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The Class Action as Trust

62 Pages Posted: 5 Feb 2016 Last revised: 2 Jan 2017

Sergio J. Campos

University of Miami - School of Law

Date Written: February 4, 2016

Abstract

The class action is controversial because the class attorney can litigate or settle the claims of the class members without their consent. Many scholars have turned to corporate law to address the potentially disloyal behavior of the class attorney. These scholars have used analogies to corporate law to support (1) the use of opt out rights and (2) restrictions on class conflicts to constrain class attorneys, and the law has generally mirrored both requirements. In practice, however, both of these requirements have undermined the efficacy of the class action and prevented the class action from being used in many appropriate settings.

This article argues that a more useful model for the class action is the trust. Unlike the shareholders of a corporation, the beneficiaries of the trust typically cannot exercise control over the trustee. Moreover, unlike the corporation, trust law facilitates the creation of trusts with conflicts among the beneficiaries. These features of the trust mirror the most controversial features of the class action.

The article shows that both of these features are necessary to address problems of scale found in both contexts. Unlike in the corporate context, both the trust and class action contexts lack a well-developed market for managerial control which would allow beneficiaries/class members with conflicting interests to cede control to a third party with better aligned interests. In the absence of such a market, retaining control among the divided beneficiaries/class members prevents them from investing in the res/claims at the right scale.

Accordingly, trust law shows that class action requirements such as opt out rights and class cohesion are misguided. The article concludes by applying the trust model of the class action to such class action issues as the ascertainability of class members, settlement pressure on the defendants, and cy pres awards.

Keywords: market for control, bifurcation, third party financing, cy pres awards, settlement pressure, ascertainability, class cohesion, opt out rights, trust, class action

JEL Classification: K41

Suggested Citation

Campos, Sergio J., The Class Action as Trust (February 4, 2016). Washington Law Review, Vol. 91, 2016; University of Miami Legal Studies Research Paper No. 16-10. Available at SSRN: https://ssrn.com/abstract=2727856 or http://dx.doi.org/10.2139/ssrn.2727856

Sergio J. Campos (Contact Author)

University of Miami - School of Law ( email )

P.O. Box 248087
Coral Gables, FL 33146
United States

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