Abstract
Once a preserve of the American legal landscape, the class action device today transcends geographic boundaries. In the past decade, efforts have intensified to establish collective litigation instruments in diverse legal terrains outside the United States—including Europe—often with the common goal of allowing some form of collective legal redress while avoiding perceived disadvantages of class actions in the American experience. Today more than ever, from legislators to litigants to scholars, European reformers face the challenge—and the opportunity—of making fundamental choices about the scope and shape of the collective legal remedies they wish to make available. Choices about the shape of the class action device reflect foundational judgments about the proper allocation of costs, and there is much from the US experience that can inform Europe’s prospective reformers. This article describes the history and current status of class action rules in the US, and then compares class actions and another form of extra-compensatory damages—one type of punitive damages—as means of doing the same thing. Although neither punitive damages of this sort nor class actions generally have traditionally existed in civil law systems, they both—and especially this particular form of punitive damages—can, from an economic view, be made to vindicate the same kind of social cost accounting goals. By considering these legal devices together, we hope to shed light on crucial choices facing Europe as it grapples with how best to provide collective legal redress in light of the lessons of the US experience with class actions.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
In a 2008 White Paper, the European Commission recognized “a clear need for mechanisms allowing aggregation of the individual claims of victims of antitrust infringements” and, accordingly, proposed “a combination of two complementary mechanisms of collective redress to address effectively those issues in the field of antitrust: representative actions, which are brought by qualified entities,” such as consumer organisations or state bodies on behalf of a group of victims, and “opt-in collective actions, in which victims expressly decide to combine their individual claims for harm they suffered into one single action.” Commission of the European Communities (2008). Some form of collective redress in the enforcement of EC competition law appears likely in the near future, see European Parliament Resolution of 26 March 2009 (welcoming White Paper but calling for specification of “legal basis for its proposed measures” and protections against abuses that have occurred “in other legal systems, in particular in the United States”); Commission of the European Communities (2009) (endorsing “collective actions” but requesting measures to ground them “in European legal culture and traditions” and to “safeguard[] against the introduction of features that in other jurisdictions have demonstrated to be more likely to be abused”). See also Commission of the European Communities (2007) (enumerating potential remedies to the inadequate “consumer redress situation in the EU,” including option of a single EU-wide collective mechanism for consumer redress).
Any number of conditions in the US legal landscape distinguish its class actions from those of the EU, from the powers of the judiciary and its relationship to the legislature, to jury trials, to discovery rules, to attorneys’ fee structure.
In the United States, some scholars have asserted, the class action device has evolved with a shift in courts’ focus—at least in the area of mass torts—away from a primary concern with the interests of the individual litigant in favour of class certification in response to advocates of “aggregative techniques.” Coffee (1995). See also Resnik ( 1991 ).
See, e.g., supra note 1.
See Subrin (1988) (explicating the history of the Field Code).
The New York Field Code of 1848, for example, as amended in 1849, provided: “When the question is one of a common or general interest of many persons, or when the parties are very numerous and it may be impracticable to bring them all before the court, one or more may sue or defend for the benefit of the whole”; Conte and Newberg (2002) at 399–400.
See Subrin (1989) (providing historical examination of the development of the Rules on the fiftieth anniversary of the development of the FRCP).
As Professor John P. Frank, a member of the 1966 Advisory Committee on Civil Rules that proposed amending Rule 23 to its current form, explained: “If there was a single, undoubted goal of the committee, the energizing force which motivated the whole rule, it was the firm determination to create a class action system which could deal with civil rights and, explicitly, segregation.” Prepared Statement of John P. Frank, Hearings on S. 353 Before the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. of the Judiciary, 106th Cong. (1999).
For example, at the time “[t]he Advisory Committee…had suggested that a ‘mass accident…is ordinarily not appropriate for a class action’ because of the presence in such cases of significant issues (including causation and possible defenses) that would impact upon the individual class members differently.” Coffee, supra note 4, at 1356–1357 (internal quotation marks omitted); see also Resnik, supra note 4, at 9–11.
Fed. R. Civ. Pro. 23(a).
Fed. R. Civ. Pro. 23(b).
See supra note 9.
For instance, Committee member Judge Charles Wyzanski stressed the notice obligation as a barrier to an excessively large number of claims for a class action. In evaluating the 1966 changes to Rule 23, Judge Wyzanski observed: “I think you would have to make a finding that the form of notice to be used would in all probability reach all persons in the proposed class. And I think it quite clear that in [an enormous case involving thousands] you could not make any such finding. I don’t think that case is a class action except for those people who can be reached.” See Prepared Statement of John P. Frank, Hearings before Sen. Subcomm., at 270; see also id. at 269 (“The concept of thousands of notices going ceremonially to persons with such small interests that they could not conceivably bring their own action was still in the future”).
