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Licensed Unlicensed Requires Authentication Published by De Gruyter April 17, 2014

Settlement, ADR, and Class Action Superiority

  • D. Theodore Rave EMAIL logo
From the journal Journal of Tort Law

Abstract

When a defendant sets up a private voluntary compensation scheme or includes an arbitration clause in its form contracts, the resulting alternative dispute resolution (ADR) system bears striking resemblance to the typical endpoint of class action litigation—a settlement that sets up an administrative claims resolution scheme as an alternative to litigation on a mass basis. This article addresses the question of when the existence of one of these ADR systems—offering a shortcut to the same endpoint—should block future class action litigation. It examines important differences in timing, bargaining dynamics, and agency costs in these three contexts. And it argues that a court asked to certify a class in the face of an existing private resolution scheme should undertake a functional and essentially comparative inquiry, considering not only the potential savings in transaction and agency costs but also the underlying bargaining dynamics that may make these ADR shortcuts more vulnerable to unilateral manipulation by defendants than class action settlements.

Acknowledgments

Thanks to Richard Alderman, Bob Bone, Catherine Borden, Andrew Bradt, Aaron Bruhl, Brian Fitzpatrick, Tracey George, Myriam Gilles, Russell Gold, John Goldberg, Tracy Hester, Kevin Hickey, Lonny Hoffman, Sam Issacharoff, David Kwok, Emery Lee, Jacqui Lipton, Troy McKenzie, Danya Reda, Bill Rubenstein, Joe Sanders, Suzanna Sherry, Charlie Silver, Aaron Simowitz, Mila Sohoni, Brett Wells, and Adam Zimmerman for helpful comments. Thanks also to participants in The Public Life of the Private Law Symposium in honor of Richard A. Nagareda at Vanderbilt Law School and the University of Houston Law Center Faculty Workshop. Elisabeth Pontasch and Amanda Schramm provided valuable research assistance.

  1. 1

    Richard A. Nagareda, Mass Torts in a World of Settlement viii (2007).

  2. 2

    654 F.3d 748 (7th Cir. 2011).

  3. 3

    See BDO Consulting, Independent Evaluation of the Gulf Coast Claims Facility Report of Findings & Observations to the U.S. Department of Justice (June 5, 2012), available athttp://www.justice.gov/iso/opa/resources/66520126611210351178.pdf [hereinafter DOJ Audit].

  4. 4

    131 S. Ct. 1740 (2011).

  5. 5

    Id. at 1745.

  6. 6

    See id. at 1753 (“Indeed, the District Court concluded that the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which ‘could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars.’”); In re Aqua Dots Product Liability Litig., 270 F.R.D. 377, 385 (N.D. Ill. 2010) (“Since the defendant will provide a refund—without needless judicial intervention, lawyer’s fees or delay—to any purchaser who asks for one, there is no realistic sense in which putative class members would be better off coming to court.”).

  7. 7

    133 S. Ct. 2304 (2013).

  8. 8

    See Thomas E. Willging et al., An Empirical Analysis of Rule 23 to Address Rulemaking Challenges, 71 N.Y.U. L. Rev. 74, 173 (1996).

  9. 9

    See Francis E. McGovern, The What and Why of Claims Resolution Facilities, 57 Stan. L. Rev. 1361, 1370–73 (2005); see also id. at 1380 (“Except for the option of individual trials, all of the currently available litigation procedures for an endgame in disputes involving large numbers of claims contemplate a claims resolution facility.”).

  10. 10

    Aqua Dots, 654 F.3d at 750.

  11. 11

    Id. at 751.

  12. 12

    Additional costs might be justified on a deterrence rationale. See infra notes 29–32 and accompanying text.

  13. 13

    Aqua Dots, 654 F.3d at 752. Rule 23(a)(4) allows a court to certify a class only if “the representative parties will fairly and adequately protect the interests of the class.” The requirement of adequate representation extends to class counsel as well as the named plaintiffs. E.g., In re Cmty. Bank of N. Va., 622 F.3d 275, 291 (3d Cir. 2010). And it is a fundamental due process requirement for a class action to have preclusive effect. See Hansberry v. Lee, 311 U.S. 32 (1940).

