Class Actions in the U.S. an update on a disheartening trend Albert A. Foer, President, American Antitrust Institute British Institute of International and Comparative Law Collective Redress in Europe What Now, What Next? June 27, London I. A Disheartening Trend Most class actions are brought by plaintiffs attorneys on a contingency basis, which requires an investment analysis at the outset. Courts, taking a lead from the Supreme Court, have over recent years altered the cost/benefit analysis of initiating a class action suit, via a variety of substantive and procedural impediments. As the barriers mount, the result is that fewer class action cases are being brought and that many cases that could establish viable claims are simply not passing the threshold that plaintiff lawyers establish before they can invest in a case that might take 5-10 years of uncompensated time and expenses, even if it eventually settles for a figure that provides a rewarding payday for the lawyers. On April 27, 2011, the Supreme Court decided AT&T Mobility LLC v. Concepcion et ux. And, less than two months later, on June 20 it decided Wal-Mart Stores, Inc. v. Dukes. These cases offer further evidence of a disheartening conservative trend in the U.S. that is making it more and more difficult for victims of certain types of law violations to obtain a remedy. 2919 ELLICOTT ST, NW WASHINGTON, DC 20008 PHONE: 202-276-6002 FAX: 202-966-8711 bfoer@antitrustinstitute.org www.antitrustinstitute.org
II. Class Arbitration Arbitration is an increasingly viable alternative to slogging through the judicial process. If corporations can include in their contracts a requirement to arbitrate, they can avoid certain risks of trial: e.g., going to a jury with all of its risks, negative publicity, and years of disruption of executive attention. If they can at the same time declare that disputes will not be subject to class arbitration, they can come close to eliminating class actions entirely from the scene. (Not entirely because there are many kinds of transactions such as buying groceries in which there is no way to interpose an arbitration clause. On the other hand, more and more contracts are accomplished on the Internet by a click and these are not subject to negotiation.) Concepcion involved a husband and wife who entered into an agreement for the sale and servicing of cellular telephones with AT&T. The agreement included arbitration in the parties individual capacity and not as a plaintiff or class member in any purported class or representative proceeding. The amount of money in the particular agreement was trivial, but the couple filed a class action, which of course turned a firecracker into a potential atomic bomb for AT&T. The lower courts refused to grant AT&T s motion to dismiss, on the ground that the agreement was an unconscionable contract of adhesion under state law. The Supreme Court in a 5-4 opinion reversed, holding that the Federal Arbitration Act preempted state law, because the state law interfered with fundamental attributes of arbitration that the federal law was intended to promote. Interesting to note is the Court s recognition that the times in which consumer contracts were anything other than adhesive are long past. This decision follows a recent decision in the Stolt-Nielsen case that held that a commercial agreement which was silent on the question of class procedures could not be interpreted to allow them because the changes brought about by the shift from bilateral arbitration to class-action arbitration are fundamental. Clearly the Supreme Court s majority is not favorably disposed toward class actions. Here is another telling quote from the Concepcion opinion by Justice Scalia: Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims. Well, oh my gosh, this fear of so-called in terrorem settlements could also apply to class actions, apart from the arbitration context. It doesn t take a fortune teller to predict where the conservative majority is heading on class actions. The minority opinion by Justice Breyer for the more liberal wing of the Court contended that there was no preemption and pointed out that a single class proceeding is surely more efficient than thousands of separate proceedings for identical claims. But Breyer is sufficiently to also note that In general agreements that forbid the consolidation of claims can lead small-dollar claimants to abandon their claims rather than to litigate. Only a lunatic will litigate a $30.22 claim on an individual basis.
The extent of the Concepcion ruling is not yet clear. For example, there is a line of cases that says an arbitration clause cannot be enforced if it takes away a substantive federal right. A pending case involving the American Express company will turn on this so-called federal law vindication argument., namely that the practical effect of denying an antitrust plaintiff the ability to bring a class action is equivalent to denying a right to a remedy under the antitrust laws. This is different from the Concepcion situation in that AT&T had included in its agreement a variety of provisions that would arguably yield a reasonable remedy such that no statutory federal rights would be curtailed. We will see if that is a difference that makes a difference. III. Class Certification The Supreme Court s opinion in Dukes was also 5-4 against the plaintiffs on the important question of whether the minimum requirement of commonality under Rule 23(a) of the Federal Rules of Civil Procedure had been met. The Dukes plaintiffs asserted claims against Wal-Mart for sex discrimination under a federal civil rights statute, alleging that Wal-Mart s overall corporate culture, when combined with its policy of leaving pay and promotion decisions to the decentralized discretion of local managers, caused women employees to be paid less and receive fewer promotions than their male counterparts. Obviously this was a huge class, perhaps the largest ever, made up of people with stories that would likely differ in a variety of ways. But would these differing ways be so different as to render a class infeasible? The plaintiffs sought injunctive and declaratory relief, punitive damages, and back pay. Keep in mind that Rule 23 has a less difficult standard for class certification when the remedy is only an injunction or declaration of the law; and a somewhat more difficult standard when the claim is for damages. The reason is that if an injunction issues, it automatically applies to everyone; whatever the company was doing that was wrong, it has to stop doing, and this will automatically and equally affect all members of the class. But when the remedy is money, in a system based on classes in which one must take the initiative of opting out in order not to be bound by the outcome, it is more difficult to know whether all members of the class have suffered the same injury and that their claims depend upon a common contention of such a nature that it is capable of classwide resolution. Federal courts have historically construed the commonality requirement liberally, but in Dukes, injunctive relief and damages were both pled on a theory that the injunctive issues predominate and the damages are more or less incidental. The lower courts certified the class of all the female employees. The Supreme Court s opinion broke into two parts. The Court unanimously held that the claim for monetary damages could not be certified under Rule 23(b)(2), because the claims for individualized relief, such as back pay, are not merely incidental to injunctive relief. This is certainly important for employment discrimination cases going forward, taking away a well-travelled route that had made it possible successfully to combine injunctions and monetary damages.
