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					Class: Class Actions                                                                                            Professor: Brody
Book: Original Materials                                                                                        Term:     Winter 2002

I.      Themes in Class Action Litigation
        A. Advantages
                1. Resources –
                        a) allows plaintiffs with small resources to pool them in class.
                        b) contingency based on pooled small claims gives people access to lawyers, courts, that they wouldn't
                             have otherwise.
                2. Increases bargaining power of small P's.
                3. Effeciency –
                        a) judicial resources consolidated by hearing one case on one set of facts, one defendant, on set of law
                             issues for many individual plaintiffs.
                        b) Transaction costs to parties reduced.
                4. Defendant must only defend one suit, not multiple suits in multiple jurisdictions
                        a) closure
                        b) save resources on legal defense
                        c) efficiencies of scale.
                5. Means for social change
                        a) Michael Hyman – chance for stepped on little guy to get his day in court against big corp's
                        b) Helps equity by distributing relief to those harmed.
                        c) Deterrence!!
                        d) Civil rights helped considerable
                                  1) Aggregates social causes to change rules.
                                  2) Overcome collective action problem – coalesce reluctant, diffuse group
                                  3) empower the otherwise socially, financially disempowered.
                                  4) atty's fees under civil rights statutes helps.
                6. Makes preclusion a two-way street
                        a) closure,
                        b) efficiency for courts
                        c) defendant bonus – win or lose, it's over.
                7. Court Supervision of settlements, fees. Keeps hand of court involved.
        B. Disadvantages
                1. Consolidation can cause individual P's, both representative and not, to lose control of their judicial destiny. Suit
                    bigger than their individual cause, cannot make decision for self.
                2. Effeciency of aggregating tiny claims no individual would prosecute may be economically inefficient – rent
                    seeking of sorts motivated by attorneys. Tension of possible social motivations with economic ineffeiency.
                3. Defendant may find risk of one roll of dice is too big
                        a) What was a tiny risk diffused over small individual claims is no a tiny risk times one huge liability
                        b) May cause firms to inefficiently settle to avoid the risk.
                        c) Leads to blackmail settlements by P's – artificially increases bargaining power of P's (unjustified
                        d) Result – D's willing to settle inefficiently for too much too soon, P's able to extract larger settlement
                             based on less compelling case (whole greater than sum of parts).
                        e) Ex. Antitrust CA for price fixing vs. drug co. Settled 700m. Individual who opted out lost on sum
                             judg. Claim sucked, but leverage squeezed out settlement.
                4. Plaintiff's lawyers motivating force for cases.
                        a) P lawyers troll for classes, recruit representatives, use the atty's fees/transaction costs as force to bring
                             suits that would otherwise never see light of day. Find, file, run whole action.
                        b) P's not real P's – distortion of system.
                5. Preclusion as two way street has disadvantages?
                6. Increased costs of doing biz because of CA's get passed on to consumers

Class: Class Actions                                                                                            Professor: Brody
Book: Original Materials                                                                                        Term:     Winter 2002

                           a)But, economically no more so than market tolerates, and in a sense we are all paying to force Co to do
                             biz the right way, like insurance to avoid being the person who got screwed and had to bring CA in
                             first place.
               7. As tool for social change
                         a) Very blunt tool—if we think legislature/political process can protect minority interests, that is a much
                             more precise tool than CA.
                         b) Not really socially-positive-outcome centered process. It's all about liability and payment.
               8. Incentives in litigation (Lawyers sell out clients early and cheap) – risk of conspiracy of lawyers and D to
                    aggrandize fees at expense of P class
                         a) In settlement especially—no adversary. Judge approval poor substitute.
                         b) BUT, may not be that different from when hourly lawyers simply swap motions and continuances to
                             pad fees.
               9. Excessive judicial intervention in economy – supplants political controls.
        C. Rhone-Polenc.
               1. Pre-23(f) mandamus; disfavors splitting issues for partial CAs; Blackmail settlements an issue.
               2. Posner opinion. Pre-23(f)—there was no right of appeal of a grant or denial of class certification outside of
               3. Facts
                         a) Hemophiliacs who contracted HIV through blood transfusions sought CA against drug co's involved in
                             blood solid's sales.
                         b) D's should have taken care as to Hep B infection, which would have been sufficient to purge HIV as
                             well. D's negligently delayed in screening donors.
                         c) District Judge certified class with respect to particular issues under 23(c)(4)(A) for special verdicts that
                             would then be precluded and used in individual cases. Couldn't do whole class whole case --
                                   1) Facts too different for all to work on both theories: dates of infection wildly different
                                   2) Many different state laws at issue – negligence standards different.
                         d) D's sought mandamus
               4. Result
                         a) Court honors mandamus, overturns certification. Why. . .
                         b) Blackmail settlement
                                   1) Risk of huge damages to D gives disproportionate pressure to settle
                                   2) Even though 12/13 cases going to trial won by D
                                   3) Better to diffuse risk, allow determinations
                         c) Legal standard for special verdicts made up
                                   1) Negligence standard for 50 states not all same
                                   2) Idea of general common law standard specious.
                                   3) "foreseeability" as example
                         d) Didn't "carve at the joint" in separating out class issues.
                                   1) implies the bifurcation would require reexamination of decided issues by subsequent juries.
                                   2) Unclear how this works.
                         e) Dislikes use of class action for mass torts.
                                   1) Taken at word, this is difficult to overcome.
        D. Tice v. American Airlines.
               1. Need properly certified CA to preclude nonparties (CA's can bind nonparties). Virtual representation
                    disfavored absent litigation misbehavior/manipulation, clear identity of interest.
               2. Facts
                         a) Class Action for age discrimination in company policy not allowing pilots approaching federally
                             mandated retirement age of 60 to "downbid" into flight officer position that has no mandated
                             retirement age.
                         b) Airline claimed earlier suits attacking policy that failed precluded this suit.
                         c) Court finds no preclusion.
               3. Holding

Class: Class Actions                                                                                             Professor: Brody
Book: Original Materials                                                                                         Term:     Winter 2002

