October 1995 No. 10
Class Action Reform: Beyond Rhone-Poulenc Rorer
Earlier this year Judge Richard Posner, writing for a panel of the Seventh Circuit U.S. Court of Appeals, handed down a widely noted decision denying class action status to a lawsuit against a maker of blood products contaminated with the HIV virus during the early years of the AIDS epidemic. Commentators soon recognized that the ruling in Matter of Rhone-Poulenc Rorer, Inc., 51 F. 3d 1293 (7th Cir. 1995), if followed by the sister Fifth Circuit, could lead to dismissal of the much-discussed Castano suit against cigarette companies. But the implications of this landmark decision are wider than that, and call into question many trends in modern class action law. If its logic is pursued, the ruling could help roll back much of today’s rampant abuse of the class action.
In the right circumstances, the class action format can serve objectives of practicality and fairness. As the U.S. Supreme Court has put it, it can provide a “convenient and economical means for disposing of similar lawsuits” and help achieve “the spreading of litigation costs among numerous litigants with similar claims.” (U.S. Parole Commission v. Geraghty, 445 U.S. 388, 402-03 (1980).) Plaintiffs may benefit from the chance to press legitimate claims that might not be economical to press singly; defendants may welcome the chance to achieve fuller repose, avoid inconsistent demands, and dispense with the duplicative costs of defending numerous separate cases.
At the same time, it has long been recognized that the device poses dangers, including dangers to members of the plaintiff class themselves. One is that the lawyers in charge will pursue their own interest in fees at the expense of their absentee clients. Because courts have limited means to scrutinize settlements (which, by their nature, are not subjected to adversary process unless some third party intervenes) they may find it difficult or impossible to address such problems once they certify a case as a class action. Nor is it an attractive option for them to insist that cases be tried rather than settled.
Despite occasional worries about such perils, the trend in recent decades has been toward a far more liberal use of the device than any legal system had formerly thought fit to permit. Thirty years ago, an amendment to Rule 23 of the Federal Rules of Civil Procedure ushered in what was perhaps the most important change: previously, in most disputes, plaintiffs had to join an action affirmatively in order to be bound and share in its benefits; the amendment reversed the default, so that everyone would be counted in who did not affirmatively opt out.
One result was to stimulate the filing of actions on behalf of much larger classes. Courts soon encountered actions brought “on behalf of all subscribers of business telephones in New York County, all Master Charge credit card holders similarly situated, all consumers of gasoline in a given state or states, all homeowners in the United States, and even all people in the United States.” (See Eisen v. Carlisle & Jacquelin, 479 F. 2d 1005 (2nd Cir. 1973).) Each such case is counted as but a single filing in caseload statistics, which means that such statistics, plotted over the decades, almost entirely fail to capture a major sector of litigation encompassing millions of judicially compensated claims a year. Wider use of the device for larger groups also hastened the emergence of the class lawyer as the true party in interest in the litigation, and brought billions of dollars in fees to what soon became an extremely lucrative industry.
Further liberalization was to come. In the early years of the new Rule 23, while certifying many cases involving claims of purely monetary injury arising from standardized financial instruments or consumer purchases, courts still held back from conferring class action status on most cases arising from claims of mass personal injury. In that sort of case, it was thought, the variations among plaintiffs’ situations — particularly in the matters of causation and severity of damages — were unacceptably wide. In a financial class action, the damages owed each of many mortgage-escrow customers or bondholders might be worked out by applying simple arithmetical formulas to agreed-on data about the underlying transaction. But in injury cases, establishing the general tortiousness of conduct by a polluter or product manufacturer usually resolves nothing about whether any single plaintiff has been a victim; many neighbors or product users have not suffered any health problem at all, or are suffering health problems which in fact arise from other causes.
Then came the tide of asbestos and toxic-tort cases in the 1980s. Possibly hoping to lighten their dockets, some courts began approving certifications in injury cases, reasoning that later separate proceedings, or perhaps simple affidavits, could resolve which of the class plaintiffs had actually been injured and how badly. If they hoped to reduce their docket pressure by going the certification route, they were gravely disappointed. Class certification turned out to give plaintiff’s lawyers enormous fiscal incentives to find and groom as many plaintiffs as they could to force a larger settlement. Moreover, since the recruitment of large numbers of plaintiffs itself increases the perceived pressure on a court to agree to certification, lawyers seeking the riches offered by these certifications acquired a strategic reason to recruit widely from an early stage. In a typical recent episode, thousands of initial claimants were massed for an attack on breast-implant makers; following the certification and preliminary settlement of the case, and in the wake of a favorable FDA decision lobbied for by the plaintiff’s bar, lawyers undertook frantic efforts to recruit tens of thousands more claimants to share in the multi-billion-dollar pot, with such success that the settlement itself unraveled under the cumulative monetary demands.