  14. 14

    270 F.R.D. 377, 381 (N.D. Ill. 2010).

  15. 15

    Id. at 385. Other courts have similarly declined to certify classes after finding defendants’ unilateral, out-of-court refund offers to be a superior alternative. See, e.g., Berley v. Dreyfus & Co., 43 F.R.D. 397 (S.D.N.Y. 1967) (refund superior); Wechsler v. Southeastern Properties, Inc., 63 F.R.D. 13 (S.D.N.Y. 1972), aff’d on other grounds, 506 F.2d 631 (1974) (repurchase of stock at original sale price superior); Chin v. Chrysler Corp., 182 F.R.D. 448 (D.N.J. 1998) (recall and refund superior); In re Phenylpropanolamine (PPA) Prods. Liab. Litig., 214 F.R.D. 614 (W.D.Wash.2003) (recall and refund superior); In re ConAgra Peanut Butter Prods. Liab. Litig., 251 F.R.D. 689, 699–701 (N.D. Ga. 2008). But see Amalgamated Workers Union of Virgin Islands v. Hess Oil Virgin Islands Corp., 478 F.2d 540 (3d Cir. 1973) (advisory committee notes imply narrow definition of “adjudication”); Turner v. Murphy Oil USA Inc., 234 F.R.D. 597 (E.D. La. 2006) (comparison is to adjudication, not private settlement program). See generally 7AA Wright & Miller, Federal Practice & Procedure § 1779.

  16. 16

    131 S. Ct. 1740, 1744 (2011).

  17. 17

    Id. at 1753.

  18. 18

    AT&T’s arbitration clause contained a “third-generation” class arbitration waiver. It evolved in response to successful attacks by class action plaintiffs on earlier generations of class arbitration waivers. Suzanna Sherry, Hogs Get Slaughtered at the Supreme Court, 2011 S. Ct. Rev. 1, 10–14. The first-generation clauses included one-sided provisions manipulating procedure, forum, and available relief in defendants’ favor. Id. These were invalidated as exculpatory and thus unconscionable. The second-generation clauses made arbitration available at relatively low cost, but took advantage of the fact that imposing any monetary cost would be sufficient to dissuade claimants with small claims from pursuing arbitration. Id. These too were treated by the California courts as unconscionable. The consumer friendly features of AT&T’s clause were thus designed in the shadow of class action litigation.

  19. 19

    Id. at 1744.

  20. 20

    Id. at 1753 (“Indeed, the District Court concluded that the Concepcions were better off under their arbitration agreement with AT&T than they would have been as participants in a class action, which ‘could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars.’” (quoting Laster v. T–Mobile USA, Inc., 2008 WL 5216255, *12 (S.D. Cal., Aug.11, 2008))).

  21. 21

    Claims that no one would ever agree to post-dispute arbitration—like those often made in opposition to the proposed Arbitration Fairness Act, S. 878, H.R. 1844, 113th Cong. (2013)—are thus overstated. Class action settlements frequently take forms resembling post-dispute arbitration. Of course, the caveat is that you have to pay the class action lawyers to get there.

  22. 22

    See Concepcion, 131 S. Ct. at 1749.

  23. 23

    See id. at 1752.

  24. 24

    We see private parties make a similar tradeoff—sacrificing accuracy in the valuation of rights for transaction-cost savings—when they pool their intellectual property rights in copyright collectives. For a more detailed discussion, see D. Theodore Rave, Governing the Anticommons in Aggregate Litigation, 66 Vand. L. Rev. 1183, 1239 (2013).

  25. 25

    131 S.Ct. at 1745. Even the dissent recognized this as the likely outcome, when it explained that “AT & T can avoid the $7,500 payout (the payout that supposedly makes the Concepcions’ arbitration worthwhile) simply by paying the claim’s face value, such that ‘the maximum gain to a customer for the hassle of arbitrating a $30.22 dispute is still just $30.22.’” Id. at 1760. Conversely, it only costs AT&T $30.22 to avoid the hassle, cost, and risk of arbitration, not to mention alienating a customer who presumably pays far more than that amount in monthly service charges.

  26. 26

    See David L. Shapiro, The Class as Party and Client, 73 Notre Dame L. Rev. 913 (1998); see also Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011).