                           a) No preclusion – unless there is a properly certified class action, traditional res judicata privity analysis
                              applies to see if non parties can be bound.
                           b) AA tries for a "virtual representation" theory to say traditional res judicata applies to these plaintiffs
                                  1) Tice plaintiffs not part of original suit
                                  2) Not in privity, unless "virtual representation" applies.
                                  3) Court disses VR.
                           c) ADEA actions are opt-in, not opt-out—can't get them in that way. Factual dissimilarities also
                              predominate (previous case people not hired because of age policies, this people already employed by

II.     Rule 23
        (a) Prerequisites to a Class Action.
            One or more members of a class may sue or be sued as representative parties on behalf of all only if
                (1) the class is so numerous that joinder of all members is impracticable
                (2) there are questions of law or fact common to the class
                (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and
                (4) the representative parties will fairly and adequately protect the interests of the class
        (b) Class Actions Maintainable.
            An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
                (1) the prosecution of separate actions by or against individual members of the class would create a risk of
                          (A) inconsistent or varying adjudications with respect to individual members of the class which would
                               establish incompatible standards of conduct for the party opposing the class, or
                          (B) adjudications with respect to individual members of the class which would as a practical matter be
                               dispositive of the interests of the other members not parties to the adjudications or substantially impair
                               or impede their ability to protect their interests; or
                (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby
                     making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a
                     whole; or
                (3) the court finds that the questions of law or fact common to the members of the class predominate over any
                     questions affecting only individual members, and that a class action is superior to other available methods for
                     the fair and efficient adjudication of the controversy.
                          The matters pertinent to the finding include:
                          (A) the interest of members of the class in individually controlling the prosecution or defense of separate
                          (B) the extent and nature of any litigation concerning the controversy already commenced by or against
                               members of the class;
                          (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum;
                          (D) the difficulties likely to be encountered in the management of a class action.
        (c) Determination by Order Whether Class Action to be Maintained; Notice; Judgment; Actions Conducted Partially
            as Class Actions.
                (1) As soon as practicable after the commencement of an action brought as a class action, the court shall determine
                     by order whether it is to be so maintained. An order under this subdivision may be conditional, and may be
                     altered or amended before the decision on the merits.
                (2) In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the
                     best notice practicable under the circumstances, including individual notice to all members who can be
                     identified through reasonable effort. The notice shall advise each member that
                          (A) the court will exclude the member from the class if the member so requests by a specific date;
                          (B) the judgment, whether favorable or not, will include all members who do not request exclusion; and
                          (C) any member who does not request exclusion may, if the member desires, enter an appearance through
                (3) The judgment in an action maintained under subdivision (b)(1) or (b)(2), whether or not favorable to the class,
                     shall include and describe those whom the court finds to be members of the class. The judgment in an action
                     maintained as a class action under subdivision (b)(3), whether or not favorable to the class, shall include and

Class: Class Actions                                                                                            Professor: Brody
Book: Original Materials                                                                                        Term:     Winter 2002

                     specifiy or describe those to whom the notice provided in subdivision (c)(2) was directed, and who have not
                     requested exclusion, and whom the court finds to be members of the class.
                 (4) When appropriate
                          (A) an action may be brought or maintained as a class action with respect to particular issues, or
                          (B) a class may be divided into subclasses and each subclass treated as a class, and the provisions of this
                              rule shall then be construed and applied accordingly.
        (d) Orders in Conduct of Actions.
        (e) Dismissal or Compromise.
            A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed
            dismissal or compromise shall be given to all members of the class in such manner as the court directs.
        (f) Appeals
            A court of appeals may in its discretion permit an appeal from an order of a district court granting or denying class
            action certification under this rule if application is made to it within ten days after entry of the order. An appeal does
            not stay proceedings in the district court unless the district judge or the court of appeals so orders.

III.    Federal Court Jurisdiction
        A. Two ways to get CA's into federal courts
                 1. Federal Question CA's
                          a) 28 USC 1332?
                          b) Ex.
                                   1) Title VII (employment discrimination – Tice)
                                   2) ADA
                                   3) Securities – BIG.
                          c) Amount irrelevant – could get small claim aggregated-style here.
                 2. Diversity Jurisdiction.
                          a) 28 USC 1441
                          b) Need diverse citizenship
                                   1) Supreme Tribe of Ben-Hur (1921):
                                            (A) Citizenship of named plaintiffs relevant for diversity. Unnamed P's are hangers on.
                                            (B) Power to P – can forum shop.
                                   2) Strategy - add non-diverse P's to kill removal.
                          c) 75,000 amount in controversy.
                                   1) Zahn v. Int'l Paper Co.:
                                            (A) Cannot add up class claims to get the $75,000.
                                            (B) Each P must separately meet 75K amount.
                                   2) 28 USC 1367 – Supplemental Jurisdiction Statute
                                            (A) Language of statute would allow named plaintiffs to meet 75K requirement, and to
                                                supplemental-in other plaintiffs regardless.
                                            (B) Unresolved issue at US level – Free v. Abbott Labs aff'd by equally divided court 5th
                                                Cir decision allowing this.
                                            (C) 3 Cir. follow this – 5th, 7th, 9th.
        B. Heinz Complaint
                 1. CA that Heinz systematically underfilled bottles of ketchup.
                 2. Claiming diversity jurisdiction.
                 3. Citizenship ok
                 4. Amount in controversy?
                          a) Amount per plaintiff of underfilling lost = small $
                          b) How to get 75K?
                                   1) Cannot aggregate
                                   2) BUT, seeking single injunction against Heinz, requiring overfilling of bottles for amount of

Class: Class Actions                                                                                               Professor: Brody
Book: Original Materials                                                                                           Term:     Winter 2002

                                    3) This injunction has a cost value of 500million.
                                    4) Attorney's fees likely considerable under the Consumer Fraud statute.
                 5.   P's want to say this injunction is same relief an individual could get alone, and the benefits all accrue to the
                      named plaintiffs (rest come in under 1367).
                           a) Undivided claim –
                                    1) Likely loser.
                           b) Injunctive relief
                                    1) hard to say that named P's suing for all the value of the injunction. The value only really
                                         accrues to extent of bottles P buys.
                                    2) Injunctive value divides by #'s in class
                           c) Punitives can be included – but are there any here?

