From the July-August 2007 issue of Barnett’s Notes on Commercial Litigation:

Just after the dawn of the 20th century, a dissenting Justice Oliver Wendell Holmes, Jr., famously said that "great cases, like hard cases, make bad law".  He explained that a case’s greatness will "exert a kind of hydraulic pressure which makes what previously was clear seem doubtful, and before which even well settled principles of law will bend."  Northern Securities Co. v. United States, 193 U.S. 197, 364 (1904).

What Did Holmes Intend?

He meant, I suspect, that judges — even his colleagues on the U.S. Supreme Court — cannot isolate themselves from forces at work in the communities where they live.  But, implying his own insensibility to public irrationality, Justice Holmes opined that the Sherman Act did not prohibit an agreement among several railroads not to compete with each other.  The hue and cry, the great Holmes suggested, impelled one set of lesser mortals (government lawyers) to seek an injunction against the monopoly and another group (the 5-4 majority) to uphold a judgment granting it.

History disagreed with Holmes on the merits.  But do let us ponder his analogy.  The power of hydraulic pressure allows a small force at point A to exert a larger force at point B within a mechanical system.  It thus pushes a big piston to raise the car rack so that a mechanic can fix the oil pan you busted when you drove too fast over a road hump.  But in Northern Securities Holmes used "a kind of hydraulic pressure" as a figure for distortion of judgment.

Inordinate Pressure to Settle

Which brings us to the recent rash of lower court decisions that decry "hydraulic pressure" to settle class actions.  The first reference, in 1995, may have warranted the name.  In In re General Motors Corp. Pick-Up Truck Fuel Tank Product Liability Litig., 55 F.3d 768, 790 (3d Cir. 1995), Circuit Judge Becker noted the deleterious effect of a certifying a sprawling class action for settlement:

Cases could be filed without any expectation or intention of litigation, with the foreknowledge that the natural hydraulic pressure for settlement may in fact lead to a class settlement, especially given the incentive a defendant has to bind as many potential claimants as possible with an approved class settlement.

The plaintiffs’ and defendants’ lawyers would get fat fees, and the defendants would buy peace cheap.  The pressure to certify — on the parties and the trial court — may have distorted judgment about the propriety of certification, with the potential that absent plaintiffs would get short shrift.

Later use of "hydraulic pressure" stands Judge Becker’s concerns on their head.  These instances don’t focus on judgment-distorting pressure to certify but on pressure to settle.  They thus infer that certification impels defendants to pay big money to resolve unmeritorious claims.  E.g., Hevesi v. Citigroup, Inc., 366 F.3d 70, 81 (2d Cir. 2004) (granting Rule 23(f) petition in part because, due to settlement pressure, "it is hard to conceive of many cases that are less likely than the instant case to yield an appealable final judgment"); De Asencio v. Tyson Foods, Inc., 342 F.3d 301, 311 (3d Cir. 2003) ("The aggregation of claims, particularly as class actions, profoundly affects the substantive rights of the parties to the litigation.") (emphasis added); In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 148 (2d Cir. 2001) ("Even a defendant who is innocent and holy may rationally choose to pay a few hundred million dollars in settlement of a class action rather than ‘run the risk of ruinous liability.’") (quoting Fed. R. Civ. P. 23 advisory committee’s note); Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 164 (3d Cir. 2001) (citing "inordinate or hydraulic pressure on defendants to settle, avoiding the risk, however small, of potentially ruinous liability" as factor favoring interlocutory review).

The slope has proved slippery.  In Regents of the Univ. of Calif. v. Credit Suisse First Boston (USA) Inc., 482 F.3d 372, 379 (5th Cir. 2007), the majority cited "particularly acute" pressure to settle as justification for Rule 23(f) review.  But the court went on to reverse certification because it rejected the merits of the class claims.  The majority even cited its concern about "opening the floodgates for nearly unlimited and frequently unpredictable liability" as support for its ruling that the claims couldn’t survive legal scrutiny.  Id . at 393.  "Pressure to settle" thus merged with an explicit weighing of the merits.

Observations

I have two observations on this perhaps inevitable consequence of allowing practically limitless interlocutory review of class certification decisions.  The first concerns the absence of proof that settlement pressure encourages wrong certifications, either generally or in particular cases.  One would expect, in fact, that the very size of a case would promote greater care in district courts’ rulings under Rule 23.  See Regents,  482 F.3d at 380 (noting the district court’s "best of intentions" and "hurculean effort").

The second thought also comes from lack of evidence.  Courts appear to indulge an irrebuttable presumption  that pressure to settle produces unjust outcomes.  On what basis do they do that?  As far as I can tell, they take it as an article of faith.  They don’t cite studies.  They don’t even offer examples.  Do defendants actually misjudge the risk of class actions?  Do they truly overpay?  Count me skeptical.

The strongest cases get the most urgent cries of hydraulic pressure.  One can hardly blame the defendants, but judges needn’t accept their complaints at face value.  The focus should stay on evaluating the likelihood of error by the district court.  A settlement class may increase the danger of a mistake.  But mere bigness normally doesn’t — and it usually has the opposite effect.

Justice Holmes, in his very first dissent, sassed his Northern Securities colleagues by implying that they let public opinion bend their judgment.  He was wrong; they were right.  And, in the spirit of humility, which becomes us all, let us settle or try cases on their merits.  Let us allow doubt about settlement pressure in weak cases.  Cost of defense, perhaps.  Maybe a tiny bit more for the low but conceivable possibility of losing not only at trial but also on post-trial motions and appeal.  But please don’t pay more than that, friends, for bad cases.  You’ll have only believing in a myth to blame.

Barry Barnett

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