States, however, have stalled. No doubt to the considerable relief of the plaintiff bar, sweeping changes to class action procedure introduced by a Republican Congress in the Fairness in Class Action Litigation Act of 2017 (FICALA) will not come to pass, as the bill failed to advance in the Senate prior to the end of the previous Congress and Democratic control of the House of Representatives in the new Congress.
Still, the appetite for reforming class actions remains, not least among corporate interests eager to capitalize on legislative efforts to cut regulations and curb litigation. Anticipating that reform efforts will continue and FICALA will reappear in reincarnated form, Howard Erichson usefully dissects the proposed amendments in Searching for Salvageable Ideas in FICALA, one of six papers published as part of a symposium at Fordham Law School entitled “Civil Litigation Reform in the Trump Era: Threats and Opportunities.” FICALA represents “the most aggressive attempt in recent memory to dismantle the apparatus of mass litigation through procedural reform.” Introduced less than three weeks after President Trump took office and passed by the House along party lines, FICALA appears to be less about improving judicial efficiency or updating an outmoded procedure than a “defendant-driven effort to reduce liability exposure by making it difficult for plaintiffs to aggregate claims.” While most of the bill has little to commend itself to Erichson and other class action experts, a few proposals have the potential to improve the litigation process. In his essay, Erichson discusses the irredeemable and the salvageable ideas in the reform bill, both in convincing fashion.
Erichson identifies three principal reasons why most of the bill is highly problematic. The bad proposals either (1) are solutions in search of a problem; (2) address real problems in an ill-conceived way; or (3) target issues better solved by the courts, not Congress. He then discusses the few laudatory aspects of the bill.
One of FICALA’s most draconian provisions would prohibit class certification unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative” (H.R. 985 §103(a)). Requiring identical harm among class members would eliminate many appropriate class actions, such as those on behalf of consumers and employees, just because the degree of harm between them may differ. Rule 23 already requires that common issues predominate and that the class representative be typical of the class; there is no good reason to deny certification solely because class members suffered non-identical harm. Indeed, with certification having become more difficult for plaintiffs in the past decade, a stricter test for certification purports to solve a problem that does not even exist.
In the second category of defect is the proposed prohibition on determining or paying class counsel fees until all class members are paid. According to Erichson, at best the proposal “represents a clumsy effort to defer the determination of class counsel fees until after the value of the remedy is known.” An absolute prohibition on the payment of even interim fees would create problematic incentives to negotiate settlements with short claims processes even where a longer process would be appropriate.
A proposal to impose strict limitations on who may serve as a representative plaintiff falls within Erichson’s third category. Class action reform in the United States can take place in three different ways: by the courts’ rulemaking committees; in the development of case law as issues percolate in the appellate courts; and through Congress. Procedural reforms linked to federal substantive statutes are within Congress’ institutional role. Procedural reforms not connected to subject matter jurisdiction, however, are more properly the purview of deliberative rulemaking bodies or appellate consideration in the context of live disputes. Concerns about conflicts of interest between class representatives and class counsel, for example, are better left to the discretion of the judge looking at the relationships and the circumstances of a particular case, whereas legislative intervention may impose an unnecessarily rigid rule.
Despite its many flaws, FICALA contains a few salvageable ideas. Erichson discusses three – reforms to class counsel fees, class settlement reporting, and subject matter jurisdiction – but devotes the most attention to the first. He recognizes that reforms that aim to improve class actions for class members (as opposed to entrepreneurial attorneys or defendants) are the least likely to be represented in judicial rule-making processes. I would add that class member interests are also unlikely to be pressed by political lobbyists, which is why the fee provisions in FICALA represent the most promising and nonpartisan aspects of the bill. Plaintiff attorneys’ and defendants’ interests align to the extent that both prefer expedient settlements. As a matter of brute economics, the “best way to incentivize class counsel to negotiate remedies of real value to class members is to link fees to what class members get.” Too often, however, class counsel obtain a fee based on the face value of a settlement that differs significantly from the actual value to the class, due to coupon settlements, large (and unnecessary) cy près awards, or low claims rates attributable to a flawed distribution process. Determining the true value of a settlement may require waiting until the end of the distribution process, followed by a report to the court. Erichson would not defer all fees to the end of that process, as contemplated under FICALA, but he proposes interim fee payments following a periodic accounting of the settlement distribution. He also would include appropriate cy près remedies for the purpose of calculating counsel’s fee. Erichson’s proposal makes sense; it’s very similar to one that I have advocated in my own jurisdiction’s reform efforts and an approach adopted by several Canadian judges.
Erichson persuasively argues that most FICALA provisions are draconian, “driven not by a desire to assure fair and prompt recoveries, but rather by a desire to make recoveries difficult for all plaintiffs in class actions.” With equal conviction, he makes the case for supporting legislative reform that would improve class actions for the people they are meant to serve: class members. It’s an idea worth salvaging.