  27. 27

    131 S. Ct. at 1751–52.

  28. 28

    Lawyers hoping to represent the class, on the other hand, might be quite eager for claimants to incur the transaction costs of class action litigation (after all, paying lawyers is one of the major costs) even if the defendant has already set up an ADR program to provide effective recourse and compensation. This is part of the principal-agent problem in class litigation.

  29. 29

    See, e.g., Brian T. Fitzpatrick, Do Class Action Lawyers Make Too Little, 158 U. Pa. L. Rev. 2043, 2059–60, 2068–69 (2010); Myriam Gilles & Gary B. Friedman, Exploding the Class Action Agency Cost Myth: The Social Utility of Entrepreneurial Lawyers, 155 U. Pa. L. Rev. 103, 105 (2006).

  30. 30

    Indeed, the rate at which claims are filed in small claims class action settlements is quite low. See, e.g., Rust Consulting, Anticipating Claim Filing Rates in Class Actions (2013) (finding claims form completion rates ranging from 2% to 20% of eligible claimants in consumer class action settlements, from 20% to 35% in securities cases and from 20% to 85% in labor and employment cases), http://www.rustconsulting.com/Knowledge_Sharing/Articles_and_Publications/ID/124/Anticipating_Claims_Filing_Rates_in_Class_Action_Settlements. And the claiming rate in small claims voluntary compensation or arbitration programs is not likely to be much higher. We might expect a slightly higher rate because claimants stand to gain more without having to bear the cost of paying class action lawyers. But the marginal increase in available compensation may not induce many more claimants to file, at least below certain thresholds of claim value. And fewer claimants may know about their rights to compensation if the availability of payments is not as well publicized as through class action notice.

  31. 31

    Concepcion, 131 S. Ct. at 1753 (“The dissent claims that class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system…. But States cannot require a procedure that is inconsistent with the FAA, even if it is desirable for unrelated reasons.”); see also Italian Colors, 133 S. Ct. at 2312 (“[In Concepcion w]e specifically rejected the argument that class arbitration was necessary to prosecute claims ‘that might otherwise slip through the legal system.’”); id. at 2312 n. 5 (“[T]he FAA’s command to enforce arbitration agreements trumps any interest in ensuring the prosecution of low value claims.”).

  32. 32

    In some ways, attacking the intuition behind Aqua Dots and Concepcion for failing to achieve optimal deterrence is too easy. Of course it doesn’t. But many features of class action procedure are not designed to achieve optimal deterrence. If that were the goal, we would, as Professor Fitzpatrick suggests, just give all the money to class action lawyers. Fitzpatrick, supra note 29. And all three branches of government have continued to press for victim compensation, even in small claims class actions. See Russell M. Gold, Valuing Compensation in Class Actions 9 (Nov. 4, 2013) (unpublished manuscript, on file with author). Further, criticizing ADR procedures for underdeterring assumes that we ought to deter conduct that claimants do not perceive as harmful enough to be worth filing a claim. See Sherry, supra note 18, at 14–15, 19 n. 68. I take no position in this debate. I also take no position on whether the substantive law is properly calibrated to achieve its compensation and deterrence goals. Instead, I take the substantive law as I find it and start from the premise that claimants are entitled to as much relief as they can bargain or litigate for under that law.

  33. 33

    These public benefits are, of course, lost in settlement as well as other ADR systems. For the classic exposition of the public values of litigation that are lost through resort to private resolution, see Owen M. Fiss, Against Settlement, 93 Yale L.J. 1073 (1984). For a competing take, see Samuel Issacharoff & Robert H. Klonoff, The Public Value of Settlement, 78 Fordham L. Rev. 1177 (2009).

  34. 34

    See, e.g., Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 807 (1985).