Professor J. W. Moore, a member of the Committee, contended that class actions should not reach a mass tort like the contemporaneous fire in the Ringling Bros. tent in Hartford. See id. at 268.
See id. at 266 (“The basic idea of a big case with plaintiffs unified as to liability but disparate as to damages was the Grand Canyon airplane crash”).
Resnik, supra note 4, at 9–11 (showing, based on comprehensive historical study, that Advisory Committee members “did not see the class action as responsive to the problems of mass torts”); Coffee, supra note 4, at 1357.
See, e.g., Eisen v. Carlisle and Jacquelin, 417 US 156, 184 (1974) (“The purpose of Rule 23 is to provide flexibility in the management of class actions, with the trial court taking an active role in the conduct of the litigation”).
See, e.g., Califano v. Yamasaki, 442 US 682, 701–702 (1979) (“[T]he class-action device saves the resources of both the courts and the parties by permitting an issue potentially affecting every [potential class member]…to be litigated in an economic fashion under Rule 23…”); see also id. (“[A] nationwide class [was not] inconsistent with the principles of equity jurisprudence”).
United States Parole Comm’n v. Geraghty, 445 US 388, 402–03 (1980) (“[J]ustifications that led to the development of the class action include…the protection of the interests of absentees, the provision of a convenient and economical means for disposing of similar lawsuits, and the facilitation of the spreading of litigation costs among numerous litigations with similar claims”).
See, e.g., Resnik, supra note 4, at 6–22.
See 26 Class Action Rep. 3 (2004).
See Hensler et al. (2000).
See Willging and Lee (2008).
See, e.g., 151 Cong. Rec. H726 (statement of Rep. Sensenbrenner) (asserting that the class action system produces “outrageous settlements that benefit only lawyers and trample the rights of class members,” and that today’s class actions “are too often used to efficiently transfer the large fees to a small number of trial lawyers, with little benefit to the plaintiffs”); 151 Cong. Rec. H735 (2005) (statement of Rep. Keller) (“In a nutshell, these out-of-control class action lawsuits are killing jobs, they are hurting small business people who cannot afford to defend themselves, they are hurting consumers who end up paying higher prices for goods and services.”); 151 Cong. Rec. H748 (2005) (statement of Rep. Blunt) (“In addition to unclogging certain overused courts, this bill ends the harassment of local businesses through forum shopping.”).
See 151 Cong. Rec. H726 (statement of Rep. Sensenbrenner) (“The race to settle produces outcomes that favor expediency and profits for lawyers over justice and fairness for consumers. The losers in this race are the victims who often gain little or nothing through the settlement, yet are bound by it in perpetuity.”).
H. R. Rep. No. 109–14, pt. 1, at 14–20 (2005) (identifying a variety of examples of abusive settlements in which attorneys receive excessive fees “with little or no recovery for the class members themselves”); see, e.g., Kamilewicz v. Bank of Boston, 92 F.3d 506 (7th Cir. 1996).
Id. at 4 (“Often, the settlement notices…are so confusing that the plaintiff class members do not understand what—if anything—the settlement offers or how they can opt out of it.”); id. at 21–22 (illustrating dangers of “drive-by class certifications”).
Macey and Miller (1991).
See, e.g., Friendly, supra note 30, at 120; (citing Handler (1971)); In re Rhone-Poulenc Rorer, 51 F.3d at 1298 (“[Defendants] may not wish to roll these dice. That is putting it mildly. They will be under intense pressure to settle.”).
H. R. Rep. No. 109–14, pt. 1, at 22 (2005) (describing the practice of some magnet state courts that too permissively certify national class actions).
Id. at 23 (describing the filing of “copy cat” class actions across state courts).
Id. at 24 (“The effect of class action abuses in state courts is being exacerbated by the trend toward ‘nationwide’ class actions, which invite one state court to dictate to 40 others what their laws should be on a particular issue, thereby undermining basic federalism principles.”); see also id. (“A recent study found that 77 percent of class actions brought in 2001 in a rural Illinois county known for its heavy class action docket sought to certify nationwide classes.”) (citing Beisner and Miller (2003)).
Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.).
28 U.S.C. § 1332(d)(2).
See e.g., H. R. Rep. No. 109–14, pt. 1, at 22 (2005) (observing that “[s]ome state courts with [a] permissive attitude have even certified classes that federal courts had already found uncertifiable”).
