Governance Civil Justice
March 1st, 2002 3 Minute Read Report by Richard A. Epstein

Class Actions: The Need for a Hard Second Look

The topic of class actions is one of the most ubiquitous in modern civil law. It is only a small exaggeration to say that any major innovation in liability, if brought about by litigation, will be either created by or reflected in class actions. The reason for their omnipresence lies in their versatility. Class actions can be used in theory to amalgamate large numbers of claims brought by separate individuals, regardless of their subject matter. Any lawyer who works with antitrust, corporations, securities, discrimination, lending, real property or torts, will necessarily be familiar with class action litigation as a normal part of his or her work. It is hard to describe class actions as a specialty when so many lawyers both pursue and defend these suits on a daily basis.

Nor is it hard to see why class actions have surged to prominence in recent years. As litigation becomes ever more complex, the willingness and ability of individual plaintiffs to bear its costs is correspondingly diminished. The opportunities for gains, however, remain substantial, so the void is quickly filled by entrepreneurial lawyers who hope to profit by organizing a class of potential plaintiffs and bringing their joint claim to a successful conclusion. As might be expected, a development this conspicuous has not escaped examination. Defenses and condemnations of class actions are staples of the modern literature. This essay is one more attempt to put the entire subject into perspective, by seeking to identify both the uses and the limitations of the class action in modern civil litigation.

In order to undertake that task it is, I think, at the outset necessary to set out some conceptual framework to deal with the knotty conceptual and procedural issues that class actions raise. Once articulated, that framework should facilitate a more detailed examination of class action litigation. It may not be possible to resolve all outstanding issues on the role of class actions once the relevant trade-offs are identified, but at least we should be able to make some sensible first approximations. The first section of this paper therefore outlines in brief compass the general approach that I take to this, and indeed all legal matters. In it I try to develop the appropriate balance between two imperatives, each accepted as a good in its own right: the desire for personal control of one's own claim, and the need for the coordination of separate claims brought in related matters.

The second portion of this paper then uses these principles to explain the ends to which class actions should be devoted and the mechanisms that might help advance their efficient use. In dealing with this issue, I begin the discussion with class actions in the context of the law of groups. The field is vast and covers the full range of voluntary associations, including partnerships, charitable organizations and corporations. The main, by no means exclusive, field of action lies in the area of corporate law, both through derivative suits and direct actions by shareholders. There is no exact cubbyhole for these actions under Rule 23 (b)(1)(B) of the Federal Rules of Civil Procedure. But it appears that suits of this sort “would create a risk of adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interest.” That mouthful gives the uninitiated little information as to the paradigmatic case that falls within that provision. But one of the notes to the Federal Rules helps fill that gap. “In an action by policy holders against a fraternal benefit association attacking a financial reorganization of the society, it would have hardly been practical, if indeed it would have been possible, to confine the effects of a validation of the reorganization to the individual plaintiffs.” (Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921). Other examples to which I shall revert include the declaration of corporate dividends or the handling of various other corporate distributions.

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