  35. 35

    But see David Rosenberg, Mandatory-Litigation Class Actions: The Only Option for Mass Tort Cases, 115 Harv. L. Rev. 831 (2002); (arguing that from ex ante perspective, claimants would prefer deterrence to compensation); Sergio J. Campos, Mass Torts and Due Process, 65 Vand. L. Rev. 1059 (2012) (same). Claimants might also want their day in court—to have their stories heard by a jury and to have the opportunity to try to hold the defendant publicly accountable. Such process values might be accommodated by some ADR procedures, cf. Elizabeth Chamblee Burch, Group Consensus and Individual Consent, 79 Geo. Wash. L. Rev. 506, 525–27 (2011), though it is not typically their primary function. In any event, claimants who care deeply about their day in court can opt out of a class action, decline voluntary compensation, or refuse to enter contracts with arbitration clauses and sue individually. Sure it’s expensive for them, but the option remains open.

  36. 36

    Professor Tidmarsh, by contrast, argues that the superiority inquiry should lead to the system that results in the greatest social welfare. See Jay Tidmarsh, Superiority as Unity, 107 Nw. U. L. Rev. 565 (2013); Jay Tidmarsh, Cy Pres and the Optimal Class Action, 82 Geo. Wash. L. Rev. 1 (2013).

  37. 37

    See, e.g., Charles Silver & Lynn A. Baker, Mass Lawsuits and the Aggregate Settlement Rule, 32 Wake Forest L. Rev. 733, 745–48 (1997); Rosenberg, supra note 35, at 847–53.

  38. 38

    See Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 621 (1997) (“Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems.”); Sullivan v. DB Invs., Inc., 667 F.3d 273, 313 (3d Cir. 2011) (certifying settlement class even where major variations in state law would have made a litigation class unmanageable).

  39. 39

    See Howard M. Erichson, Informal Aggregation: Procedural and Ethical Implications of Coordination Among Counsel in Related Lawsuits, 50 Duke L.J. 381, 386–401 (2000).

  40. 40

    Rave, supra note 24, at 1193–95.

  41. 41

    Id. at 1193–95, 1198 & n. 45; see also Zach Savage, The Peace Premium: Theory and Practice, 22–25 (2013) (unpublished manuscript, on file with author). Conversely, where claims are fairly uniform and negative value, the prospect of adverse selection is less threatening, and defendants are unlikely to pay much of a peace premium. See id.

  42. 42

    This is exactly what happened in the BP settlement. See Samuel Issacharoff & D. Theodore Rave, The BP Oil Spill and the Paradox of Public Litigation, 74 La. L. Rev. 397 (2014).

  43. 43

    To borrow a phrase from Professor McGovern, see Francis E. McGovern, Resolving Mature Mass Tort Litigation, 69 B.U. L. Rev. 659 (1989), though by the time of settlement, the contours of the law governing the litigation may not have reached maturity in the sense that McGovern meant it through scores of repeated trials on the same issues.

  44. 44

    Press Release, June 16, 2010, The White House, FACT SHEET: Claims and Escrow, available athttp://www.whitehouse.gov/the-press-office/fact-sheet-claims-and-escrow.

  45. 45

    In re Aqua Dots Product Liability Litigation, 270 F.R.D. 377, 379 (N.D. Ill. 2010).

  46. 46

    See Dana A. Remus & Adam S. Zimmerman, The Settlement Mill Defense, 7–12 (2013) (unpublished manuscript, on file with author).

  47. 47

    The GCCF starting handing out emergency payments almost immediately upon its creation, and it had to go back and modify its procedures on several occasions as more information became available. DOJ Audit, supra note 3, at 8–9, 43, 55, 72.

  48. 48

    See, e.g., Samuel Issacharoff & Erin F. Delaney, Credit Card Accountability, 73 U. Chi. L. Rev. 157, 169–70 (2006).

  49. 49

    See, e.g., Clayton P. Gillette, Rolling Contracts as an Agency Problem, 2004 Wis. L. Rev. 679, 700 (market forces); American Arbitration Association, Consumer Due Process Protocols, available atwww.adr.org/aaa/faces/aoe/gc/consumer; see also Richard A. Epstein, Second-Order Rationality, in Edward J. McCaffery & Joel Slemrod, eds., Behavioral Public Finance: Toward a New Agenda 355, 365 (2006) (explaining how market can be rational, even when individuals are not).

  50. 50

    See supra note 18.

  51. 51

    See Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 90 (2000). But cf. American Express Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013) (implicitly casting doubt on Green Tree, though not explicitly overruling it).