IV.     Certification & Types of Classes
        A. Mechanics of Rule 23 – see above for rule – in 23(a); The types of classes are in 23(b).
        B. 23(a)
                 1. Numerosity – seldom litigated
                 2. Commonality
                 3. Typicality – named P's circumstances or defenses can't be "markedly different" from rest of class. Can't be a
                      unique defense for named P.
                 4. Adequacy of representation – says party, but courts also look at lawyer.
        C. Good Class Representative
                 1. Middle of the road claims
                          a) Some advantage to largest stakeholder, though.
                          b) Securities claims give advantage to lawyers representing largest damaged P- makes them lead.
                 2. Not vulnerable to premature settlement
                 3. Good witness, competent, can tell the story.
                 4. Generally not necessary to shoulder costs – usually contingency.
                          a) Rand v. Monsanto (7th Cir) –
                                   1) Class rep unwilling to pay fees, didn't know total amount of claim
                                   2) Still okay rep – No need to bear risk of stranger.
                 5. Widow or orphan works.
        D. Types of Classes -- 23(b)
                 1. (b)(1)(A) – inconsistent judgment cases
                          a) Generally a DJ or Inj case seeking to establish a standard of conduct for a party that might be resolved
                              in an inconsistent fashion in another similar case in another jurisdiction.
                          b) White v. NFL was D Minn case on free agency practices. Allowed to be CA because incompatible
                              stds of conduct might be imposed on league.
                          c) Defeated if type of relief or nature of order such that could still comply with the orders from different
                              courts without violating each other.
                 2. (b)(1)(B) – limited fund cases
                          a) More well defined. To avoid case where D risks not having enough $ to pay all likely claims.
                                   1) Typically an interpleader by insurance to determine who gets the fund
                                   2) Clearly limited fund b/c claim is defined around the insurance fund.
                          b) Criteria – Ortiz defined.
                                   1) Fund of available D assets must be clearly ascertained
                                   2) Must be clearly inadequate to satisfy all the P claims
                                   3) Distribution to claimants must be equitable (as to fellow claimants)
                          c) Ortiz denied CA settlement (complaint and settlement filed same day). Asbestos case (like Amchem).
                                   1) Tries to call insurance fund a limited fund.
                                   2) Court says can't make tort into BR without actually going into BR.

Class: Class Actions                                                                                           Professor: Brody
Book: Original Materials                                                                                       Term:     Winter 2002

                                 3) Because claim is not legally limited to insurance claim, cannot make the insurance claim a b1
                                      limited fund case.
                          d) Note – notice not required, no opt-out allowed. Dangerously binding!! Court in Ortiz notes this.
                             Result – courts will examine rigorously to protect class members!!
                3.   (b)(2)
                          a) Injunctive or Declaratory relief class. Stopping a particular conduct applicable to all class members.
                             Significant in civil rights context.
                          b) Δ's
                                 1) No notice required
                                 2) No opt out required
                                 3) Can in theory, bind class members not notified of action. But, note, settlement would result in
                                      notice under settlement requirements above.
                                 4) Court's discretion, usually used to give notice to do justice, but maybe less rigorous notice
                                      than b3.
                          c) Biggest Issues.
                                 1) How do we deal with a mixed case where there is a combination of injunctive relief and
                                      damages? At what point do we find no fit with b2, and what underlying concerns with
                                      fairness in notice and binding are present.
                                           (A) Does the equitable claim predominate over the damages claim?
                                           (B) Does the damages award flow directly from the grant of equitable relief?
                                           (C) These questions can help guide court.
                                 2) What effect does lack of notice and opt-out have on the absent class members? Balance of
                                      desire to give these people control over their own claims versus effectiveness of relief?
                                           (A) In total injunctive cases, there is no concern because success translates equally to all
                                                class members
                                           (B) With $$, now different people may have different claims/stakes, and the interest in
                                                controlling own claim becomes more significant, and need to give these people
                                                notice and opt out increases. This principle is Ortiz –which was ostensibly b1!!
                          d) Resulting Rule!!
                                 1) When damages are more than incidental or tangential, the right to notice and opt out must be
                                           (A) 5th Circuit says it precludes b2. 7th may allow b2 but only if judge orders notice and
                                                opt out (lack of such would violate discretion?)
                                           (B) What is more than incidental or tangential?
                                                     (1) Would P bring case for Δs alone, without additional equitable relief?
                                                     (2) Requires you to separate the overall magnitude from the individual rewards.
                                                     (3) Example
                                                              (a) Smoke detectors sold as effective but only detect one type of fire.
                                                              (b) Sued breach of warranty. Would have only paid $5 less for given
                                                                   detector. But total amount $500,000,000.
                                                              (c) Large amount, but no real advantage to any given individual for
                                                              (d) Question is what is relationship to the injunction relief?
                                 2) 2d Circuit – ad hoc approach. See Robinson below.
                          e) b2 Cases
                                 1) Jefferson (7th Cir)
                                           (A) Facts
                                                     (1) Title VII employment discrimination case – class of people turned down
                                                          employment certified, interlocutory appeal of certification.
                                                     (2) Seeking injunction to Δ hiring practices. Also under Title VII entitled to
                                                          compensatory and punitive Δs.
                                           (B) Holding

Class: Class Actions                                                                                         Professor: Brody
Book: Original Materials                                                                                     Term:     Winter 2002