More interesting is the second holding of the case, that class treatment is inappropriate. The Court broke 5-4, the same lineup as in Concepcion, with the majority holding that the plaintiffs failed to meet the minimum requirement of commonality for class certification under Rule 23(a). As one law firm s instant analysis puts it, Importantly, the Court held that Rule 23 does not set forth a mere pleading standard, and that a party seeking class certification must affirmatively demonstrate compliance in fact with the Rule 23 requirements. This means that commonality would have required significant proof that Wal-Mart operated under a general policy of discrimination. The Court found the evidence being put forward for this to be inadequate. But notice what this implies for class action procedure. Historically, since 1974 (with a few lower courts recently holding differently), it was up to the jury to determine matters of fact, not the judge. Now it is clear that the judge must consider the merits of claims when he or she determines early in the case whether Rule 23 has been satisfied. This also means that the plaintiffs must have much of their evidence in hand and reveal it at the stage, usually early in the case, in order to persuade the judge of the same facts that it will later have to prove to the jury, assuming the judge certifies the class. If the class does not get certified, of course, the case is over. IV. Where to? As I mentioned, with regard to class arbitration, the Supreme Court has made it clear that it values the process of arbitration over the rights of victims of illegal action to have a class remedy. But it is not clear how far this will be carried. What will happen if a federal statutory right such as treble damages in an antitrust statute cannot be vindicated within the arbitration context? Or if there is no legal or practical way for individuals to obtain relief on an individual basis? And what if the arbitration agreement does not include as many or as detailed benefits for the disgruntled consumer as the AT&T agreement included? Meanwhile, we can expect corporations to adapt to the new rulings by including specific language in agreements both providing for arbitration and providing that there shall be no aggregated claims. The more we engage in e-commerce, the more important this will be. The Dukes decision leaves a lot up in the air. Let us look at how it may apply to antitrust class actions. Here I rely largely on discussion that has occurred on the American Antitrust Institute s listserv in the immediate aftermath of the decision, and especially on the contributions of Professor Joshua Davis at the University of San Francisco, an expert on antitrust procedural matters. Plaintiffs in private antitrust cases rarely, if ever, use Rule 23(b)(2) in seeking damages, thus the unanimous wing of the Dukes opinion should not be relevant. All of the action in antitrust litigation tends to rise under Rule 23(b)(3) and the requirement that common issues predominate. One question is how far into the merits a court should go in deciding whether to satisfy a class and what proportion of the class must plaintiffs show suffered at least some degree of damage.
Dukes has little to say on this. Most courts that have considered the merits during the class certification process have said that plaintiffs need not prove all of the elements of their claims using common evidence and that the ordinary burden of proof (the preponderance of the evidence) applies to the requirements under Rule 23. But it is hard to know what this means and Dukes doesn t deal with this. Similarly, on the question of what proportion of the class plaintiffs must offer common evidence to show they suffered at least some injury, courts have also been unclear. Some courts (e.g., PIMCO) indicate that plaintiffs must attempt to show an unspecified high proportion of the class; and others (e.g., Hydrogen Peroxide) that plaintiffs must offer evidence of harm to all or nearly all class members. All Dukes says is that under Rule 23(b)(3) common issues need merely predominate not that all issues must be entirely common. And in most antitrust cases there are various issues that are common under the Dukes standard. Supposing there are common issues, another question is whether it is necessary that the fact of damages (or impact) also be reasonably common for common issues to dominate? Dukes does not provide an answer to this, either. Since Dukes, we have already seen an effort by a defendant in an antitrust class actions argue that courts must determine at the class certification stage whether plaintiffs and their experts have convincing proof of a method of proving impact on a class-wide basis, for example that plaintiffs must show that their economic models are valid and will work to win class certification, even though it is a matter that they will also have to prove on the merits at trial. This unintentionally raises a question about whether the class certification issue should continue to be resolved at an early stage in the litigation or whether the class motion should be adjudicated at side-by-side with summary judgment, after fact and expert discovery on the merits are closed. Either that, or let the jury decide the facts and adjudicate class certification as a post-trial motion. At this time, the American Antitrust Institute expects Dukes to have little if any effect on antitrust cases because the opinion is limited in its rationale to questions of corporate policy that apply uniquely to employment discrimination cases, and that have little if anything new to add to antitrust analysis. However, it is easy to see that this is complicated and an on-going part of a conservative strategy to restrict the use of class actions in the American judicial system.