  52. 52

    See, e.g., Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (enforcing forum selection clause in adhesion contract because it was priced in); Gillette, supra note 49, at 700.

  53. 53

    An example that falls more comfortably in the upper left-hand quadrant might be a collective bargaining agreement that creates an arbitration system to handle employment related claims brought by union members against their employer. See, e.g., 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009). The union is an empowered agent that can negotiate on a more equal footing with the employer. Of course, agency costs might be present when a union bargains on behalf of employees, see id. at 284–85 (Souter, J., dissenting), just as they are when class counsel bargains on behalf of absent class members.

  54. 54

    See Issacharoff & Delaney, supra note 48, at 169–70; Jean Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court’s Preference for Binding Arbitration, 74 Wash. U. L.Q. 637, 692 (1996) (countering notion that companies might start to compete on arbitration clauses).

  55. 55

    See American Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2313 (2013) (Kagan, J., dissenting) (“The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.”).

  56. 56

    See, e.g., David Rosenberg, Class Actions for Mass Torts: Doing Individual Justice by Collective Means, 62 Ind. L.J. 561, 571 (1987).

  57. 57

    See, e.g., Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs’ Attorney’s Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1 (1991).

  58. 58

    28 U.S.C. § 1712(a).

  59. 59

    15 U.S.C. §§ 77z-1(a)(6), 78u-4(a)(6).

  60. 60

    Nagareda, supra note 1, at 71–72.

  61. 61

    Professor Sherry has argued that an additional agency cost is that repeat-player class action lawyers may “try to shape the law rather than simply win a judgment” and, in going for “the big win,” may overreach and lose badly to the detriment of not only their clients, but more importantly future plaintiffs. Sherry, supra note 18, at 36. She is right about the potential danger, but wrong about the reason. The problem is not with repeat players, who have every incentive to play the long game, move the law incrementally, and consider the interests of future plaintiffs who may turn into future clients. The problem is that you don’t need to be a repeat player to be class counsel. Even if all of the repeat players pass on a weak claim for fear of making bad law, a fly-by-night lawyer—unaware of or indifferent to the big picture—can use the class action mechanism to seize control of the litigation and make risky arguments without the need to develop a practice that can attract clients through reputation and proven track record. Cf. William B. Rubenstein, Divided We Litigate: Addressing Disputes Among Group Members and Lawyers in Civil Rights Campaigns, 106 Yale L.J. 1623, 1632 (1997) (warning about the dangers posed by “occasional pro bono attorneys” in civil rights cases to the long term projects of “professional public interest litigators”).

  62. 62

    See Issacharoff & Delaney, supra note 48, at 169–70.

  63. 63

    In American Express Co. v. Italian Colors Restaurant, for example, even claims in excess of $38,000 were negative value because the cost of expert economic testimony needed to prove them ran in the hundreds of thousands of dollars. 133 S. Ct. 2304, 2308 (2013).

  64. 64

    Indeed, the rate of claims actually filed in consumer class action settlements is remarkably low. See supra note 30. The process for filing claims and obtaining compensation in a class action settlement can be simple or complex depending on the specifics of the dispute, but the ADR process is likely to be similarly simple or complex if the same dispute was resolved through a voluntary compensation scheme. A class action settlement in Aqua Dots could not have designed a much simpler process for distributing proceeds than the defendant’s refund program, and the claims process created by the BP class settlement was just as complex as the GCCF system that it replaced.

  65. 65

    Issacharoff & Rave, supra note 42.

  66. 66

    See Nagareda, supra note 1, at 108–12.

  67. 67

    William B. Rubenstein, A Transactional Model of Adjudication, 89 Geo. L.J. 371, 419 (2001).

  68. 68

    Mandatory classes seeking indivisible injunctive relief or equitable distribution of a limited fund under Rules 23(b)(1) and (b)(2) are beyond the scope of this article, though it would seem difficult for a defendant to argue that unilaterally creating an ADR system to distribute compensation would render injunctive relief unnecessary.

  69. 69

    Class settlements nearly always include a walk-away provision that allows the defendant to back out of the deal if too many plaintiffs opt out. Issacharoff & Rave, supra note 42, at 18. For more creative strategies for deterring opt outs, see Richard A. Nagareda, Closure in Damage Class Settlements: The Godfather Guide to Opt-Out Rights, 2003 U. Chi. Legal F. 141 (2003).