Gradually, there has come to the fore a distinct concern about the fairness and even the constitutionality of class actions: their effect in strong-arming defendants into settlement. The 1973 appeals panel in Eisen v. Carlisle & Jacquelin cited what it called the in terrorem effects of class certification on defendants, who faced “the huge and unavoidable expense of producing witnesses and documents pursuant to discovery orders”. These “have brought such pressure on defendants as to induce settlements in large amounts as the alternative to complete ruin and disaster”. (In a sign of the times, it said that commentators had cited such in terrorem effects by way of praising the device.) The logistical costs of response, of course, are only part of the risk facing a defendant when a class is certified. Even if it has won the large majority of individual cases resolved up to then, and even if it considers the odds very good that it will continue to enjoy similar success in the future, it now may face the prospect of betting the company rather than a single case’s damages with each roll of the dice. Aside from the all-or-nothing rolling together of pending damage claims, and the basing of that figure on the damages of an indefinitely large pool of injured and allegedly injured parties instead of only those who have actually thus far chosen to sue, tort class actions commonly feature demands for punitive damages which juries can assess as a simple multiple of compensatory damages.
The result is the emergence of what might be called the bet-your-company class action. The long-shot risk of an adverse verdict, which hovers in the background in even a case strongly favoring the defendant, takes on a qualitatively new menace once the stakes reach this level. Even if one expects that appellate courts would find some grounds on which to reverse any such outcome — hardly a safe assumption — the procedure for securing such appeal underscores the aggregated action’s formidable threat value. The usual rule is that a losing defendant asking to stay the execution of a judgment while it appeals must post a bond in at least the amount of the judgment. In the run of individual cases this may pose no great hardship, but in mass personal injury cases the verdict can easily exceed the company’s cash on hand or even its net worth. The moment such a verdict is handed down banks would be likely to cut off a defendant’s lines of credit, plunging it into bankruptcy even if it had excellent chances of getting the verdict reversed at the appellate level.
A further turn of the screw comes with the common observance of the doctrine that a certification ruling in itself is not a final order of the court and therefore cannot be appealed at once. Instead, the defendant must wait out the process of trial and raise the certification issue as part of an appeal that would presumably also include appeal on the merits. Since that is precisely the stage at which the bonding requirement makes appeal ruinous, companies rationally conclude that they must settle mass-tort cases before they get to that stage. Very rarely, as a result, does the certification issue ever reach an appellate court.
But at that point a new and even more ominous dynamic comes into play. If defendants realize they must settle, they will not have the option of picking and choosing which parts of the class to settle with; they must settle with all, including — often — claimants without any discernible injury. And in many recent actions the eventual composition of the class was not a matter the defendants got to decide; the opposing lawyers were left free to do the recruiting. Extortionate demands backed up by massive numbers of class claimants, and yielding fees of tens and even hundreds of millions of dollars, have dramatically reshaped the tort system.
The result is that new-style tort class actions, even if they start out with a core of gravely hurt plaintiffs arguing what appears a plausible case on causation, tend to expand by concentric rings to pull in ever-larger numbers who display either no symptoms at all or unverifiable symptoms, and sometimes scant evidence of exposure to the product or activity in question. A famous Baltimore asbestos case contained 2,000-3,000 workers at first, some with serious asbestos-related disease, and upon consolidation quickly jumped to more than 8,000, with most of the new sign-ons showing no sign of actual impairment. The breast implant action began with some women who at least had shown clear symptoms of serious disease, whether or not they were right in suspecting implants as the cause; a further group then sprang up with symptoms that medical science could neither verify nor disprove. After a settlement promised six-figure sums based on little more than a note from one’s doctor, diagnosis mills quickly sprung up that qualified tens of thousands more with no objective signs of any disorder.
