Aggregation by Acquisition: Replacing Class Actions with a Market for Legal Claims

64 Pages Posted: 5 Jun 2016 Last revised: 3 Aug 2016

Charles Korsmo

Case Western Reserve University School of Law

Minor Myers

Brooklyn Law School

Date Written: May 1, 2016

Abstract

The traditional class action is broken, and we propose to replace it with a new mechanism for structuring mass claims: aggregation by acquisition. We argue that legal causes of action should be freely alienable, such that even small claims could be bought and sold. In such a world, financiers could purchase claims (or shares of claims) directly from individual claim holders, assembling a mass of claims that may be negative-value if litigated individually but positive-value when litigated together. Aggregation in this way would solve the same collective action problems as class actions and derivative actions, but without generating the serious pathologies that plague those procedural devices.

Our proposal may sound like a fanciful thought experiment, but in fact it is already at work in one small corner of corporate litigation: stockholder appraisal. We present the example of appraisal here — where claims effectively trade with shares of stock and where litigation appears strongly meritorious — as a microcosm of how aggregate litigation would work under our proposal. As we explain in this Article, our proposal would improve the deterrent effect of private litigation, would deliver faster and more concrete relief to injured persons, and would minimize the volume of nuisance litigation. While aggregation by acquisition may hold promise across a broad swath of substantive law, it could most easily be put into practice in corporate and securities litigation. We outline the reforms necessary for doing so. Extending our proposal to other spheres of litigation would be more complex, raising many serious but potentially surmountable obstacles.

Keywords: civil procedure, class actions, mass claims, stockholder suit, securities, corporate law, appraisal

Suggested Citation

Korsmo, Charles and Myers, Minor, Aggregation by Acquisition: Replacing Class Actions with a Market for Legal Claims (May 1, 2016). Iowa Law Review, Vol. 101, p. 1323, 2016; Brooklyn Law School, Legal Studies Paper No. 461. Available at SSRN: https://ssrn.com/abstract=2789167

Charles Korsmo

Case Western Reserve University School of Law ( email )

11075 East Boulevard
Cleveland, OH 44106-7148
United States

Minor Myers (Contact Author)

Brooklyn Law School ( email )

250 Joralemon Street
Brooklyn, NY 11201
United States

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