Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out
Get this document free

To Certify or Not A Modest Proposal for Evaluating the

VIEWS: 8 PAGES: 11

									To Certify or Not: A Modest Proposal for
Evaluating the “Superiority” of a Class Action in
the Presence of Government Enforcement
D. BRUCE HOFFMAN*

                                            INTRODUCTION
   Much of the discussion concerning overlapping governmental enforcement
and class actions focuses on two issues: (1) the attorneys’ fees sought by class
counsel;1 and (2) the type and value of relief sought by class counsel in
settlements.2 Despite the importance of these issues, they arise late in the typical
class action. An issue that arises much earlier (indeed, before the case assumes
the “class action” mantle, with all of its attendant benefits and costs) also merits
attention. That issue is whether a class should be certified at all when the subject
matter of the proposed class action is, or has been the target of government law
enforcement.
   This Article addresses that question by proposing a modest idea: that courts
considering the certification of a class under Federal Rules of Civil Procedure
Rule 23,3 or its state law equivalents, should analyze carefully the full
implications of a pending or completed government enforcement action. The
result of that consideration cannot be predicted in advance, as it will necessarily
depend on the facts of the case as they exist at the time of the decision on
certification. It may often be true that the governmental remedies will not be
complete and that there will be added value to the class action. However, cases
also will arise where the results state or federal enforcers achieve either will
provide full relief or a “superior . . . method . . . for the fair and efficient


   * Partner, Hunton & Williams LLP; former Deputy Director, Bureau of Competition, Federal Trade
Commission. The views expressed are mine alone, and do not necessarily represent the views of Hunton &
Williams or any of its clients, or of the Federal Trade Commission or any Commissioner. I thank Paul Karlsson
and Ernie Nagata of the Bureau’s Office of Policy and Coordination for their assistance with this article. A
version of this article was presented at a workshop sponsored by the Federal Trade Commission and the
Georgetown Journal of Legal Ethics, “Protecting Consumer Interests in Class Actions” (Sept. 13-14, 2004).
   1. See, e.g., Howard M. Erichson, Coattail Class Actions: Reflections on Microsoft, Tobacco, and the Mixing
of Public and Private Lawyering in Mass Litigation, 34 U.C. DAVIS L. REV. 1, 46 (2000); 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).
   2. See, e.g., Christopher R. Leslie, A Market-Based Approach to Coupon Settlements in Antitrust and
Consumer Class Action Litigation, 49 UCLA L. REV. 991, 995 (2002); Geoffrey P. Miller & Lori S. Singer,
Nonpecuniary Class Action Settlements, LAW & CONTEMP. PROBS. 97 (Autumn 1997); Note, In-Kind Class
Action Settlements, 109 HARV. L. REV. 810 (1996).
   3. FED. R. CIV. P. 23 (2004).

                                                    1383
1384                  GEORGETOWN JOURNAL OF LEGAL ETHICS                                      [Vol. 18:1383


adjudication of the controversy.”4 In those cases, in the interests of justice and
faithful to the command of Rule 23, the court should refuse to certify the class.

                                     I. THE ISSUE IN CONTEXT
   The proliferation of class action suits is well known. In addition, many class
action suits are filed on the heels of, or proceed simultaneously with, government
enforcement action. The “piggy-back” or “coat-tail” phenomenon is particularly
common in antitrust and consumer protection cases.5 While private enforcement
of these laws is recognized to be a valuable supplement or complement to public
enforcement, scholars have raised questions concerning the extent to which
private class actions effectively foster the public interest.6
   Class actions can be an important tool in compensating large numbers of
victims in a relatively efficient manner. However, in some cases the plaintiff class
may not receive anything approaching meaningful compensation for their losses.
Alternatively, the burdens imposed on the defendants and the judicial system may
exceed the losses or available compensation.7 Like other forms of litigation, most
class actions are settled.8 In some cases, monies defendants pay under terms of a
settlement may go primarily (if not exclusively) to pay plaintiffs’ attorneys’ fees,
and victims may receive only non-pecuniary relief, such as coupons, which may
be of doubtful value.9 One scholar notes that coupon-based settlements most
commonly appear in antitrust and consumer class actions.10 A coupon-based
settlement of marginal value contributes little to the public interest, but it can
impose unnecessary costs and other burdens on the economy and the judicial
system. While a court will consider questions of attorneys’ fees and adequacy of
settlement when the parties propose a settlement, much of the cost of the class
action process already will have been incurred at that point. It may be possible to
avoid some of those costs by considering, at the class certification stage, whether
a class action is appropriate in light of preceding or parallel government action in
the matter.