                                                     (1) Interlocutory appeal correct under 3d category of Blari appeals – situation
                                                         in which legal question is important, unresolved, and managed to escape
                                                         resolution by appeal from a final judgment.
                                                     (2) Too much damages in this case, must preserve right to notice and opt out—
                                                         either with b3 class or b2 but court ordered notice, and even opt out.
                                           (C) Law
                                                     (1) Ortiz concludes that actions for money damages entitle class members to
                                                         notice and opt-out. Like Ortiz frowned on creative use of limited fund class
                                                         to eliminate notice/opt-out, so to should same analysis be used to look upon
                                                         injunction class as override notice/opt-out rights.
                                                     (2) BUT, 23(b)(2) can be used in cases where there are damages are incidental
                                                         and tangential to injunction, and due process doesn't require notice!!
                                                         Court's discretion could require notice or opt out 23(d)(2) and (d)(5).
                                                     (3) Divided certification also possible. Difficult, but possible. Would have to
                                                         do damages first to preserve jury trial rights.
                                           (D) Accords with 5th Circuit's Allison decision – more than incidental Δ's = no b2..
                                           (E) Lemon (7th Cir) – reasserting Jefferson. District Court abused discretion in
                                                certifying Title VII as b2 when also seeking compensatory and punitive damages.
                                   2) Robinson (2d Cir.)
                                           (A) Facts / Holding
                                                     (1) Title VII claim.
                                                     (2) District Court followed Allison, found certification as b2 inappropriate
                                                         because damages were not incidental to injunctions.
                                                     (3) Ct of Appeals reverses -
                                                              (a) Do not use incidental test of Allison.
                                                              (b) Ad hoc balancing test as to whether b2 is appropriate given the
                                                                   relative importance of the remedies sought, in light of facts and
                                                                   circumstances of case.
                                                              (c) But notes significance of notice and opt out as way to avoid due
                                                                   process problems
                                           (B) Law
                                                     (1) 2d Circuit takes ad hoc approach, rejects the incidental analysis
                                                     (2) Allow b2 certification if
                                                              (a) positive weight of injunctive relief is predominate over damages,
                                                              (b) class treatment would be efficient and manageable, achieving
                                                                   appreciable measure of judicial economy.
                                                     (3) Court emphasizes bifurcation – in this case of inj and Δs.
                                                              (a) Contrast with 7th Cir's dislike of this.
                                           (C) Are we left anywhere different? Different starting points, but ultimately if Δs are
                                                significant, and due process is issue, there will be notice and opt out.
                4.   (b)(3) – catch-all.
                          a) No legal center. Centers around common questions that predominate, and CA superior.
                          b) Amchem (again, settlement & complaint on same day)
                                   1) Asbestos litigation
                                   2) Court denies settlement class in (b)(3)
                                   3) Common questions do not predominate
                                           (A) 2249 – is proposed class "sufficiently cohesive to warrant adjudication."
                                           (B) Says no, but no detail. What does it mean?
                                           (C) Here, even if common question of asbestos exposure, the predominance requirement
                                                defeated by the varying times, severity of exposure, latency versus actual injuries.
                                                Differences in state tort law also.
                                   4) Fails (a)(4)'s adequacy requirement

Class: Class Actions                                                                                          Professor: Brody
Book: Original Materials                                                                                      Term:     Winter 2002

                                           (A) Settlement creates conflict between existing injureds (inventory cases) and exposure
                                               members of class. Dollars spent now cannot go to exposures who later show injury.
                                           (B) Lawyers represent the inventory cases and not really the exposure cases.
                5.  Asbestos Cases
                         a) Amchem and Ortiz
                         b) The asbestos cases are a mass tort case seeking a Rule 23 home.
                         c) Amchem tried b3, Ortiz tried as a b1. Both failed, both denied by court of appeals.
                                  1) Failed b3 because no "predominance"
                                  2) Couldn't get into b1 because true limited fund not present. (could you work around?)
                                  3) Can't do b2 b/c want $$, not injunction. See cases below on this.
                         d) Courts say both times, "Congress, please help. Legislate a solution."
        E. Certification & Merits
               1. 23(c)(1) – certification determined as early as practicable. In theory, shouldn't be looking at merits b/c you are
                    determining issues of numerosity, typicality, commonality.
               2. Eisen ( SCt) – no authority to conduct preliminary examination on the merits in determining certification.
                    Contrary to the rule.
               3. Airline Antitrust Litigation – ND Ga – determining predominance of commonality from airlines practices
                    requires some inquiry into the evidence to be presented by P's. Should not let Eisen's principle be
                    "talismanically invoked" to unnecessarily limit court's function.
                         a) b3 specific – predominance and superiority
                         b) Do not "unnecessarily reach the merits of the underlying claim."
               4. Szabo (7th) – agrees with AA. Inquiry into merits appropriate when necessary to analyze requirements under
                    23. Need not act like 12(b)(6) and take all allegations in complaint as true. Some facts must at least be
                    cursorily examined – number of P's.

V.      Notice
        A. 23(c)(2) - notice required in (b)(3)'s.
                1. Best notice practicable
                2. Individual notice to all members who can be located with reasonable effort.
                3. Advises of opt out, mandatoriness, opportunity to intervene.
        B. (b)(1) and (b)(2)'s do not REQUIRE notice.
                1. But note above, in b2's, the combination of injunction and Δ's may require notice and opt out for certification in
                    order to avoid abuse of discretion.
        C. Best Notice Practicable –
                1. Done how
                         a) Individual Notice
                         b) Mass advertising campaigns – print, broadcast media. State Farm's Hilsee plan.
                         c) Goals are protect individual rights to control own litigation
                                   1) Due Process'esque
                                   2) Balance versus cost of notice to suit.
                         d) Not perfect notice, but best notice practicable.
                2. Individual Notice?
                         a) Must be done when individuals can be identified through reasonable efforts.
                         b) State Farm case –
                                   1) not given individual notice even though SF had lists of all those who would belong to class.
                                       Why not?
                                   2) Cost would have been extraordinary with such a large class. Is that enough?
                         c) Blockbuster – offer on receipts.
                                   1) Small per capita award made individual notice totally inefficient
                                   2) Some sense that receipt award more targeted to true users, get higher hit rate than newspaper
                                       notice? But lower than individual notice

Class: Class Actions                                                                                           Professor: Brody
Book: Original Materials                                                                                       Term:     Winter 2002