  70. 70

    Courts do not look kindly on lawyers’ attempts to opt a class of plaintiffs out of a class action settlement. E.g., Fed. R. Civ. P. 23, Advisory Committee Notes to 2003 Amendments (“no class member may purport to opt out other class members by way of another class action”); Carlough v. Amchem Prod., Inc., 10 F.3d 189 (3d Cir. 1993).

  71. 71

    Unless absent class members are adequately represented throughout, the class settlement will not block future litigation. E.g., Hansberry v. Lee, 311 U.S. 32 (1940); cf. Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649 (2008).

  72. 72

    Reynolds v. Beneficial National Bank, 288 F.3d 277, 279–80 (7th Cir. 2002).

  73. 73

    We can see this intuition reflected in class action doctrine. As the Supreme Court noted in Amchem, in considering whether to certify a settlement class, the court “need not inquire into whether the case, if tried, would present intractable management problems,” but that the Rule 23 requirements “designed to protect absentees” on the other hand “demand undiluted, even heightened, attention in the settlement context.” 521 U.S. 591, 620 (1997). And in Sullivan v. D.B. Investments, Inc., the court certified a class of antitrust plaintiffs that could never have been certified for trial where class counsel and the defendant agreed on a transaction that would generate value. 667 F.3d 273 (3d Cir. 2011). Once it found that the process was free of collusion and included adequate structural protections for absentees, the court deferred to class counsel’s decision to include claims of dubious merit in the settlement as an attempt offer the defendant global peace in exchange for a premium. See id. at 311.

  74. 74

    654 F.3d at 752.

  75. 75

    See Issacharoff & Rave, supra note 42, explaining how the plaintiffs in the BP case did exactly that.

  76. 76

    Indeed, the degree of publicity is particularly important because, without class action notice, many claimants may be unaware that they even have claims. See generally Eric P. Voigt, A Company’s Voluntary Refund Program for Consumers Can Be a Fair and Efficient Alternative to a Class Action, 31 Rev. Litig. 617 (2012).

  77. 77

    654 F.3d at 752.

  78. 78

    Rave, supra note 24, at 1193–94; see also Savage, supra note 41.

  79. 79

    654 F.3d at 751.

  80. 80

    Note that if a class had been certified, class counsel might have been able to exact more money from the defendant in a settlement than the total amount the defendant ended up paying out in its voluntary compensation scheme. This is because the voluntary compensation scheme only pays claimants who opt in, while class counsel would have been negotiating on behalf of all claimants who did not opt out. But even if this additional amount exceeded the transaction costs of the class mechanism, it would not necessarily work to the benefit of the individual claimants in Aqua Dots, who would still need to file a claim in the class settlement program to obtain compensation and would presumptively still only be entitled to a refund of their purchase price. Once all class members who have filed claims have been fully compensated for their injuries, the excess funds would most likely go to a cy pres distribution. See, e.g., Klier v. Elf Atochem North America, Inc., 658 F.3d 468, 475 & n. 17 (5th Cir. 2011). There may be good reasons from a deterrence point of view for making the defendant pay more, even if the extra money does not make its way into the hands of claimants. But from the claimants’ point of view, a class action that nets them the same recovery is not superior to a defendant’s refund program.

    A class action might be superior from the claimants’ point of view if the excess funds were distributed pro rata to those class members who did file claims, netting them supercompensatory relief. See, e.g., In re Pharmaceutical Industry Average Wholesale Price Litigation, 588 F.3d 24, 34–35 (1st Cir. 2009) (insisting that all claimants be paid treble damages out of excess class settlement funds before any cy pres distribution). Such supercompensatory distributions are controversial, see Klier, 658 F.3d at 475 & n. 17 (cy pres should be used to avoid an “additional distribution [that] would provide a windfall to class members with liquidated-damages claims that were 100 percent satisfied by the initial distribution”)—even the Average Wholesale Price Litigation involved antitrust claims where class members were arguably entitled to treble damages—but where courts are willing to approve of them the prospect of obtaining supercompensatory relief in a class action should factor into the comparative inquiry.