  4. FED. R. CIV. P. 23(b)(3) (2004).
  5. See, e.g., Martin H. Redish, Class Actions and the Democratic Difficulty: Rethinking the Intersection of
Private Litigation and Public Goals, 2003 U. CHI. LEGAL F. 71, 88-89 & n.64 (2003).
  6. See, e.g., id. at 88-89.
  7. See, e.g., id. at 77-78.
  8. See, e.g., Thomas E. Willging et al., Empirical Study of Class Actions in Four Federal Courts: Final
Report to the Advisory Committee on Civil Rules, at 11 (Federal Judicial Center, 1996), at http://www.fjc.gov/
public/pdf.nsf/lookup/rule23.pdf/$file/rule23.pdf (only 4% of cases in the sample went to trial; 28% of those
cases settled during or after trial).
  9. See, e.g., Redish, supra note 5, at 103-04. This is not to say that coupon settlements are never appropriate,
but the literature suggests that they have often been abused.
  10. Leslie, supra note 2, at 995.
2005]                EVALUATING THE “SUPERIORITY” OF A CLASS ACTION                                           1385


     II. RULE 23 REQUIRES CAREFUL SCRUTINY OF CLASS CERTIFICATION
                                ISSUES
   The Supreme Court, in Amchem Products Inc. v. Windsor, noted that
applications for class certification under Rule 23, particularly under Rule
23(b)(3), require a “close look” at the case before courts certify it as a class
action.11 We know from many cases that a court may certify a class under Rule 23
only if the proposed class meets all the requirements of section (a) and at least
one subsection of section (b).12 Amendments to Rule 23(c) in 2003 reaffirmed the
principle that applications for class certification under Rule 23 require close
scrutiny. Section (c) of Rule 23, as amended, requires that the court “at an early
practicable time” determine “whether to certify the action as a class action.”13
The old Rule 23, promulgated in 1966, provided that the court should make the
certification decision “as soon as practicable after the commencement of [the]
action.”14 Though the difference in language is slight, the 2003 amendments were
prompted by some confusion that had arisen under the old rule. The Advisory
Committee on Civil Rules noted that “[t]he current [pre-2003] rule’s emphasis on
dispatch in making the certification decision has, in some circumstances, led
courts to believe that they are overly constrained in the period before certifica-
tion.”15
   The old rule’s language did not intend a rush to certification.16 The Advisory
Committee noted that “the ‘as soon as practicable’ exaction neither reflects
prevailing practice nor captures the many valid reasons that may justify deferring
the initial certification decision.”17 The Advisory Committee therefore changed
the language of Rule 23(c) to emphasize that courts should provide ample time to
allow a careful consideration of certification issues.18 The “close look” the


