Opinion ID: 2450000
Heading Depth: 1
Heading Rank: 2

Heading: The Class Action's Uneasy Role in the Adversary System

Text: Class action suits furnish an efficient means for numerous claimants with a common complaint to obtain a remedy [w]here it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages. Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 339, 100 S.Ct. 1166, 1174, 63 L.Ed.2d 427 (1980); see also 1 HERBERT B. NEWBERG & ALBA CONTE, NEWBERG ON CLASS ACTIONS § 1.06, at 1-20 (3d ed. 1992) (listing the objectives of class actions as: promoting efficiency, protecting defendants from inconsistent verdicts, protecting the rights of absent class members, allowing recovery by small claimants, and enforcing laws through private attorney general suits) [hereinafter NEWBERG & CONTE]. Class actions also facilitate the spreading of litigation costs among numerous litigants with similar claims. United States Parole Comm'n v. Geraghty, 445 U.S. 388, 403, 100 S.Ct. 1202, 1212, 63 L.Ed.2d 479 (1980). We do not doubt the salutary nature of this procedural device under appropriate circumstances. But, class actions are extraordinary proceedings with extraordinary potential for abuse. Therefore, among other prerequisites, before certifying a case as a class action, the trial court must first determine that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. TEX.R.CIV.P. 42(b)(4). One of the foremost objectives of Rule 42 is to protect the interests of absent class members. The law generally requires notice of a lawsuit and an opportunity for a hearing before any person may be bound by a court's judgment. E.g., Cunningham v. Parkdale Bank, 660 S.W.2d 810, 813 (Tex. 1983). By contrast, [t]he judgment in an action maintained as a class action ... whether or not favorable to the class, shall... be binding upon all those whom the court finds to be members of the class and who received notice as provided in subdivision (c)(2). TEX.R.CIV.P. 42(c)(3). The United States Supreme Court has made it clear that due process requires adequate representation of the interests of absentee class members that the judgment will bind. Hansberry v. Lee, 311 U.S. 32, 42-43, 61 S.Ct. 115, 118-19, 85 L.Ed. 22 (1940). In a class action, the absentee members of the class may not even learn of the proposed judgment until a tentative settlement has been struck on their behalf by the defendant, the class representative, and class counsel. When notice of a proposed settlement and notice of the class action are sent simultaneously, the absent class members may perceive it as a fait accompli. Mars Steel Corp. v. Continental Ill. Nat'l Bank & Trust Co., 834 F.2d 677, 680-81 (7th Cir.1987). The potential for conflicts of interest under these circumstances is substantial and to some extent unavoidable. During the last decade scholars have expressed growing concern about the conflicts that may arise between the class and its counsel: [T]hese attorneys are not subject to monitoring by their putative clients, they operate largely according to their own self-interest, subject only to whatever constraints might be imposed by bar discipline, judicial oversight, and their own sense of ethics and fiduciary responsibilities. Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs' Attorney's Role in Class Action and Derivative Litigation, 58 U.CHI.L.REV. 1, 7-8 n. 4 (1991); see also John C. Coffee, Jr., Rethinking the Class Action, 62 IND.L.J. 625, 628-29 (1987) (listing several factors that have contributed to entrepreneurial class action litigation, including the relatively low cost of filing dubious class action suits, the large amounts defendants are willing to pay in settling these suits, and the incentive for class counsel to invest little time and effort in protecting the absent class members); John C. Coffee, Jr., The Regulation of Entrepreneurial Litigation: Balancing Fairness and Efficiency in the Large Class Action, 54 U.CHI. L.REV. 877, 878, 878-79 (1987) (outlining proposed rule changes that would manipulate the incentives that the law holds out so as to motivate class counsel to defend the absent class members as they would any other client); Kenneth W. Dam, Class Actions: Efficiency, Compensation, Deterrence, and Conflict of Interest, 4 J.LEGAL STUD. 47, 61 (1975) (coining the phrase lawyer-entrepreneur in reference to class counsel). Judge Posner has noted that the absence of a real client impairs the incentive of the lawyer for the class to press the suit to a successful conclusion. His earnings from the suit are determined by the legal fee he receives rather than the size of the judgment. No one has an economic stake in the size of the judgment except the defendant, who has an interest in minimizing it. The lawyer for the class will be tempted to offer to settle with the defendant for a small judgment and a large legal fee, and such an offer will be attractive to the defendant, provided the sum of the two figures is less than the defendant's net expected loss from going to trial. Although the judge must approve the