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Let’s Improve the Federal Rules on Class Actions

Let’s Improve the Federal Rules on Class Actions

By Paul Bland 
Executive Director

There are a lot of people prone to saying (and thinking) very pessimistic things. As Jane Wagner famously said, “no matter how cynical you are, it’s never enough to keep up.” And my father-in-law is prone to point out that “people are no damn good.”

And most lawyers who represent consumers, workers, investors and other individuals against corporations tend to be very pessimistic whenever the Federal Rules Advisory Committee gets together to consider changing the Federal Rules of Civil Procedure. The conventional wisdom is that the rules process tends to get fired up when corporate lawyers and lobbyists want to make it harder for anyone to sue a corporation for anything. The plaintiffs’ bar tends to view the rules process as a one-way ratchet that makes the Rules a little less fair whenever it moves, but never goes the other way.

At Public Justice, we don’t accept this fatalism or pessimism. When the news came out that the Federal Rules Advisory Committee was interested in considering whether or not it should change Rule 23 (the main rule dealing with class actions), we decided to jump into action. “Yes, change the rule,” we argue, “but do so in ways that make the law more fair, not less.”

So we have proposed four changes to Rule 23 designed to do exactly that.

First, we’ve proposed that one of the factors that should be considered in permitting a class action is whether a class action would be more likely than an individual case to deter illegal conduct. It’s already the law that class actions for money damages are only supposed to be certified when a class action would be “superior” to other methods of going forward. We think that, when evaluating this factor, courts should take into account the substantial deterrent effect of class actions. After all, discouraging companies from engaging in race or gender discrimination, deceiving and cheating consumers, engaging in price fixing, and so forth, are the basic purposes of the laws underlying most class actions. In deciding whether to permit a case to proceed as a class action, a key inquiry is which way of proceeding is more likely to deter corporations from breaking the law.

Second, we propose to fix confusion and mischief from a recent federal appeals court decision called Carrera v. Bayer. In Carrera, the Third Circuit did something radical: it said that a consumer class action can’t go forward unless the plaintiffs can identify, or “ascertain,” the names and addresses of all the individual class members who have been harmed by the defendant’s illegal conduct. There are lots of cases where that’s just impossible: if a dishonestly advertised product was sold over-the-counter, requiring identification of each person at the outset might immunize the company even if it clearly broke the law. Under the Carrera approach to “ascertainability,” though, defendants in those sorts of cases can get off scot free, no matter how badly they behaved and how many consumers were cheated. We have proposed to fix this terrible rule of law, by urging the Committee to amend Rule 23 to make clear that individual “ascertainability” is not a requirement for class certification; instead, all a court needs to find is that the class can be defined based on objective criteria. That approach is fair to both corporations and the consumers of their products. 

We do think that having an objective definition of who is in the class is very important. We think it is important that no court could certify a class action that is on behalf of “everyone who believes in the peace movement” (Ted Cruz and Bernie Sanders might disagree about what will lead to world peace), for example.

Third, we would clarify the rules so that corporations can’t offer bribes to the named class representatives in cases to take money for themselves but then abandon the class. A basic rule of class actions is that the individual (or several individuals) who try to represent a group of people who were all cheated in the same way as them have a duty to everyone in the proposed class, and that they have to try to represent everyone and not just themselves.

But in recent years, some corporations have argued that a different Rule of Civil Procedure (Rule 68, to be precise) makes a class action “moot” (meaning that there’s nothing left for the parties to fight about) whenever the defendant offers the individual(s) who bring the class action all the money that they could individually receive if the case proceeds. I’ve explained before why this is an incredibly bad idea, and we propose to fix the Rules to prevent this.

Finally, we propose to clarify the rules about what to do with the leftover proceeds from a class action settlement or judgment. In some cases, it’s impossible to distribute all the money to the class—where, for example, some class members have died or can’t be located, or they don’t cash checks that are sent to them. Under current law, this money can be provided as a “cy pres” award to charitable organizations that would advance the purposes of the lawsuit. Our Chairman, Arthur Bryant, set out the big picture of the law in this area in his column in the National Law Journal.

But a few conservative activists have argued that cy pres awards should be banned, so that if there is a residual after the class action is resolved, that the money should just go back to the company that broke the law. This makes no sense, in our view, and dramatically undercuts the deterrent effect of class actions.  

Meanwhile, there are some other cases where the cy pres device has been abused badly. So some courts have sometimes taken residual money left over after a settlement and judgment, and instead of giving it to appropriate groups, have given it to pet charities that have nothing to do with a lawsuit. I saw one case where a judge took money from a nationwide case involving deceptive advertising of cell phone pricing, and gave it to a local private school.

Our proposed rule is designed to make sure that if there is some money left over after a class action settlement or judgment is administered, that it is spent wisely to help the class members as closely as possible.

The Federal Rules Advisory Committee is just getting started with considering whether to amend Rule 23. But we have weighed in with four serious proposals, and set out a lot of authorities and arguments explaining why they’re good ones. Maybe, this time around, the Rules could actually get fairer, rather than worse!