   11. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 615 (1997).
   12. See, e.g., id. at 614.
   13. FED. R. CIV. P. 23(c)(1)(A) (2004).
   14. FED. R. CIV. P. 23 (amended 2003).
   15. See Administrative Office of the U.S. Courts, Amendments to the Federal Rules of Civil Procedure,
Excerpt from the Report of the Judicial Conference Committee on Rules of Practice and Procedure (Attachment
to Communication from the Chief Justice, The Supreme Court of the United States, to the Honorable J. Dennis
Hastert, Speaker, House of Representatives, Washington, D.C., Mar. 27, 2003), 215 F.R.D. 158, 185 (2003)
[hereinafter Excerpt from the Report of the Judicial Conference Committee on Rules of Practice and
Procedure].
   16. The Reporter for the old rule stated that Rule 23(c) “invites a close look at the case before it is accepted as
a class action.” See Amchem, 521 U.S. at 615.
   17. Administrative Office of the U.S. Courts, Report of the Civil Rules Advisory Committee, Proposed
Amendments to the Federal Rules of Civil Procedure, Committee Note (May 20, 2002) (Attachment to
Communication from the Chief Justice, The Supreme Court of the United States, to the Honorable J. Dennis
Hastert, Speaker, House of Representatives, Washington, D.C., Mar. 27, 2003), 215 F.R.D. 158, 216 (2003).
   18. See Weiss v. Regal Collections, 385 F.3d 337, 348 (3d Cir. 2004) (“[T]he class action process should be
able to ‘play out’ according to the directives of Rule 23 and should permit due deliberation by the parties and the
court on the class certification issues.”); Excerpt from the Report of the Judicial Conference Committee on
Rules of Practice and Procedure, supra note 15, at 186 (The new rule “authorizes the more flexible approach
1386                 GEORGETOWN JOURNAL OF LEGAL ETHICS                                      [Vol. 18:1383


Supreme Court mandated in Amchem should include a focus on any government
litigation that also involves the matters the proposed class complaint raises.19

     III. THE LEGAL RELEVANCE OF GOVERNMENT LITIGATION TO CLASS
                            CERTIFICATION
                         A. CLASS ACTIONS UNDER RULE 23(B)(3)

   The majority of class actions are certified under Rule 23(b)(3), which, among
other things, provides that a class is appropriate if common questions of law or
fact predominate and if “a class action is superior to other available methods for
the fair and efficient adjudication of the controversy.”20 The “superiority”
criterion is key. Rule 23(b)(3) provides an explicit command that courts consider
alternative methods of adjudicating the controversy before certifying a class, a
command that should easily encompass consideration of government actions.
The rule provides a non-exhaustive list of factors for courts to consider in this
“superiority” inquiry,21 including “the extent and nature of any litigation
concerning the controversy already commenced by or against members of the
class.”22 The text does not expressly mention government litigation that may
have been filed or contemplated, but it is no stretch at all to realize that
government enforcement action can have any number of effects on the success
and conduct of the possible class action, as well as (and most importantly) the
resolution of the controversy underlying the matter.

               1. RELEVANCE OF GOVERNMENT ENFORCEMENT TO RULE 23(B)(3)

  Under Rule 23(b)(3), the contrast between government and private enforce-
ment perhaps most likely to present “superiority” issues is compensation. In the
usual case, at least at the federal level, the government will have obtained or will
be seeking prospective relief and perhaps civil or criminal penalties. The Federal
Trade Commission’s (“FTC’s”) principal antitrust remedy is injunctive, similar to


many courts take to class-action litigation, recognizing the important consequences to the parties of the court’s
decision on certification.”).
   19. See Amchem, 521 U.S. at 615. Of course, it may be difficult to know, at the time of the request for class
certification, whether the case should be accepted as a class action. Recognizing that potential problem, courts
acknowledge that discovery into certification issues (including the nature of the issues the case raises on the
merits) may be appropriate; see, e.g., Weiss, 385 F.3d at 347-48 & n.17; Gariety v. Grant Thornton, LLP, 368
F.3d 356, 365 (4th Cir. 2004); see also Excerpt from the Report of the Judicial Conference Committee on Rules
of Practice and Procedure, supra note 15, at 186 (“The proposed language is consistent with the practice of
authorizing discovery on the nature of the merits issues, which may be necessary for certification, while
postponing discovery pertaining to the probable outcome on the merits until after the certification has been
made.”).
   20. See, e.g., Willging et al., supra note 8, at 8.
   21. See Amchem, 521 U.S. at 615-16.
   22. Id.
2005]               EVALUATING THE “SUPERIORITY” OF A CLASS ACTION                                        1387