                         d) P's who fail to get actual notice in non-individual cases generally DON'T get to collaterally challenge
                             judgment/settlement. Does raise due process concerns, except that if individual's claim is that large, if
                             they are so out of it to miss notice then we lose sympathy. Result likely only nominal professional
                             objectors complaining.
               3. State versus Federal –
                         a) Individual notice only a federal requirement. Some states don't require it. So long as doesn't result in
                             due process problems (SCt may require when you have names and addresses)
                         b) Result, pressure by P's to push small consumer cases into state courts
                                 1) in addition to jurisdictional requirements
        D. Who Pays?
               1. Plaintiff class. Eisen, Oppenheimer.
               2. Done so even if there is 90%chance of winning on merits.
               3. One exception – if somehow P gets liability determined prior to notice. Not sure how that happens.
        E. Require Defendant's help – add notice to existing D mailing (like securities information, or AA's existing frequent flier
           mailings) to lower cost
               1. D's resist – Oppenheimer notes fear of massive sell-off if action's notice included in fund's mailing. Plus, want
                    to maximize P's cost as strategic issue. Notice cost unfelt by D.
               2. 1st amendment issue – require publish speech of enemies?
               3. Can be overinclusive. But not specifically a problem, though.
        F. Court Doesn't Like to constitutionalize notice.

VI.     Appeals
        A. Specifically relevant to certification. As Posner noted in Rhone-Polenc, certification can be THE dispositive factor
           forcing settlement. It is often the end game.
        B. Pre 23(f) means for getting interlocutory relief.
                1. "Death knell" doctrine – allowed appeal of denial/granting of certification because it was the end of the case.
                         a) Supreme Court said NO. (Case?)
                2. Mandamus – Rhone Polenc.
        C. 23(f)
                1. At discretion of court of appeals, can take cases it wants to review class certification. When important to
                    system, not to the case. Not routine function.
                2. Motivating factors – (Blair - 7th Cir)
                         a) Death knell to P
                         b) Reverse death knell to D
                         c) Facilitate the development of law – undecided, unresolved areas of the law.
                         d) Same idea as certiorari.
                3. Prado-Steiman (11th Cir)
                         a) Reiterates much of Blair
                         b) Notes generally disfavored to take the appeals
                         c) Also looks for there to be a showing a substantial weakness in certification decision.
                         d) Takes appeal because of doubts as to named P's standing.
                4. Szabo (7th Cir)
                         a) massive breach of warranty action
                         b) Grants appeal based on death knell – certification turns 200K dispute into 200 million dispute – and
                             DCt's judge used questionable precedent.
                5. Jefferson – above
                         a) b2 with Δs case
                         b) Finds this issue of Δs to justify appeal.
                6. Yet, doesn't seem that 7th Cir is truly following this high standard.
                         a) Blair – what to do about multiple class actions on the same issue. Not so significant to system.

Class: Class Actions                                                                                            Professor: Brody
Book: Original Materials                                                                                        Term:     Winter 2002

VII.    Settlement
        A. Rule 23(e) – Cannot dismiss/compromise suit without approval of court. Notice to class members given in manner
             directed by court.
                  1. Contrast with traditional case where parties do whatever they want and simply give court notice of what
                      happened. No details, or court inspection of result.
                  2. Here, court has duty to investigate settlement to see if it is "fair." Interests at issue are absent class members.
                      The traditional adversarial system breaks down—defendant has no interest in protecting class, named plaintiffs
                      and lawyers have attenuated interest. Maximizing some parts of class and lawyers not always aligned with
                      other class members.
                          a) Amchem, for example. Court did not approve of settlement (or certification) because structure created
                                conflict between parts of class, and risked short changing absent class members.
                          b) Crawford v Equifax – Court disapproves settlement b/c "substantively troubling." Thinks attorney and
                                named plaintiffs sold out class members to go away.
        B. What about settlements of uncertified classes?
                  1. Court's sometimes require approval. No cites, though.
                  2. But not clear that such a settlement would bind class.
                  3. Why would anyone settle such a thing?
                          a) Get rid of squeaky wheel plaintiff – settlement K's him out.
                          b) Conflict out lawyer by "employing" him.
                          c) BE VERY CAREFUL – borderline ethics.
        C. Mechanics
                  1. After agreement, appear before court with "Motion for Preliminary Approval of Settlement."
                  2. Quick review by court, preliminary approval if "within realm of fair."
                  3. Now directed notice to entire class. Court's discretion.
                          a) Time to intervene, object to settlement, and file claim of own.
                          b) Notice at this point turns the P into a D
                                    1) Objectors, often professional, turn up and hold up the suit
                                    2) Have to defend fairness of settlement, amount of fees.
                          c) Notice often includes claim forms – information to prove entitled to relief.
                  4. Then, fairness hearing where objectors are dealt with, remaining details hammered out. Ruling.
        D. Substantive Standards of Okay Settlements.
                  1. (8 factors)
                          a) Strength of case for P's balanced against relief offered in settlement
                          b) Defendant's ability to pay
                          c) Complexity, length, expense, difficulty of further litigation.
                          d) Amount of opposition to settlement
                          e) Presence of collusion in reaching settlement.
                          f) Reaction of class members to settlement
                          g) Opinion of competent counsel
                          h) Stage of proceedings, amount of discovery completed.
                  2. Toshiba (5 factors)
                          a) Fraud or collusion in settlement
                          b) Complexity, expense, duration of litigation
                          c) Stage of proceedings and amount of discovery completed
                          d) Probability of plaintiffs success on merits.
                          e) Opinions of class counsel, reps, and absent class members.
                  3. Basically comes down to balancing of settlement relief offered versus value of case (strength of case) – what
                      would an individual P do given what case is and what's being offered.
                          a) Odd, because court has no way to value P's case beyond the settlement agreement
                          b) And neither P nor D will offer up a value outside of the agreement because of effect on settlement
                                negotiations (Posner – Rhone Polenc).