McLaughlin (2009) (“Consensus is rapidly emerging among the United States Courts of Appeal. The First, Second, Third, Fourth, Fifth, Seventh, Eighth, Tenth, and Eleventh Circuits have expressly adopted certification standards that require rigorous factual review and preliminary factual and legal determinations with respect to the requirements of Rule 23 even if those determinations overlap with the merits.”). See, e.g., Miles v. Merrill Lynch (In re Initial Public Offering Securities Litigation), 471 F.3d 24, 41 (2d Cir. 2006); id. at 40 (“It would seem to be beyond dispute that a district court may not grant class certification without making a determination that all of the Rule 23 requirements are met.”); Unger v. Amedisys, Inc., 401 F.3d 316, 321-22 (5th Cir. 2005) (holding that courts must find facts favouring class certification through the use of “rigorous, though preliminary, standards of proof”); Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1186 (9th Cir. 2001) (“party seeking class certification…bears the burden of demonstrating that she has met each” of the Rule 23 requirements), amended on diff’t ground by 273 F.3d 1266; Gariety v. Grant Thornton, LLP, 368 F.3d 356, 366 (4th Cir. 2004) (“factors spelled out in Rule 23…[must] be addressed through findings”); Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 675–76 (7th Cir. 2001) (requiring “whatever factual and legal inquiries are necessary under Rule 23” to “resolve the disputes before deciding whether to certify the class”); In re Constar International Inc. Securities Litigation, 585 F.3d 774, 780 (3d Cir. 2009) (“we require that each Rule 23 component be satisfied”). See also Blades v. Monsanto Co. et al., 400 F.3d 562, 567, 575 (8th Cir. 2005) (holding that, although district court “findings” may not be required, preliminary resolution of disputes sometimes is necessary in order to determine that certification requirements have been met); Brown v. Am. Honda (In re New Motor Vehicles Candian Exp. Antitrust Litig.), 522 F.3d 6, 25–26 (1st Cir. 2008) (avoiding resolution of whether “findings” are necessary, but requiring “searching inquiry” into whether class certification criteria are satisfied by novel or complex theory of injury).
See, e.g., Castano v. American Tobacco Co., 84 F.3d 734, 743 (5th Cir. 1996) (“The class members were exposed to nicotine through different products, for different amounts of time, and over different time periods. Each class member’s knowledge about the effects of smoking differs, and each plaintiff began smoking for different reasons. Each of these factual differences impacts the application of legal rules such as causation, reliance, comparative fault, and other affirmative defenses.”). Cf. Barnes v. American Tobacco Co., 161 F.3d 127, 131 (3d Cir. 1998) (“Although there may be individual variations with respect to each class member’s relationship with the defendants, the common questions of defendants’ liability, which are intimately connected with their concerted conduct, support a finding that defendants have acted on grounds generally applicable to all members of the proposed class”).
See, e.g., Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) (en banc) (affirming certification of nationwide class encompassing all women employed by Wal-Mart since December 1998—in 3,400 stores and 41 regions—based on claims of sex discrimination under Title VII of the 1964 Civil Rights Act), cert. granted, 131 S. Ct. 795 (Dec. 6, 2010) (No. 10–277).
See Coffee ( 1983a ).
It remains to be seen how the Supreme Court’s recent interpretation of “reasonable” attorney fees for prevailing parties in civil rights actions, under 42 U.S.C. §1988, will affect the reasonableness inquiry in other subjects of class actions. See Perdue v. Kenny A., 130 S. Ct. 1662, 1673–75 (2010) (endorsing lodestar calculation of “reasonable” attorney fee but limiting to “extraordinary circumstances” the possibility of above-lodestar fee for superior attorney performance).
See, e.g., Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 130 S. Ct. 1431 (2010).
See generally Coffee ( 1983b ).
Grimshaw v. Ford Motor Co., 119 Cal. App. 3d 757, 174 Cal. Rptr. 348, 383 (1981).
Cf. United States v. Carroll Towing Co., 159 F.2d 169 (2d Cir. 1947). The cost-benefit analysis was not Ford’s primary defence in the Pinto case, but it eventually came to dominate the parties’ litigation strategies. See Schwartz (1991).
Grimshaw, 119 Cal. App. 3d at 818–822.
See, e.g., Newport v. Fact Concerts, Inc., 453 US 247, 266-67 (1981); BMW of North America, Inc. v. Gore, 517 US 559 (1996).
See Pacific Mut. Life Ins. Co. v. Haslip, 499 US 1 (1991); TXO Prod. Corp. v. Alliance Resources Corp., 509 US 443 (1993).
See Calabresi (2005) (discussing when and how such damages are appropriate).
Becker (1968).
See Kemezy v. Peters, 79 F.3d 33, 35 (7th Cir. 1996) (Posner, C. J.) (“When a tortious act is concealable, a judgment equal to the harm done by the act will underdeter” because the tortfeasor “will not be confronted by the full social cost of his activity”); Ciraolo, 216 F.3d at 245 (Calabresi, J., concurring); Polinsky and Shavell, supra note 51.
Sharkey, supra note 52.
References
Baumgartner, S. P. (2007). Class actions and group litigation in Switzerland. Northwestern Journal of International Law and Business, 27, 301–350.