the civil antitrust remedies available to the Antitrust Division of the Department
of Justice. The FTC has authority to seek monetary equitable relief in antitrust
cases, including disgorgement and restitution, under Section 13(b) of the FTC
Act,23 but pursues that remedy relatively infrequently.24 However, the FTC
frequently seeks equitable monetary relief under Section 13(b) in consumer
protection cases.25 Moreover, as discussed in the next Section, a variety of other
governmental actions at the state level can involve monetary relief. It is probably
also the usual case that the private litigation will include or focus on a demand for
monetary damages; indeed, that focus is a defining characteristic of Rule 23(b)(3)
class actions. Will that request for money damages mean that a court inevitably
will deem a 23(b)(3) class mechanism a “superior” means of resolving the
controversy, at least relative to government enforcement? Not necessarily.
   For example, the class members’ actual damages may be de minimis (or
unascertainable) and may be substantially diminished by (1) the normal
litigation and settlement process,26 (2) each class member’s pro rata share of
the class attorneys’ fees, and (3) the costs of administering the distribution of
the remaining fund. In such cases, a court, considering the costs to the judicial
system of administering the case and to the defendants in litigating it, very
possibly could conclude that class certification would not add sufficient
value, given that the government would be prospectively remedying the
harm.27 Similarly, a government disgorgement remedy that made all or most


   23. See 15 U.S.C. § 53(b) (2004); see, e.g., FTC v. Mylan Labs., Inc., 62 F. Supp. 2d 25, 36-37 (D.D.C. 1999)
(noting that while the plain language of 15 U.S.C. § 53(b) does not authorize the FTC to seek monetary
remedies, five courts of appeals and numerous district courts have permitted the FTC to pursue monetary relief
under § 53(b)). The FTC does not have authority to impose monetary equitable relief as an administrative
remedy.
   24. The sums involved can be quite significant. For example, in Mylan, the FTC and participating states
entered into a settlement under which defendants agreed to pay $100 million toward consumer and state agency
compensation and an additional $8 million toward costs and fees for the investigation and litigation in the
matter. See In re Lorazepam & Clorazepate Antitrust Litig., 205 F.R.D. 369 (D.D.C. 2002). The Commission
has issued a Policy Statement that sets out in general terms when it will consider disgorgement or restitution and
what factors will guide its decision. The full text of the “Policy Statement on Monetary Equitable Remedies in
Competition Cases” is available on the FTC website, at http://www.ftc.gov/os/2003/07/disgorgementfrn.htm
(last visited Apr. 15, 2005). One author notes that greater use of this 13(b) authority would diminish the
“compensation” argument for follow-on class actions. See Stephen Calkins, An Enforcement Official’s
Reflections on Antitrust Class Actions, 39 ARIZ. L. REV. 413, 443.
   25. See, e.g., id. at 432-33. A search for the term “consumer redress” on the FTC’s website, at
http://www.ftc.gov, will produce an extensive list of consumer protection cases in which the FTC sought
consumer redress.
   26. This may be especially relevant where a low-value coupon settlement is likely to resolve the case. This
type of settlement was discussed extensively in a recent workshop sponsored by the Federal Trade Commission
and the Georgetown Journal of Legal Ethics (“Protecting Consumer Interests in Class Actions.” See Workshop
Agenda and Other Materials, at http://www.ftc.gov/bcp/workshops/classaction/index.htm (last visited Apr. 14,
2005)).
   27. The proposed amendments to Rule 23 published in 1996 included the addition of a subsection (b)(3)(F)
that would make pertinent to the determinations of predominance and superiority “whether the probable relief to
individual class members justifies the costs and burdens of class litigation.” See Edward H. Cooper, The
1388                  GEORGETOWN JOURNAL OF LEGAL ETHICS                                         [Vol. 18:1383


of the class members whole might counsel against the superiority of a class.
On the other hand, the presence of actual monetary damages likely to survive
the litigation and settlement process, and which government action is unlikely
to address, may well counsel in favor of 23(b)(3) certification on the
superiority point.28 The proper resolution of the issue will be case-specific;
the important point is that the court address it.