Class: Class Actions                                                                                           Professor: Brody
Book: Original Materials                                                                                       Term:     Winter 2002

        E. Valuing Non-Cash Settlements – coupon cases.
               1. Examples
                        a) Gutterman – AAirlines offers free miles to frequent flier club members.
                        b) Toshiba – Combo relief of cash remedies, warranty remedies, hardware replacements, software
                             patches, and coupons.
                        c) Western Union – coupons for discounts on money transfers.
               2. How do you value these?
                        a) Expense to D = wholesale cost (marginal cost) of service or product covered by coupon * percentage
                             of P class that actually takes the coupon and then uses it (a 2 stage process that loses people at each
                        b) Value to P's is retail value of services or products acquired with the coupon (face value of coupon)
                        c) These can be radically different numbers!! And the significance comes when fees for the lawyer are
                             determined by the "value" of the settlement.
                        d) The difference drives popularity of settlement with D's and the lawyers
                        e) The problem is determining fairness to the class. Judge needs to monetize this and determine if the
                             value is "fair." Court's usually look for a "zone of fairness" rather than a straight express comparison
                             (Western Union).
                                  1) Alternative to monetizing is to compare nature of relief with nature of complaint
                                  2) Toshiba – software patches for complaint over glitch = good.
                                  3) Western Union – coupon for money orders based on complaint of advertising misconduct of
                                       money order services to specific class of users (Mexican immigrants)
               3. Factors Supporting approval of in-kind settlement
                        a) Likelihood of use
                                  1) Toshiba and Western Union – relief tailored to complaint of class
                        b) Transferability for other compensation
                        c) Relative value of coupon to service
                                  1) GM Case - $150 coupon for next car purchase. Rejected.
                        d) Not idiosyncratic purchase – commodity item or service.
               4. Cy Pres Funds
                        a) A large cy pres fund period, or a general overflow fund for unused in kind settlement can anchor
                             settlement's value, and make the settlement more fair.
                                  1) Go to charity, or administration of injunctions
                        b) Western Union – unwillingness of illegal immigrants to submit personal information to collect
                             coupons made use lower, so cy pres fund established for charity related to class.
        F. Objectors
               1. Issue – as noted at various times above, the settlement context lacks adversarial controls because the D is not
                   concerned with the internal division of the settlement, only the absolute amount. And the lawyers and named
                   P's inevitably have certain externalities relevant only to absent class members. How to protect against this
                        a) Judge approval is one – and judge can appoint experts, seek outside opinions, friend of court.
                        b) Objectors are another. People enter appearances and object to settlement amount, type, division, and
                             fee arrangements.
               2. Roles of Objectors
                        a) Objectors put P on defensive
                                  1) P must be D to objectors
                                  2) Hyman – characterized objectors in general as pests who interfere.
                        b) Can raise legitimate objections, increase relief, keep court's eye on interests of whole class!
                                  1) Cummins in Toshiba – proposed extending length of coupon validity. Adopted. (Cummins
                                       secured 6m fee for this!!)
                        c) Can be professional pests seeking to increase transactional costs, hold up settlements, basically
                             blackmailing P lawyers everything we worry about with P lawyers goes double for these objectors.
                                  1) Examples

Class: Class Actions                                                                                          Professor: Brody
Book: Original Materials                                                                                      Term:     Winter 2002

                                           (A) Objector gives P's notice of problem in settlement, agrees not to raise objections if
                                               brought in as co-counsel. Fix problem together, get fee.
                                           (B) Objector withdraws appeal/objection delaying distribution of settlement in return for
                                   2) Court sometimes catches this --- Schonbrun in Toshiba. Admonished for frivolous,
                                      ubiquitous objections in class actions to fees with no substance other than "fees for attys too

VIII.   Fees & Auctions
        A. Overview
                1. Mostly occurs in settlement, and where court must approve. Trial results often governed by statute.
                2. Goal is to replicate market forces through judicial simulation of arms-length negotiation.
        B. Methods
                1. Lodestar Method
                        a) Calculation of hours * fees. Adjusted up or down (usually up) by a risk multiplier.
                        b) Incentives
                                 1) Stay in for the long haul – paid for time spent in. This avoids the quick settlement windfall
                                 2) BUT,
                                          (A) inflate hours, work inefficiently, no incentive to settle
                                          (B) requires more judicial time, spawns satellite litigation to fight over fees.
                        c) Requires depositions and affidavits of hours. Judge can audit attorney's fees in spot checks.
                            Monitoring difficulties.
                        d) Cases
                                 1) Shaw
                                          (A) dd
                                 2) Continental Securities
                                          (A) Facts
                                                   (1) District Court (Judge Grady) reduced lodestar calculation based on capped
                                                        hourly rate, reduced paralegal rate, no risk multiplier, and no expenses (like
                                                   (2) Appeals Court overruled
                                          (B) Legal Reasoning
                                                   (1) Market value of lawyer's time paralegal rules – look to pricing for defendant
                                                             (a) Fails though to account for the inherent oversight of hours D
                                                                 lawyers face.
                                                             (b) P's don't care how many hours lawyers spend – not paying for
                                                   (2) Risk multiplier should be awarded.
                                                             (a) District judge felt risk of suit failing was zero.
                                                             (b) Fails to account for fact that success and amount of settlement
                                                                 result of lawyer time and energy. Risk inherent because no sure
                                                                 source of compensation.
                                                             (c) Lawyers not rewarded with a multiplier will shift to less risky,
                                                                 unpredictable cases where fees lower, but consistent. If we want
                                                                 lawyers doing these cases – think socially useful – then we need to
                                                                 keep incentives here.
                                                   (3) Interest Rate
                                                             (a) Prejudgment interest different than simply awarding a current
                                                                 billing rate
                                                             (b) Posner says current billing under compensates.

