Autonomy, Peace, and 'Put' Options in the Mass Tort Class Action
Richard A. Nagareda
Deceased (Vanderbilt University Law School)
Harvard Law Review, 2002
This article focuses on the use of multibillion-dollar class settlements as vehicles for the wholesale resolution of mass tort litigation. Class actions in the mass tort context differ in kind from class actions in such familiar areas as consumer, antitrust, and securities law. In the mass tort context, there is a preexisting regime in which class members realistically can sue on an individual basis: namely, the tort system. The challenge at the heart of the mass tort class action lies in the design of the private administrative compensation systems characteristically created by class settlements - specifically, in the degree to which those private systems aspire to replace, or to compete over time with, the existing tort system. This article frames these issues of settlement design in terms of an underlying tension between autonomy for class members (their power to control the litigation of their individual tort claims) and peace for defendants. In institutional terms, class settlements stand in uncharted territory between public legislation (which may displace the tort system prospectively) and aggregate settlements (capable only of resolving groups of individual tort claims already pending).
The article initially discusses the class settlement process in terms of the progress of mass tort litigation over time. The further that one proceeds in the mass tort litigation cycle, the more likely it is that defendants will seek solutions akin to public legislation but that lack its procedural legitimacy. The asbestos class settlements struck down by the Supreme Court in Amchem Products, Inc. v. Windsor and Ortiz v. Fibreboard Corp. sought to afford "global peace" to defendants but only by constricting dramatically the autonomy that class members otherwise would have had in tort. The Supreme Court cast its decisions in terms of the procedural requirements for class certification. But, this article argues, those decisions are best understood in terms of their implications for the permissible structure of mass tort settlements themselves - what they may legitimately seek to achieve as a matter of tort law.
Drawing upon the recent class settlement in the fen-phen litigation, the article argues that courts and commentators should conceptualize mass tort class settlements in terms of options in corporate finance. The fen-phen settlement confers upon class members the rough equivalent of a put option - the power, if they choose, to compel the purchase of their existing right to sue in exchange for the compensation terms specified in the class settlement. Like put options in the stock market, the put options in the fen-phen settlement do not come free. The premium for the option consists of protection for defendants against the most normatively objectionable feature of punitive damage claims in the mass tort context - the prospect of excessive punishment through duplicative punitive damage awards. The article explains the strategic dynamics behind this settlement structure, discusses how the structure may be generalized to other mass torts, and advances a normative argument for the appropriateness of the trade of put options for the opportunity to seek punitive damages. The upshot is to identify a specific, recurring form of exchange that can afford a meaningful modicum of peace for defendants while, at the same time, respecting the individual autonomy of class members.
Number of Pages in PDF File: 77
JEL Classification: K
Date posted: December 9, 2001