                                             2. CASE PRECEDENT

    Ample case law explicitly recognizes the relevance of government enforce-
ment to Rule 23(b)(3) certification decisions. For example, in Lohse v. Dairy
Commission of the State of Nevada,29 the court denied plaintiffs class certifica-
tion in an action for treble damages under Section 4 of the Clayton Act.30
Plaintiffs alleged a price conspiracy in the dairy industry, but the Attorney
General of Nevada had already taken action against most of the same defendants
with respect to their alleged misconduct and had reached settlements with
defendants.31 The district court stated that “[t]his kind of state action is much
preferred to a punitive treble damage antitrust private civil remedy[,] the
proceeds from which will only slightly benefit any individual plaintiff. Prior
litigation is a pertinent factor to be considered.”32 Likewise, several courts have
held an antitrust parens patriae action by a state Attorney General under Section
4C of the Clayton Act33 to be superior to a class action under Rule 23(b)(3) where



(Cloudy) Future of Class Actions, 40 ARIZ. L. REV. 923, 931-32, 937 (1998) (Professor Cooper was the Advisory
Committee Reporter). Professor Cooper’s article summarizes the arguments for and against such a proposal, see
id. at 937-46, as well as the competing interests surrounding small claims classes, see id. at 929-32. One factor
Professor Cooper’s synthesis fails to discuss, however, is the relevance of prior government enforcement to the
superiority issue in follow-on small claims actions; a factor that, in this writer’s opinion, could affect the balance
in a particular case. The factor (F) proposal was not adopted, but some courts have taken into account the likely
costs of a class action, including attorneys’ fees, compared to the likely benefit to claimants. See Pattillo v.
Schlesinger, 625 F.2d 262, 265 (9th Cir. 1980) (where the government itself was the defendant and thus
government enforcement was not likely, the Ninth Circuit affirmed the district court’s denial of certification, in
part because “any claims paid through the class action procedures would be reduced by the costs of suit and
attorneys’ fees that plaintiffs sought. The district court and this court cannot be unaware of the fact that the
principal beneficiaries of the class action would be plaintiffs’ attorneys.”). Lohse v. Dairy Comm’n of the State
of Nev., 25 Fed. R. Serv. 2d 1018 (D. Nev. 1977); see discussion infra at text accompanying note 29.
   28. For example, in Mylan, private class actions obtained monetary relief for classes not covered by the
defendants’ monetary settlements with the FTC and the States. See In re Lorazepam & Clorazepate Antitrust
Litig., No. MDL 1290(TFH), 99MS276(TFH), Civ. 99-0790(TFH), 2003 WL 22037741 (D.D.C. June 16,
2003); In re Lorazepam & Clorazepate Antitrust Litig., 205 F.R.D. 369 (D.D.C. 2002); cf., e.g., Lohse, 25 Fed.
R. Serv. 2d at 1018 (class certification denied; see discussion infra).
   29. 25 Fed. R. Serv. 2d 1018 (D. Nev. 1977).
   30. 15 U.S.C. § 15 (2004).
   31. Lohse, 25 Fed. R. Serv. 2d 1018 (D. Nev. 1977).
   32. Id. (emphasis added) (citing Dowinger v. Pac. Northwest Bell Inc., __ F. 2d __ (9th Cir. 1977) (Dowinger
appears to be an unreported decision)).
   33. 15 U.S.C. § 15c (2004).
2005]              EVALUATING THE “SUPERIORITY” OF A CLASS ACTION                                     1389