Class: Class Actions                                                                                          Professor: Brody
Book: Original Materials                                                                                      Term:     Winter 2002

                                                                (c) But must keep in mind that billing rate not only reflects time but
                                                                    step up in experience -- can overcompensate because you didn't
                                                                    have that much experience then.
                                                     (4) Cash bonus to named plaintiffs also should be considered—trouble of being
                                                          named plaintiff deserves some consideration.
                2.   Percent of Common Fund Method
                         a) Contingent fee style. Total value of relief monetized as big common fund, percentage to lawyers as
                              fees. PI style model.
                                   1) Difficulty is how to VALUE the in-kind settlements for purposes here – coupons or
                                   2) What happens if not all of the common fund is claimed (especially prevalent in in-kind
                                            (A) Precious Metals
                                                     (1) 40 million dollar fund, 30% attorney's fees (15m). Actual collection of
                                                          relief from fund was 6.5 million.
                                                     (2) 11th Circuit approved this – class gets 6.5 m, attorney's get 15 million.
                                                                (a) Why punish attorney's for class's behavior – the attorney's work
                                                                    was to generate the total fund
                                                                (b) Class member's who did collect received portion of fund based on
                                                                    total, so attorney effort to get large fund helped those who did
                                                                (c) Timing issue – how would you pay the atty's otherwise? Wait till
                                                                    window of relief over? Uncertainty in amount considerable.
                                                     (3) But CRAZY result!! O'Connor's note accompanying denial of writ notes
                         b) Incentives
                                   1) Cut and Run earlier. Settle more quickly and avoid spending time likely not to result in equal
                                   2) Economically, there is a break point where you cannot generate marginal increase in award
                                       equal or greater than marginal cost of time spent.
                         c) Nature of Percentages.
                                   1) Possibilities of structure
                                            (A) Flat percentage
                                            (B) Decreasing, Declining marginal –
                                                     (1) reduces incentive to pursue to bitter end.
                                                     (2) MOST used. (and desired in bid)
                                            (C) Increasing – might increase incentive to pursue to bitter end. But court's don't like
                                                idea of less and less going to class as award goes up.
                         d) Cases
                                   1) Gaskill
                                            (A) %'age routine – and usually gives higher amount because of risk than hourly.
                                            (B) Lawyers want hourly rate (will paradoxically generate more$). Court says no –
                                                cannot choose type just to get more $.
                                   2) Precious Metals
                                            (A) above
                                   3) Toshiba
                                            (A) p 269
                                            (B) Finds 25-35% of common fund "routine."
                3.   Auction - Bidding Method
                         a) Basically attorneys submit sealed bids outlining fee structure with different amounts of awards. Judge
                              reviews and decides. Highly unpopular with lawyers.
                                   1) Alternative Method – Sotheby's auction house price fixing suit.

Class: Class Actions                                                                                            Professor: Brody
Book: Original Materials                                                                                        Term:     Winter 2002

                                              (A) Give X factor
                                              (B) Relief $0  X: all to plaintiff class. Everything above X gets percentage to atty.
                                              (C) Boies won bid. X = $405. Settlement was $512m, collected 26-27m for minimal
                                              (D) This method always rewards the additional dollar.
                           b) Difficulties of incentives
                                   1) As cases note, each method of fees can create different incentives
                                              (A) Increasing percentage looks bad to judges, encourage overinvestment in increasing
                                                  rewards. Class takes less and less.
                                              (B) Deceasing percentage looks good for class with higher rewards, but encourages
                                                  lawyer to get our quicker.
                                              (C) Flat fee appears neutral, but can skew incentives in dramatically different ways
                                                  depending on the cost structure or the expected return structure. Incentives change
                                                  very dramatically around the break-even crossover point.
                                   2) Judge picking attorney requires that the judge be able to accurately predict the value of the
                                        suit. Only then, can he combine the methods, and numbers to choose lawyer that will
                                        maximize effort to get relief to that value. A mistake in the valuation (or no attempt at
                                        valuation) makes judge's choice meaningless.
                                              (A) The judges don't know the value usually!.
                                              (B) Generally follow a lower fee = higher class benefits. Which is not even remotely
                                                  close to generalizable.
                                              (C) All the non-cash valuation problems still here.
                           c) For all of its flaws, this is only real solution that had one foot in the "market." Everyone talks about
                              fees replicating the market, and here we have attorneys forced to set their "lowest" price.
                           d) Only really used by Walker in ND Cal and Shadur in ND Ill.
                           e) Cases
                                   1) Oracle
                                              (A) Walker
                                   2) Lysine
                                              (A) Shadur

IX.     State Court Class Actions
        A. In practice, most class actions are state-based. There is no amount in controversy, easier to find a sympathetic (to P) jury
             in certain regions. Catch all for non-fed Q stuff.
        B. Issues that dominate – dealing with a class whose members might exist outside the state
                  1. Jurisdiction
                           a) Don't need minimum contacts to exercise jurisdiction over absent P class
                           b) Makes class actions national in scope. Essential
                  2. Choice of Law
                           a) Must be significant contacts or aggregate contacts sufficient to make choice of a state's law not
                                arbitrary or unfair.
                           b) Way vague test.
        C. Cases
                  1. Shutts (US S Ct)
                           a) Facts
                                     1) Phillips paid royalties to lease interest holders for natural gas produced on leased land.
                                     2) Phillips could charge and collect higher prices from customers, but had to get eventual
                                          approval from the Fed Power Commission. As a result, Phillips didn't want to pay royalties
                                          based on higher, unapproved prices it might later have to recoup without demanding a bond
                                          from leaseholders.
                                     3) Leaseholders who refused bond didn't collect royalties until after FPC approval, at which
                                          point Phillips paid them past royalties, but without interest.