  81. 81

    33 U.S.C. § 2702.

  82. 82

    BDO Consulting, Independent Evaluation of the Gulf Coast Claims Cacility Executive Summary 1 (Apr. 19, 2012), available athttp://www.justice.gov/iso/opa/resources/697201241917226179477.pdf.

  83. 83

    Issacharoff & Rave, supra note 42, at 6–13.

  84. 84

    Id. at 14–25.

  85. 85

    Rave, supra note 24, at 1193–94; see also Savage, supra note 41.

  86. 86

    Issacharoff & Rave, supra note 42, at 15–16.

  87. 87

    Id.

  88. 88

    Indeed, this is exactly what happened in the Pilot Flying J truck stop litigation. After a government investigation revealed that Pilot Flying J had cheated some of its customers out of fuel rebates, the company conducted an internal audit and began refunding the money plus interest. See Pilot Flying J Rebate Education, available athttp://rebateeducation.pilotflyingj.com (last visited Nov. 15, 2013). Inevitably lawsuits followed, and Pilot Flying J agreed to a class action settlement that continued the same refund program with a slightly higher interest rate, retained an independent accountant to review the internal audit, and paid class counsel up to $14 million (one third of the total paid to claimants) on top. Pilot Flying J—Diesel Rebate Settlement, Frequently Asked Questions, available athttp://www.dieselrebatesettlement.com/faqs.php#faq6 (last visited Nov. 15, 2013). Class members undoubtedly did marginally better, but it’s hard to see how the lawyers earned $14 million when the defendant had put almost all of the money on the table before their involvement.

  89. 89

    See Federal Arbitration Act, 9 U.S.C. § 2.

  90. 90

    See Richard A. Nagareda, The Litigation-Arbitration Dichotomy Meets the Class Action, 86 Notre Dame L. Rev. 1069, 1113 (2011).

  91. 91

    9 U.S.C. § 2; AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1746 (2011); Green Tree Financial Corp. v. Randolph, 531 U.S. 79, 90 (2000); Mitsubishi Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628 (1985).

  92. 92

    131 S. Ct. at 1748.

  93. 93

    Id. at 1753.

  94. 94

    Id.

  95. 95

    133 S. Ct. 2304 (2013). Perhaps “retreated” is not the best characterization. The move in Italian Colors may be the Supreme Court’s strategic response to the Second Circuit’s efforts to resist its pro arbitration directives in Concepcion and other cases. See Aaron-Andrew Bruhl, The Unconcionability Game: Strategic Judging and the Evolution of Federal Arbitration Law, 83 N.Y.U. L. Rev. 1420 (2008).

  96. 96

    The agreement also barred other methods of joinder and its confidentiality provisions stood as a significant obstacle to any informal cost sharing. This was a point of dispute between the majority and dissent. The majority claims to only have considered the class action waiver, but does not indicate whether a more complete bar on joinder would make this a different case. Compare id. at 2311 n. 4 (majority) with id. at 2318–19 (Kagan, J. dissenting); see also Sutherland v. Ernst & Young, LLP, 726 F.3d 290, 299 n.11 (2d Cir. 2013) (“We need not consider E&Y’s various arguments about the cost-sharing provisions that may be available to individuals like Sutherland inasmuch as the Supreme Court rejected the use of the ‘effective vindication doctrine’ in situations where the cost of proving a statutory remedy exceeds the remedy itself. See Italian Colors, 133 S. Ct. at 2311 n. 4 (rejecting the conclusion that class action waiver was unenforceable because other forms of cost sharing were not economically feasible).”).

  97. 97

    Id. at 2311.

  98. 98

    Myriam Gilles, Killing Them with Kindness: Examining “Consumer-Friendly” Arbitration Clauses after AT&T Mobility v. Concepcion, 88 Notre Dame L. Rev. 825 (2012).

  99. 99

    E.g., American Arbitration Association, Consumer Due Process Protocols, available atwww.adr.org/aaa/faces/aoe/gc/consumer.

  100. 100

    See Italian Colors, 133 S. Ct. at 2320 (Kagan, J. dissenting).

Published Online: 2014-4-17
Published in Print: 2012-1-1

©2012 by Walter de Gruyter Berlin / Boston

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