the Attorney General adequately represents the proposed class.34
  The principle of considering previous or ongoing government action in the
matter extends to administrative as well as judicial actions. In Kamm v.
California City Development Co.,35 the Attorney General and the Real Estate
Commissioner of California brought an action against a land developer that
led to offers of restitution and the establishment of a fund for real estate
improvements that would benefit members of the proposed class. The trial
court dismissed a class action involving the same matters, which was upheld
on appeal even though the “superior” remedy was administrative, not judicial.
The appellate court noted that the four factors identified in Rule 23(b)(3) as
pertinent to the superiority question comprise a non-exhaustive list, and that
courts must consider “many factors.”36 Citing Katz v. Carte Blanche,37 the
appellate court in Kamm stated that superiority determinations must take into
account various interests:
      Superiority must be looked at from the point of view (1) of the judicial system,
      (2) of the potential class members, (3) of the present plaintiff, (4) of the
      attorneys for the litigants, (5) of the public at large and (6) of the defendant. The
      listing is not necessarily in order of importance of the respective interests.
      Superiority must also be looked at from the point of view of the issues.38
Similarly, in Pattillo v. Schlesinger39 the Ninth Circuit held a class action to be
not superior, when administrative proceedings were ongoing and would provide
equal and perhaps greater relief.40

               B. CLASS ACTIONS UNDER RULES 23(B)(2) AND (B)(1)

   The second most popular vehicle for class certification appears to be Rule
23(b)(2), which allows certification when plaintiffs meet the requirements of
Rule 23(a) and “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.”41 In significant contrast to Rule 23(b)(3), Rule 23(b)(2) does not require
that a class action be “superior to other available methods for the fair and efficient
adjudication of the controversy.” On what basis, then, should a court consider the


  34. See Commonwealth v. Budget Fuel Co., 122 F.R.D. 184, 186 (E.D. Pa. 1988); In re Montgomery Co.
Real Estate Antitrust Litig., No. B-77-513, 1988 WL 125789, at *2 (D. Md. July 17, 1988).
  35. 509 F.2d 205 (9th Cir. 1975).
  36. Id. at 212.
  37. 496 F.2d 747, 760 (3d Cir. 1974).
  38. Kamm, 509 F.2d at 212 (quoting Katz v. Carte Blanche, 496 F.2d 747, 760 (3d Cir. 1974)).
  39. 625 F.2d 262 (9th Cir. 1980).
  40. Id.; accord, Chin v. Chrysler Corp., 182 F.R.D. 448 (D.N.J. 1998); Brown v. Blue Cross & Blue Shield of
Mich., Inc., 167 F.R.D. 40 (E.D. Mich. 1996).
  41. FED. R. CIV. P. 23(b)(2) (2004); see, e.g., Willging et al., supra note 8, at 8.
1390                  GEORGETOWN JOURNAL OF LEGAL ETHICS                                         [Vol. 18:1383


presence of government enforcement actions when determining whether to
certify a 23(b)(2) class?
   The answer to this question lies in the very nature of 23(b)(2) classes.
Certification under this rule is available only where injunctive or declaratory
relief is the primary focus of the action and monetary damages, if plaintiffs seek
them at all, are merely incidental to the request for injunctive relief.42 In order to
determine whether the proposed class action will in fact focus on injunctive or
declaratory relief, a court should plainly consider whether government law
enforcement actions have achieved (or are likely to achieve) injunctive or
declaratory relief comparable to that sought in the class action.43 If so, the class
action is unlikely to focus on the request for an injunction or declaration, or
would add little value by so doing. In such a situation, class certification should
proceed under another rule, if at all.44
   Rule 23(b)(1)(A) and (B) classes are less frequent and present complex
questions. In essence, (b)(1)(A) classes are available when individual actions
could “establish incompatible standards of liability for the party opposing the
class.” The rule is actually designed to protect the defendant rather than the
class,45 and is unlikely to support certification if government action has already
established or is likely to establish the standard of conduct applicable to the
defendant. Classes under 23(b)(1)(B), on the other hand, are available if deciding
individual class members’ claims would, as a practical matter, dispose of other
prospective class members’ interests; for example, if the class claims involve title
to indivisible property. The effect of pending government law enforcement in
such a situation is difficult to predict, but worth considering in appropriate cases.
   In summary, each of the rules under which classes may be certified provides