Class: Class Actions                                                                                          Professor: Brody
Book: Original Materials                                                                                      Term:     Winter 2002

                                   4) These leaseholders (Ps) sued. 28,100 members in class – less than 1000 reside in Kansas, and
                                        total amount of royalties from Kansas based leases miniscule.
                         b) Procedural Posture
                                   1) Ps sued in Kansas state court, certified as class under Kansas law.
                                   2) Kansas Supreme Court held entire action maintainable in Kansas under Kansas law and was
                                        binding on all class members, even those without minimum contacts in Kansas.
                         c) Holding/Law
                                   1) Jurisdiction
                                             (A) Does a Kansas state court have jurisdiction over class members who were not Kansas
                                                 residents and had no connection to Kansas? YES.
                                             (B) Defendant has a clear interest in any judgment being binding on entire class, or it
                                                 risks being subject to offensive collateral estoppel without recourse and without any
                                                 pay off for previous suit.
                                             (C) Burdens on absent plaintiff class members minimal. Highly unlikely they will be
                                                 deposed, subpoena'd, or in any way inconvenienced by suit. Therefore, the
                                                 traditional reasons of justice/due process why we don't think the state should be
                                                 allowed to exercise the full force of its judicial power on a defendant without any
                                                 state contacts are not present.
                                             (D) Because these burdens are less than normal absent defendants, forum State may
                                                 exercise jurisdiction over out of state class action plaintiffs who lack sufficient
                                                 minimum contacts for traditional personal jurisdiction.
                                                      (1) Still required to meet minimum Due Process
                                                      (2) Notice, and Opt out required.
                                                      (3) COURT uses language of Rule 23 to elucidate minimum due Process.
                                             (E) NOTE – missing piece is what if there are counterclaims against the class? Court
                                                 doesn't deal with this.
                                   2) Choice of Law
                                             (A) Can Kansas apply Kansas's law despite 99% of leases and 97% of plaintiffs being
                                                 outside Kansas? NO.
                                             (B) FIRST, there must be an actual conflict between law of different states!!!
                                             (C) State must have a "significant contact or significant aggregation of contacts" to the
                                                 claims asserted by class. Contacts must create state interests in order to ensure
                                                 choice of state's law is not arbitrary or unfair.
                2.   Oliviera (Illinois)
                         a) P sued Amoco for fraudulent ad campaign under state Consumer Fraud Act (which, unlike other states,
                              requires no showing of reliance).
                         b) Regardless of Shutts, the law in question has been interpreted by the Supreme Court as NOT applying
                              to out of state consumers.
                         c) So even though there might be sufficient contacts to pass Shutts, the court refuses to apply a law
                              designed only to protect IL consumers, and only to affect conduct in IL, to out of state actors.
                                   1) Court highlights unwillingness to sanction such that conduct in other states changes, conduct
                                        that might be legal in those other states.

Class: Class Actions                                                                                       Professor: Brody
Book: Original Materials                                                                                   Term:     Winter 2002

X.         Cases
             Case                  Jurisdiction                                     Proposition(s)
Rhone-Poulenc                     7th Cir         Blackmail settlements; splitting up class into sub-class issues is problematic –
                                  (Posner)        "carve at the joint"; pre-23(f) mandamus
Tice v American Airlines          7th Cir         Virtual representation disfavored. Need certified class action to bind absent
                                  (Wood)          class members.
Supreme Tribe of Ben-Hur          US              Citizen of named plaintiff sufficient for determining diversity
Zahn                              US              Cannot aggregate class member claims to get 75K; each P needs to meet
                                                  amount requirement – possibly Δ with 28 USC 1367 Supp Jur
Heinz Complaint                   ND Ill          Use of injunction value to get low $-per-P CA over 75K barrier.
Amchem Products                   US              Predominance in b3 = sufficiently cohesive to warrant adjudication
Ortiz                             US              Limited Fund b1B = must be clearly ascertained as limited. Not merely
                                                  designated insurance fund to cover tort claims.
Allison                           5th Cir         Origin of tangential and incidental to injunction test
Jefferson                         7th Cir         Injunctive (b)(2) with some damages requires damages are incidental and
                                  (Easterbrook)   tangential to injunction. Interlocutory appeal under 23(f). Title VII not (b)(2)
Lemon                             7th Cir         Certifying (b)(2) Title VII where damages are not incidental and tangential to
                                  (Kanne)         injunction is abuse of discretion
Robinson                          2d Cir          (b)(2)—ad hoc test when combined with damages. Balance the relative
                                  (Walker)        importance of the different remedies, and in light of all the facts and
                                                  circumstances decide. Notice and op-out important.
Airline Antitrust Litigation      ND GA           Do not invoke Eisen "talismanically" – may need to make inquiry into merits of
                                                  evidence in certifying. Especially true in (b)(3)'s
Notice Pieces                                     Khan v Denny's ; Stickles v. Ford ; Gutterman ; State Farm
Oppenheimer Fund                  US              Notice paid for by P
Eisen                             US              Do not make examination into the merits when determining certification.
Blair v Equifax                   7th Cir         Factors governing 23(f) appeal – death knell to P or D, facilitate development of
                                  (Easterbrook)   the law in area unresolved (primary area).
Prado-Steiman                     11th Cir        Repeat Blair factors – add substantial weakness in certification decision
Szabo                             7th Cir         Inquiry into the merits appropriate when necessary to determine requirements
                                  (Easterbrook)   under Rule 23 – again, a (b)(3) case
Chicago v Korshak                 Ill Appellate   Factors in approving settlement
Crawford v Equifax                7th Cir         Settlement disapproved as "substantively troubling" – sold out absent class
                                  (Easterbrook)   mambers
Shaw v Toshiba                    ED Tex          Factors approving settlement.
Mexican Money Transfer (Western   ND Ill          Settlement: Coupons, cy pres, valuation, objections
Union)                            (Pallmeyer)
Mexican Money Txfr                7th Cir         ""
Precious Metals                   11th Cir        Fees for atty > actual amount claimed from common fund
Precious Metals O'Connor          US              Troubled by this
Statement w/ Cert Denial
Continental Securities            7th Cir         Lodestar Fees. D atty market value as model for fees. Risk Multiplier
                                  (Posner)        essential. Interest rate!!
Gaskill                           7th Cir         Lawyers can't choose lodestar over %'age simply because it gives higher
                                  (Posner)        amount. Notes commonality of %'age methodology.
Oracle Securities                 ND Cal          Auction
Lysine Litigation                 ND Ill          Auction
Shutts                            US              State Law CA: Jurisdiction and Choice of Law
Oliviera                          IL Appellate