The Negotiation Class: A Cooperative Approach to Class Actions Involving Large Stakeholders

54 Pages Posted: 20 Jun 2019 Last revised: 7 Feb 2020

Date Written: June 13, 2019

Abstract

Class action law is modeled on the assumption that a large group of individuals have similar legal claims of such small value that no one of them has the incentive or ability to litigate alone. Rule 23 resolves that collective action problem by enabling one class member to represent the group, with a common fund fee award sharing the costs across the class. The Constitution guarantees class members the options of opting out (exit) or objecting (voice), but given the small stakes, most do nothing (loyalty). While elegant, this model does not capture the reality of all class suits. In many cases, some class members have significant enough legal claims that they are capable of litigating alone. The group dynamics accordingly change, with everything turning on the question of whether the large claimants will opt out and litigate separately. The risk that they might discourages the defendant from settling the class’s small claims, lest they then have to litigate the large claimants’ valuable claims. But the dynamics simultaneously create an opportunity: if the class members could unite, they might increase their leverage and even possibly extract a premium from a defendant eager to settle the whole package of claims, with that premium simultaneously demonstrating the defendant’s interest in this path. The tragedy of this commons is that, built on a different template, class action law provides no model for intra-class coordination. Heterogeneous classes therefore suffer a problem akin to a prisoner’s dilemma: every class member might be best off if all could work together, but lacking a mechanism to do so, coordination costs render the option elusive.

In this Article, we offer heterogeneous class members a mechanism for cooperation, a new form of class certification that we call “negotiation class certification.” Under this approach, class members work together to generate a metric for distributing a lump sum settlement across the class. They then ask the court to certify a “negotiation class” and to direct notice to the class members informing them that counsel will negotiate a lump sum settlement and that, if achieved, the lump sum amount will be put to a vote, with a supermajority vote binding the class; the notice also explains the distributional metric. Any class member that does not want to bind itself to either the distributional metric or the supermajority voting process can opt out. By establishing the contours of the class prior to settlement discussions, negotiation class certification provides the defendant with a precise sense of the scope of finality a settlement will produce, hence encouraging a fulsome offer by ensuring the defendant meaningful peace. The negotiation class therefore redounds to the benefit of both the class and the defendant – and hence of the judicial system as well.

The proposal is a novel use of Rule 23, but it is, in many ways, a less ambitious one than certification of a settlement class: there, lawyers negotiate a settlement on behalf of a class without ever asking a court to assess either the cohesiveness of the group or their own adequacy to speak for that group. Settlement class certification was accordingly quite controversial when developed out of whole cloth in the late 20th century, but even absent an explicit textual mooring, it soon became a “stock device” in class action practice. By seeking a judicial ruling that a class coheres and its agents are adequate prior to those agents negotiating with a defendant, negotiation class certification adheres more closely than settlement class certification to the requirements of both Rule 23 and the Constitution. Moreover, engaging large class members in the settlement negotiation process ex ante improves on a system that delegates that authority to un-authorized agents and involves the class only ex post.

Keywords: civil procedure, class action, complex litigation, collective action problems

Suggested Citation

McGovern, Francis and Rubenstein, William B., The Negotiation Class: A Cooperative Approach to Class Actions Involving Large Stakeholders (June 13, 2019). Texas Law Review, Forthcoming; Duke Law School Public Law & Legal Theory Series No. 2019-41; Harvard Public Law Working Paper No. 19-39. Available at SSRN: https://ssrn.com/abstract=3403834 or http://dx.doi.org/10.2139/ssrn.3403834

Francis McGovern

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
(919) 613-7095 (Phone)
(919) 613-7231 (Fax)

William B. Rubenstein (Contact Author)

Harvard Law School ( email )

1545 Massachusetts
Areeda 323
Cambridge, MA 02138
United States
617-496-7320 (Phone)

HOME PAGE: http://www.billrubenstein.com

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