Governing the Anticommons in Aggregate Litigation

Abstract:     
This article argues that there is an unrecognized “anticommons” problem in aggregate litigation. An anticommons occurs when too many owners’ consent is needed to use a resource at its most efficient scale. When many plaintiffs have similar claims against a common defendant, those claims are often worth more if they can be packaged up and sold to the defendant (i.e., settled) as a single unit — that is, the defendant may be willing to pay a premium for total peace. But because the rights to control those claims are dispersed among the individual plaintiffs, transaction costs and strategic holdouts can make aggregation difficult, particularly in cases where class actions are impractical. Recently the American Law Institute has proposed modifying long-standing legal ethics rules governing non-class aggregate settlements to allow plaintiffs to agree in advance to be bound by a supermajority vote on a group settlement offer. By shifting from individual control over settlement decisions to collective decision making, the ALI proposal may offer a way out of the anticommons and allow the group to capture the peace premium. Critics, however, say that allowing plaintiffs to surrender their autonomy will leave them vulnerable to exploitation by the majority and by their lawyers. Viewed through the lens of the anticommons, these concerns are manageable. Similar anticommons problems arise in many areas of law, ranging from eminent domain to oil and gas to sovereign debt. But instead of slavishly preserving the autonomy of individual rights-holders, these areas of law have developed strategies for aggregating rights when doing so will result in joint gains. Drawing from these other contexts, this article argues that the legitimacy of compelling individuals to participate in a value-generating aggregation depends on the presence of governance procedures capable of protecting the interests of the individuals within the collective and ensuring that the gains from cooperation are fairly allocated. Governance is thus the key to legitimizing attempts to defeat the anticommons in mass litigation through aggregation, whether by regulatory means, such as the class action, or contractual precommitment, as in the ALI proposal.

Number of Pages in PDF File: 69

Keywords: anticommons, aggregate litigation, mass litigation, aggregate settlement, aggregate settlement rule, ALI Principles, peace premium, non-class, mass torts, class action, collective action clause, Vioxx

JEL Classification: K40, K41

Accepted Paper Series