settlement, the lawyers largely control his access to the informationabout the merits of the claim, the amount of work done by the lawyer for the class, the likely damages if the case goes to trial, etc.that is vital to determining the reasonableness of the settlement. RICHARD A. POSNER, AN ECONOMIC ANALYSIS OF LAW 570 (4th ed. 1992) [hereinafter POSNER, ECONOMIC ANALYSIS]. The potential for abuse of the class action procedure points out the importance of the trial court's obligation to determine that the protective requirements of Texas Rule 42 are met when it approves a class action settlement. While the trial court generally plays a relatively detached role in most civil proceedings, in a class action the court is the guardian of the class interest. Weinberger v. Kendrick, 698 F.2d 61, 69 n. 10 (2d Cir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983); In re Agent Orange Prod. Liab. Litig., 818 F.2d 216, 223 (2d Cir.), cert. denied, 484 U.S. 926, 108 S.Ct. 289, 98 L.Ed.2d 249 (1987); In re Corrugated Container Antitrust Litig., 643 F.2d 195, 225 (5th Cir.1981), cert. denied, 456 U.S. 998, 102 S.Ct. 2283, 73 L.Ed.2d 1294 (1982); Piambino v. Bailey, 610 F.2d 1306, 1327 (5th Cir.), cert. denied, 449 U.S. 1011, 101 S.Ct. 568, 66 L.Ed.2d 469 (1980); 2 NEWBERG & CONTE, § 11.41, at 11-93 to 11-94. The trial court bears the burden under Rule 42 to police the proceeding to minimize conflicts of interest and, primarily, to protect absent class members: The drafters designed the procedural requirements of Rule 23, especially the requisites of subsection (a), so that the court can assure, to the greatest extent possible, that the actions are prosecuted on behalf of the actual class members in a way that makes it fair to bind their interests. The rule thus represents a measured response to the issues of how the due process rights of absentee interests can be protected and how absentees' represented status can be reconciled with a litigation system premised on traditional bipolar litigation. In re General Motors Corp., 55 F.3d at 785. [1] The trial court must assume its role as guardian of the class not only in approving class settlements, but also in deciding whether to certify a class in the first place. This means that Rule 42's certification requirements of numerosity, commonality, typicality, and adequacy of representation must always be met, even when cases are settled before certification of the class: Without determining that the class claims are common and typical of the entire putative class and that the class representatives and their counsel are adequate representatives, we have no assurance that the district court fully appreciated the scope and nature of the interests at stake. In re General Motors Corp., 55 F.3d at 797; see also 2 NEWBERG & CONTE § 11.27, at 11-50 (The actual class ruling is deferred in [settlement class actions] until after hearing on the settlement approval, following notice to the class. At that time, the court in fact applies the class action requirements to determine whether the action should be maintained as a class action....). Settlement classes, as we have indicated, raise special concerns. In setting aside the national class action settlement, the Third Circuit pointed out that: Settlement classes ... make it more difficult for a court to evaluate the settlement by depriving the judge of the customary structural devices of Rule 23 and the presumptions of propriety that they generate. Ordinarily, a court relies on class status, particularly the adequacy of representation required to maintain it, to infer that the settlement was the product of arm's length negotiations.... Where the court has not yet certified a class or named its representative or counsel, this assumption is questionable. .... In particular, settlement classes create especially lucrative opportunities for putative class attorneys to generate fees for themselves without any effective monitoring by class members who have not yet been apprised of the pendency of the action. In re General Motors Corp., 55 F.3d at 787-88; see also 2 NEWBERG & CONTE, § 11.09, at 11-14 (discussing the need for trial court oversight to minimize conflicts of interest between the class and class counsel). Some commentators have even warned that the class action device may be used in an offensive and collusive manner in order to foreclose future individual claims. See, e.g., John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM.L.REV. 1343, 1350 (1995) (Rather than serving as a vehicle by which small claimants can aggregate their claims in order to make litigation economically feasible ..., the mass tort class action now often provides a means by which unsuspecting future claimants suffer the extinction of their claims even before they learn of their injury.). The gravity of these concerns mandates that a trial court independently determine that the requirements of Rule 42 have been scrupulously met, in their entirety, before approving any class action settlement. See In re General Motors Corp., 55 F.3d at 795-96.