   42. See, e.g., Barnes v. Am. Tobacco Co., 161 F.3d 127, 142 (3d Cir. 1998), cert. denied, 526 U.S. 1114
(1999); Allison v. Citgo Petroleum Corp., 151 F.3d 402, 413-16 (5th Cir. 1998); Faulk v. Home Oil Co., 186
F.R.D. 660, 662 (M.D. Ala. 1999); Powers v. Gov’t Employees Ins. Co., 192 F.R.D. 313, 318 (S.D. Fla. 1998);
In re Arthur Treacher’s Franchisee Litig., 93 F.R.D. 590, 594 (E.D. Pa. 1982).
   43. Cf. In re Nifedipine Antitrust Litig., 335 F. Supp. 2d 6, 16 (D.D.C. 2004). In Nifedipine, the district court
dismissed a claim for injunctive relief under 15 U.S.C. § 26 because an FTC consent order had enjoined the
alleged practice and, consequently, the plaintiffs had “failed to allege a real and immediate threat of future injury
and that, as a result, this Court lacks jurisdiction over any claims for injunctive relief in this case.” Id.
   44. See, e.g., In re Real Estate Title & Settlement Servs. Antitrust Litig., MDL No. 633, 1986 WL 6531 (E.D.
Pa. June 10, 1986), aff’d 815 F.2d 695 (3d Cir. 1987). This consolidated private class action was filed while an
FTC case against the same respondents was still in litigation at the Commission. See Ticor Title Ins. Co., Dkt.
9190, 112 F.T.C. 334 (1989), rev’d, Ticor Title Ins. Co. v. FTC, 922 F.2d 1122 (3rd Cir. 1991), rev’d, 504 U.S.
621 (1992), on remand, 998 F.2d 1129 (3rd Cir. 1993), cert. denied, 510 U.S. 1190 (1994); Ticor Title Ins. Co.,
Dkt. 9190 (Apr. 22, 1994) (modified cease and desist order). Although the plaintiffs’ original individual actions
sought treble damages under 15 U.S.C. § 15, after re-evaluating their case in the light of the Southern Motor
Carriers decision, plaintiffs essentially dropped their treble damage claims and sought approval of a primarily
injunctive settlement, although the eventual settlement did contain a feature having some monetary value. Real
Estate Title & Settlement Servs. Antitrust Litig., 1986 WL 6531, at *13. The court certified a class under both
FED. R. CIV. P. 23(b)(1) and (b)(2) and approved the settlement. Id. at *11, *22.
   45. See Pruitt v. Allied Chem. Corp., 85 F.R.D. 100, 106-07 (E.D. Va. 1980).
2005]               EVALUATING THE “SUPERIORITY” OF A CLASS ACTION                                        1391


room for courts to consider the effect of pending or completed government law
enforcement actions. Given the potentially significant effects of such actions on
the class action, the class, and the defendants, courts should clearly use the
authority the rules provide to measure those effects at one of the earliest
practicable points: the class certification decision.

