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So in my previous post I argued that mass torts are better understood as posing a "property" problem, not, as Richard Nagareda and others have argued, a "governance" property.  This is not to say that "property" and "governance" are mutually exclusive.  Instead, and as I argue in more detail in my current draft, "Mass Torts and Due Process," the governance problems that arise in mass torts are caused by the plaintiffs' individual ownership of their claims. 

Specifically, individual ownership leads plaintiffs to invest much less in common issues relative to the defendant.  The defendant, who owns all of the liability associated with a common issue, simply has more at stake.  Moreover, strategic behavior prevents plaintiffs from voluntarily aggregating to achieve the same economies of scale as the defendant (although "economies of share" is probably a better term).  Some plaintiffs are simply better off going alone.  Accordingly, a procedure that collectivizes ownership of the claims -- a class action -- is needed.

While I mildly disagreed with the "governance" story, I think Nagareda is absolutely correct that the solution is a matter of procedural "design."  Now what do I mean by that?  What, exactly, is the alternative?  To answer these questions, I want to start with an anecdote, and then address one problem that may arise in class actions - class attorneys "selling out" the class.

Let me start with the anecdote.  I recognize that anecdotal evidence is far from ideal, but telling "stories" is unavoidable, even to discuss collective action problems.  When I clerked for my district court judge, the judge scheduled a status conference in an MDL involving the pricing of pharmaceuticals (don't ask, it's complicated).   The status conference concerned one of the suits within the MDL, a proposed class action  of small out-of-pocket payors with some larger insurers as co-plaintiffs.  My judge suggested that the class attorneys coordinate their discovery efforts with the co-plaintiffs, and one of the class attorneys responded: "I have no incentive to do any discovery until you cerfity the class!"

What's the point of the story?  One concern with class actions is that the class attorneys may enter into "sweetheart" settlements with the defendant.  Since the class attorneys are usually paid a percentage of the recovery, they stand a lot to gain from settling the class action for pennies on the dollar, a point recognized by Judge Friendly and the Supremes in Ortiz.   In fact, one point of the Class Action Fairness Act was to prohibit "coupon settlements" in which class attorneys were paid in dollars while the class only received worthless coupons.  

While plausible, the above account of "sweetheart" settlements does not tell the whole story.  Why would a class attorney accept a lowball settlement if the claims are worth much more than that?  After all, if the attorney is paid a percentage of the recovery, he or she only stands to gain more by trying to extract more in negotiations.  But what leverage does a class attorney have?  Well, if class actions are hard to certify, a class attorney has the choice of either (1) accepting a lowball settlement or (2) cobbling together some plaintiffs and pursuing the litigation.  In my anecdote, the proposed class suffered damages in the tens or hundreds of dollars, so litigating either alone or in partial groups would not have been feasible. 

When the class attorneys' alternatives (no class action, individual or partially aggregated litigation) are acknowledged, it is clear why class actions (may) settle for too little, and why the class attorneys in my anecdote balked at discovery pre-certification.  Somewhat counterintuitively, the solution to the problem of "sweetheart" settlements entails mandatory (that is, no opt out) class actions that are easier, not harder, to certify for litigation purposes.  That way the class attorneys will be incentivized to seek as much as possible for the entire class, and back any claim for more with a threat of litigation as to the whole pot.

Thus, the solution is a matter of rejiggering the incentives of the class attorneys, or, "design."  But what is the alternative?  The traditional solution has advocated the opposite approach - more chances to "opt out" of the class action rather than making it easier to bring a mandatory class action.  While this may protect an individual plaintiff from a "sell-out" class action, it takes away the leverage both the class attorney and the opt-out plaintiff need to extract as much as possible from the defendant.   The opt-out plaintiff will be limited by his or her own potential recovery and the lack of economies of scale that would have come from aggregating.  The rump class may blow up altogether. 

Notice that the traditional solution can be described as "more rights."  Generally, if we are concerned with procedures harming individuals, we give them more "rights" to protect their interests.   A day in court, say, or an opportunity to be heard, or notice, or, like in this example, an opportunity to opt out of the class.  But here the solution is "less rights."  It is instead a restructuring of the incentive structure to make sure that the class attorney maximizes recovery, which results in a severe limit on litigant autonomy.  This is nothing to sneeze at, since many mass torts plaintiffs who would want to opt out have very valuable claims.  

Now, we cannot easily reject the "more rights" approach, because it not only implicates the optimal "design" of mass tort procedure, but due process itself.  I will address the due process ramifications of the "design" approach, as well as the problem of internal conflicts in mass torts, in my next posts. 

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