Becker, G. S. (1968). Crime and punishment: An economic approach. Journal of Political Economy, 76(2), 169–217.
Beisner, J. H., & Miller, J. D. (2003). Class action magnet courts: The allure intensifies, 4 BNA Class Action Litigation Report, 58.
Calabresi, G., & Bobbitt, P. (1978). Tragic choices. New York: Paperback.
Calabresi, G. (1985). Ideals, beliefs, attitudes, and the law. New York: Paperback.
Calabresi, G. (2005). The complexity of torts–The case of punitive damages. In M. Stuart Madden (Ed.), Exploring tort law. New York: Pace University.
Coffee, J. C. (1983a). Understanding the plaintiff’s attorney: The implications of economic theory for private enforcement of law through class and derivative actions. Columbia Law Review, 86, 669–727.
Coffee, J. C. (1983b). Rescuing the private attorney general: Why the model of the lawyer as bounty hunter is not working. Maryland Law Review, 42, 215–288.
Coffee, J. C. (1995). Class wars: The dilemma of the mass tort class action. Columbia Law Review, 95, 1343–1465.
Commission of the European Communities. (2007). Green paper on consumer collective redress.
Commission of the European Communities. (2008). White paper on damages actions for breach of the EC antitrust rules. (2 April 2008).
Commission of the European Communities. (2009). Opinion of the European Economic and Social Committee on the white paper on damages actions for breach of the EC antitrust rules. (22 Sept 2009).
Conte, A., & Newberg H. B. (2002). Newberg on class actions (4th ed.). St. Paul, MN: Thomson West.
Friendly, H. J. (1973). Federal jurisdiction: A general view. New York: Columbia University Press.
Handler, M. (1971). The shift from substantive to procedural innovations in antitrust suits—The twenty-third annual antitrust review. Columbia Law Review, 71, 1.
Harbour, L. J., & Shelley, M. E. (2006). The emerging European class action: Expanding multi-party litigation to a shrinking world. ABA Annual Meeting, Section of Litigation (Aug 2006).
Hensler, D., et al. (2000). Class action dilemmas: Pursuing public goals for private gain. Santa Monica: Rand Institute for Civil Justice.
Issacharoff, S., & Miller, G. P. (2008). Will aggregate litigation come to Europe. Working Paper No. 08-46, Law and Economics Research Paper Series.
Macey, J. R., & Miller, G. P. (1991). The plaintiffs’ attorney’s role in class action and derivative litigation: Economic analysis and recommendations for reform. University of Chicago Law Review, 58(1), 1–118.
McLaughlin, J. M. (2009). McLaughlin on class actions: Law and practice (6th ed.). West Publications.
Polinsky, A. M., & Shavell, S. (1998). Punitive damages: An economic analysis. Harvard Law Review, 111, 869–962.
Posner, R. A. (1973). An economic approach to legal procedure and judicial administration. Journal of Legal Studies, 2, 399–458.
Posner, R. A. (2001). Antitrust in the new economy. Antitrust Law Journal, 68, 925–943.
Resnik, J. (1991). From “cases” to “litigation”. Law and Contemporary Problems, 54, 5–68.
Russell, T. L. (2010). Exporting class actions to the European Union. 28 Boston University International Law Journal, 141, 168–176.
Schwartz, G. T. (1991). The myth of the Ford Pinto case. Rutgers Law Review, 43, 1013–1068.
Sharkey, C. M. (2003a). Punitive damages as societal damages. Yale Law Journal, 113, 347–453.
Sharkey, C. M. (2003b). Book review: Punitive damages: Should juries decide? Texas Law Review, 82, 381–411.
Stuyck, J., et al. (2007). An analysis and evaluation of alternative means of consumer redress other than redress through ordinary judicial proceedings (17 Jan 2007), http://ec.europa.eu/consumers/redress/reports_studies/comparative_report_en.pdf.
Subrin, S. N. (1988). David Dudley Field and the Field Code: A historical analysis of an earlier procedural vision. Law and History Review, 6, 311–374.
Subrin, S. N. (1989). Federal rules, local rules, and state rules: Uniformity, divergence and emerging procedural patterns. University of Pennsylvania Law Review, 137(6), 1999–2051.
Willging, T. E., & Lee, E. G. III (2008). The impact of the Class Action Fairness Act of 2005: Fourth interim report to the Judicial Conference Advisory Committee on Civil Rules, Federal Judicial Center.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Calabresi, G., Schwartz, K.S. The costs of class actions: allocation and collective redress in the US experience. Eur J Law Econ 32, 169–183 (2011). https://doi.org/10.1007/s10657-011-9233-z
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10657-011-9233-z
Keywords
- Class actions
- Collective legal redress
- Punitive damages
- Extra-compensatory damages
- Allocation of costs
- Deterrence