A question of leverage. Chief Justice John G. Roberts volunteered the other day, at a moot court competition, that "a class action is a dramatic departure from the normal rules of litigation." He went on to suggest that the device serves merely to increase plaintiffs’ leverage in settlement talks.
Hmmm. True, aggregating small claims of thousands (or millions) into one class case does increase the plaintiffs’ bargaining power relative to the defendants’. True also that almost every civil case settles. But does the Chief Justice see aggregation — a "dramatic departure from the normal rules of litigation" — as a bad thing?
His Honor’s remarks do suggest that he tends to see more downside than upside. Why else would he call a 42 year-old procedure that originated in old equity practice "a dramatic departure"? Why else would he stress its plaintiff-side leverage-enhancing properties?
Consumer friendly. A counterpoint to the Chief Justice’s skepticism about class actions came last Friday in the form of a Second Circuit decision. In Ross v. Bank of America, N.A. (USA), No. 06-4755 (2d Cir. Apr. 25, 2008), the plaintiffs, representing a putative class of credit cardholders, sued 20 of the largest issuing banks under section 1 of the Sherman Act for conspiring to use arbitration clauses that prohibit class actions. They alleged:
After preliminary meetings and communications, the banks formed an "Arbitration Coalition" to recruit other credit card issuers into using mandatory arbitration clauses. Over the next four years, the Arbitration Coalition held more meetings, shared plans for the adoption of arbitration clauses, and spun off additional working groups. Ultimately, "Defendants jointly forced unwilling and unaware cardholders to accept arbitration clauses and class action prohibitions on a ‘take-it-or-leave-it basis’ through the joint exercise of immense market power."
Ross, slip op. at 4-5.
So what? Why shouldn’t corporations get together on a strategy to fight a common enemy — the class action lawyer? As the Second Circuit explained, class action lawyers protect consumers:
[B]ecause the banks conspired not to offer cards permitting class actions, the cardholders will be forced to expend time and legal fees to monitor the legality of the banks’ behavior, whereas if the cardholders had access to a card that permitted class actions, they would have the option of relying on motivated class action attorneys to perform this function. If the cardholders chose not to monitor the banks – which would perhaps be more likely because, as the Complaint observes, actions that result in significant aggregate revenue to the banks (concerning, e.g., late fees, overlimit fees, foreign transaction fees, APR, etc.) generally harm individual consumers in only small amounts – they would still lose the services of class action attorneys. Either way, the cardholders would have been forced to accept a less valuable card as a result of the banks’ alleged collusion.
Id. at 10-11. Ah — the banks conspired to deprive customers of "the services of class action attorneys" in "monitor[ing] the legality of the banks’ behavior". You won’t see that passage in a U.S. Chamber of Commerce ad anytime soon!
Reconciliation. Can we reconcile the Chief Justice’s dourness about class actions with the Second Circuit’s focus on their utility?
We think so. Class actions work precisely because the aggregation of many small claims makes the claims economic to pursue. The whole point is to increase plaintiff-side leverage — from zero to something approximating a fair fight.
Chief Justice Roberts doesn’t believe corporate wrongdoers should go free. He just seems to worry more about the potential for abuse than about effective enforcement of consumers’ rights.
Suspension of disbelief. But where does that worry come from? As we’ve said before, judges who ought to know better commonly assert that class certification allows plaintiffs to "extort" settlements. They say that the threat of "ruinous" liability terrifies defendants into raising the green flag of surrender. They in effect take judicial notice of a "fact" that makes no economic sense.
How much, for example, should a defendant facing a 10 percent chance of losing at trial pay to eliminate the risk of getting hit with a judgment for $100 million? Did you say $10 million (.10 x $100 million)? You are correct.
That’s a lot of money, but it’s not extortionate. It’s economic rationality. And it’s no reason at all to cast asparagus on class actions.