When Peace Is Not the Goal of a Class Action Settlement

71 Pages Posted: 27 Mar 2015 Last revised: 25 May 2016

D. Theodore Rave

University of Houston Law Center

Date Written: March 25, 2015

Abstract

On the conventional account, a class action settlement is a vehicle through which the defendant buys peace from the class action lawyer. That single transaction will preclude future litigation by all class members. But peace, at least through preclusion, may not always be the goal. In a recent Fair Credit Reporting Action (FCRA) case, In re Trans Union Privacy Litigation, the parties agreed to a class action settlement that did not preclude individual claims. The 190 million class members surrendered only their rights to participate in a future class or aggregate action; they remained free to march right back into court and sue, as long as they did so individually. Why would the defendant shell out tens of millions of dollars in a settlement without getting peace in return? This Article argues that the negotiating parties recognized that the valuable commodity in this transaction was not peace, but aggregation itself. And they figured out a way to “unbundle” aggregation from preclusion of the underlying claims and transact only in the former. In effect, they crafted an ex post version of the class action waivers that have become ubiquitous in consumer arbitration clauses since the Supreme Court’s controversial decisions in AT&T Mobility v. Concepcion and American Express Co. v. Italian Colors. Defendants like this sort of settlement structure for the same reason they like arbitration clauses with class action waivers: Purchasing the class’s aggregation rights allows the defendant to buy off the risk of firm-threatening liability without paying for total peace. Even though individual claimants remain free to go it alone in litigation if they so choose — and the FCRA’s statutory damages and attorneys’ fees provisions make this a realistic option—the defendant is betting that most claimants won’t bother. This Article addresses why class counsel would be willing to go along with such a settlement structure and the conditions under which a reviewing court would be willing to approve it under Rule 23. It then uses the ex post class action waiver as a lens to critique the more familiar ex ante version in consumer arbitration clauses. Even though claimants have an empowered agent — class counsel — bargaining on their collective behalf, courts would be unlikely to accept a class action settlement that bars aggregation, but does not resolve the underlying claims, if those claims are so small that individual litigation would be unrealistic. Yet that is exactly what the Supreme Court allowed in the ex ante context in Italian Colors when it enforced a class action waiver found in the defendant’s contract of adhesion to bar class claims that were not viable in individual litigation.

Keywords: class action, settlement, arbitration, class action waiver, FCRA, aggregate litigation, peace premium

JEL Classification: K40, K41

Suggested Citation

Rave, D. Theodore, When Peace Is Not the Goal of a Class Action Settlement (March 25, 2015). Georgia Law Review, Vol. 50, 2016, Forthcoming; U of Houston Law Center No. 2015-A-7. Available at SSRN: https://ssrn.com/abstract=2585259

D. Theodore Rave (Contact Author)

University of Houston Law Center ( email )

4604 Calhoun Road
Houston, TX 77204-6060
United States
713-743-2499 (Phone)

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