Bankruptcy and the Future of Aggregate Litigation: The Past as Prologue?
58 Pages Posted: 14 Oct 2013 Last revised: 8 Nov 2013
Date Written: October 14, 2013
This Article considers the recent decline of the class action by comparing earlier, parallel developments in the law of business reorganizations. Until the 1930s, the equity receivership was the procedural device used to reorganize firms in financial distress, because a receivership, like a class action, could achieve a binding group resolution among dispersed claimants. Although initially viewed favorably, the receivership came under sustained attacks from political, academic, and judicial critics. These critics, like today’s critics of the class action, challenged the legitimacy of the receivership process. In particular, they painted the lawyers in receivership cases as conflicted actors who placed their own interests above the interests of claimants — much as class action lawyers are sometimes portrayed. These criticisms led to bankruptcy reform legislation in the New Deal era that sharply constrained reorganization practice. Yet, the New Deal-era restrictions on reorganization practice were rejected a generation later with the adoption of Chapter 11 of the Bankruptcy Code.
The Article proposes two explanations for the revival of reorganization law after a generation in decline. First, the practical needs that had driven the development of the receivership as a device for resolving the financial distress of firms did not dissipate simply because that device was hobbled. Instead, lawyers and courts attempted to find other, more cumbersome and inefficient pathways for achieving the same ends. Second, the control and supervision of lawyers was integral to the revival of business reorganization practice. Partly out of concern about actually deterring lawyer misconduct and partly out of concern about addressing the perception of lawyer misconduct, those who worked to revive the bankruptcy system understood the need to include institutions that seek to check excessive influence by lawyers in the process.
The Article draws on these developments to suggest possible routes for the future development of the class action and aggregate litigation more generally.
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