The Viability of Class Action Lawsuits in a Globalized Economy -- Permitting Foreign Claimants to Be Members of Class Action Lawsuits in the U.S. Federal Courts

Posted: 16 Jun 2012

See all articles by Ilana T. Buschkin

Ilana T. Buschkin

National University of Ireland, Maynooth (NUI Maynooth) - Faculty of Law

Date Written: September 1, 2005

Abstract

The class action, which allows a single, representative plaintiff to bring a lawsuit on behalf of a large group of similarly situated claimants, is a popular -- albeit controversial -- procedural device for litigating claims in the U.S. courts. Its popularity stems from its ability to combine multiple claims against the same defendant into one large lawsuit. This serves a dual purpose: First, it conserves judicial and party resources by binding absent class members to the final class settlement or judgment, thereby minimizing the number of separate lawsuits against the same defendant on the same set of facts. Second, it provides a cost-effective method for injured parties to litigate small claims.

In some areas of law -- particularly securities, antitrust, and consumer protection -- corporate wrongdoing often results in relatively small financial losses to scores of individual investors or consumers. Even though the aggregate harm upon society may total millions of dollars, the small losses suffered by each individual claimant make independent lawsuits economically impracticable. In such cases, a class action lawsuit is often the only cost-effective method of litigating claims. Without the class action device, small-time investors and purchasers would have no recourse in the courts, and corporations engaging in fraud, overcharging, or other abuse of the consumer would keep millions of dollars in ill-gotten gains. By combining multiple claims against the same defendant, the class action mechanism gives power to these small claims, ensuring that victims have their day in court and that corporations “disgorge significant profits arising from unlawful or tortious conduct.” In this sense, the class action device serves as a regulatory mechanism, creating a class of “private attorneys general” that protect the public interest through private litigation.

When all potential claimants in a class action lawsuit are domestic (U.S. citizens or residents), the efficiency and deterrent functions of the class action are harmonious. When foreign claimants are inserted into the equation, however, this compatibility falters. In order to protect the deterrent function of the class action device, the court must allow the maximum number of potential claimants -- both domestic and foreign -- into the lawsuit. But even though U.S. courts have the authority to bind foreign class members to the final class settlement or judgment -- and thereby prevent foreign class members from suing again, on the same set of facts, in another U.S. court -- they cannot prevent foreign class members from suing again in the courts of their home countries. Many foreign courts routinely refuse to enforce U.S. judgments, particularly those arising from class litigation, and no international judgment-enforcement treaty exists that compels foreign courts to recognize or give effect to U.S. judgments. Thus, while permitting foreign claimants to join U.S. class action lawsuits enhances deterrence, it jeopardizes the binding force of the class action lawsuit, and therefore its economy, consistency, and finality. This inability to prevent foreign claimants from suing again in foreign courts also creates a fundamental unfairness between class claimants and defendants: Class defendants are forced to defend against a complex, resource-intensive class action without any guarantee of finality.

Federal Rule of Civil Procedure 23 does not explicitly mention foreign claimants. In today's economy, however, companies increasingly merge across borders and sell their products and securities worldwide. In such a globalized marketplace, acts of corporate misconduct -- whether committed in the United States or abroad--injure both U.S. and foreign investors and consumers. Since few other countries have group or representative litigation devices, foreign victims often avail themselves of the class action device in order to bring their claims in U.S. courts. As a result, U.S. federal judges increasingly entertain motions to certify mixed U.S.-foreign claimant classes.

Many judges prefer to avoid the potential enforcement concerns introduced by foreign claimants by categorically refusing to certify classes including foreign claimants. Those judges who prioritize deterrence, on the other hand, are permitting foreign claimants access to class action lawsuits despite the increased enforcement and procedural risks that foreign claimants may introduce.

This ad hoc approach to certification is not desirable. As the number of foreign class members steadily increase, the federal courts must devise a more coherent set of guidelines for certifying classes containing foreign claimants. This Note argues that the federal courts should adopt a default presumption in favor of including foreign claimants in small claim securities, antitrust, and consumer class action lawsuits. Only if defendants can affirmatively prove in their affidavits that the foreign claimants have an adequate alternative remedy either in the U.S. courts or the courts of their home countries -- which, this Note will argue, is not realistic in the majority of cases -- should federal judges exclude foreign claimants from class action lawsuits.

Part I of this article provides background on the history and procedure of class action lawsuits in the U.S. federal courts. Part II discusses the problems created when foreign claimants join federal class action lawsuits. Part III examines the objectives that compel the use of class action lawsuits as an alternative to individual litigation, in an effort to understand why, despite the increased procedural burdens introduced by foreign claimants, the legal system would still want to include foreign claimants in class action lawsuits. Part III argues that deterrence, not efficiency, is the most important objective underlying the small-claim class action lawsuit and that excluding foreign claimants from classes undermines this deterrence function. Part IV explains that, in the majority of cases, foreign claimants do not really jeopardize efficiency or procedural fairness, as the ability to relitigate the same case in a foreign court, while theoretically possible, is not practically realistic. In those cases, the courts must grant foreigners access to federal class action lawsuits, as this is the only way that the class action can deter corporate misconduct and preserve investor confidence in the marketplace, two core objectives of the class action.

Keywords: class action, Federal Rules of Civil Procedure, Rule 23(b), globalized economy, complex litigation, federal courts

Suggested Citation

Buschkin, Ilana T., The Viability of Class Action Lawsuits in a Globalized Economy -- Permitting Foreign Claimants to Be Members of Class Action Lawsuits in the U.S. Federal Courts (September 1, 2005). Cornell Law Review, Vol. 90, September 2005, Available at SSRN: https://ssrn.com/abstract=2084220

Ilana T. Buschkin (Contact Author)

National University of Ireland, Maynooth (NUI Maynooth) - Faculty of Law ( email )

Ollscoil na hÉireann, Má Nuad
New House (#312)
Maynooth, County Kildare
Ireland
(353) (0) 1-708-6235 (Phone)

HOME PAGE: http://law.nuim.ie/staff/ms-ilana-buschkin

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