In this respect, the Rhone-Poulenc Rorer case actually showed a less abusive face than many of the better-known injury class actions, because there was no doubt that the plaintiffs who had sued were genuinely suffering from a grave disease. The case arose as a consequence of the mass infection of hemophiliacs with the HIV virus through the use of contaminated blood products. Evidence was presented that more than 2,000 hemophiliacs had died of AIDS and that more than half the remaining hemophiliac population of 20,000 may test positive for the HIV virus. The plaintiffs sued Rhone-Poulenc Rorer, a maker of blood solids owned by a leading French company, arguing (among other theories) that it failed to exercise due care in properly screening and purging the blood supply of tainted contributions.
Genuine as were the injuries (and sympathetic as was the plight) of the members of the plaintiff class, they had still by and large failed to convince earlier juries that the company was legally to blame for their calamity. Approximately 300 lawsuits had been brought by the time of the ruling; of these, thirteen had been tried and defendants had won twelve of the thirteen. But the certification of the class promised to shift the strategic balance; if its unlucky number came up, the company now faced paying not only for all 300 cases but for thousands more that would be folded into the class action. (Conceivably thousands of uninfected hemophiliacs might sue as well for the fear of having been endangered, to say nothing of claims from relatives and dependents.) In any case, the company went to the Seventh Circuit and asked for a writ of mandamus ordering the trial court to decertify the class — a long shot of its own, it might seem, because mandamus is considered an extraordinary remedy, not granted lightly.
But the panel granted it in this case. Judge Posner’s opinion laid out the case for issuing the writ with considerable force. Mandamus can be issued, he observed, only if the petitioning party would suffer by its denial irreparable harm, that is, harm that would not be rectified on eventual appeal. Not only did he find such harm in the intense pressure to settle that the defendant would face; he went so far as to propose that holding such a sword over its head might deprive it of its Seventh Amendment right to trial by jury. And he explicitly cited the circumstance that the defendant had prevailed in more than 90 percent of the cases that had gone to judgment. A further passage is worth quoting at length:
For this consensus or maturing of judgment [emerging from the previous and ongoing individual trials] the district judge proposes to substitute a single trial before a single jury instructed in accordance with no actual law of any jurisdiction — a jury that will receive a kind of Esperanto instruction, merging the negligence standards of the 50 states and the District of Columbia. One jury, consisting of six persons (the standard federal civil jury nowadays consists of six regular jurors and two alternates), will hold the fate of an industry in the palm of its hand. This jury, jury number fourteen, may disagree with twelve of the previous thirteen juries — and hurl the industry into bankruptcy. That kind of thing can happen in our system of civil justice (it is not likely to happen, because the industry is likely to settle — whether or not it really is liable) without violating anyone’s legal rights. But this need not be tolerated when the alternative exists of submitting an issue to multiple juries constituting in the aggregate a much larger and more diverse sample of decision-makers....With the aggregate stakes in the tens of hundreds of millions of dollars, or even in the billions, it is not a waste of judicial resources to conduct more than one trial, before more than six jurors, to determine whether a major segment of the international pharmaceutical industry is to follow the asbestos manufacturers into Chapter 11.
One of the judges on the panel dissented, emphasizing the extraordinary nature of the mandamus remedy and the need to minimize its use. (The full circuit, however, refused en banc rehearing of the case.) The mandamus remedy is extraordinary, and one would not want it to become routine. All the more reason, then, to regularize the process by explicitly revising the class certification rules to correct the evils that Judge Posner has pointed out so vigorously, and — while we are at it — the further evils of junk-case recruitment that have emerged so clearly in other cases. Judges should be authorized in so many words to turn aside requests for class certification where the underlying action does not show a high likelihood of success on the merits, where the definition of the class threatens to allow access to those not assuredly injured, or where the aggregation of claims effectively deprives defendants of their Constitutional jury right by creating undue pressure to settle. In balancing the rights of claimants against the rights of defendants, it is important to note that plaintiffs do not have a Constitutional right to a class action; defendants do have a Constitutional right to a trial by jury of claims against them.
Even if the usefulness of the class action device in some cases is conceded, it is entirely proper to regulate its use to curb what even Judge Henry Friendly called its rich potential for “blackmail” settlements. The new ruling will be an essential founding document in the coming fight to restore such constraints on a sector of the litigation system that has long since spun out of control.
About the Author
Lester Brickman is Professor of Law at Cardozo Law School, Yeshiva University in New York City. Professor Brickman has written extensively on legal ethics and lawyers' fees. He is currently writing a book on the effect of contingency fees on the tort system.