      IV. A PRACTICAL POINT: DISCOVERING THE GOVERNMENT ACTION
   This proposal raises a practical question: how will a court considering
certification know that relevant government law enforcement actions exist?
While the parties are likely to know (almost certainly, in the case of the
defendant, and probably in the case of the plaintiffs) each may have incentives to
avoid disclosure.46 In most cases, those incentives will probably not be sufficient
to prevent at least one set of parties from identifying the government action(s) to
the court, but that may not always be the case. Also, in some cases, government
investigations that have not reached the enforcement stage are confidential.
   In 2002, the FTC filed comments to the Committee on Rules of Practice that
was considering amendments to Rule 23 and suggested that the rule be further
amended to include specific requirements that parties to a proposed class action
(a) notify the court of related actions by government agencies, and (b) notify
agencies when private class actions are filed in matters where it is known that
government agencies have acted or are investigating.47 In that statement, the FTC
opined that parties should give the notice of the government actions no later than
when the court is considering certification and when such notice could aid the
judge in understanding the nature of the disputes and the issues presented:
      Such notice would ensure that all the district courts are adequately informed
      with respect to the full context of the case. Knowledge of the existence of a
      parallel or preceding government action can be important information to the


   46. For example, defendants and plaintiffs alike may believe that pending or completed government
enforcement actions will prejudice their position on the merits, or affect the remedies, or render settlement more
difficult. Class counsel may also have some reason to be concerned that the presence of government
enforcement may affect attorneys’ fees. See, e.g., In re First Databank Antitrust Litig., 205 F.R.D. 408, 413
(D.D.C. 2002) (FTC opposed class counsel’s full fee request where prior FTC action had obtained a major
portion of the monetary relief for the class; court limited attorneys’ fees to be commensurate with the value
added by class counsel); Goldberger v. Integrated Res., Inc., 209 F.3d 43, 53-54 (2d Cir. 2000) (four percent fee
awarded, in part because counsel benefited from the spadework done by federal authorities during criminal and
civil actions); Wechsler v. Southeastern Props., Inc., 506 F.2d 631, 635-36 (2d Cir. 1974) (no fees awarded
where state attorney general brought action which resulted in compensation of plaintiff class, and class counsel
had not contributed to attorney general’s initiation of proceedings). See generally Erichson, supra note 1, at 47
(“Class counsel in coattail class actions generally should receive lower fee awards than they would have
received in the absence of prior government litigation, to reflect the lighter work and lower risk involved.”).
   47. Letter from Timothy J. Muris, Chairman, Federal Trade Commission, to Peter G. McCabe, Secretary,
Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, Proposed
Amendments to Rule 23 of the Federal Rules of Civil Procedure, at 4-5 (Feb. 15, 2002), available at
http://www.ftc.gov/os/2002/02/rule23letter.pdf.
1392                GEORGETOWN JOURNAL OF LEGAL ETHICS                    [Vol. 18:1383

    Court as it undertakes to understand the issues in dispute, assess the overall
    fairness of a settlement, and determine the appropriate level of attorney fees.48
In addition, prior government action may be relevant to the appropriateness or
amount of treble damages.49 While the Committee did not incorporate that
suggestion into the Rules, nothing precludes courts from requiring parties
seeking or opposing certification to disclose any relevant pending or completed
government law enforcement actions or investigations.

                        V. DOES IT MATTER WHO FILED FIRST?
   As the foregoing references to pending or completed government law
enforcement actions (including non-public investigations) may suggest, the issue
of which action came first and which is the “follow on” is not particularly
important in this context. Sequence may be important when considering
attorneys’ fees, and much discussion has surrounded the issue of “who is the
chicken and who is the egg?” as the preceding text suggests. However, which
action came first is irrelevant to the certification inquiry this Article proposes.
Whether the class action is superior (under Rule 23(b)(3)), or redundant (under
Rules 23(b)(1) and (b)(2)) is a question that courts can answer without regard to
the dates on which the various actions were filed.

                                   VI. OTHER POSSIBILITIES
   It is worth noting that other possibilities exist beyond a total denial of
certification. In Wechsler v. Southeastern Properties, Inc.,50a securities case, the
Attorney General of New York launched an investigation in the wake of a public
offering. A few months later a class action was filed, followed in a further few
months by a formal enforcement action by the Attorney General. When the class
moved for certification of the action that had followed the state investigation, the
district court held the request in abeyance until it could determine whether the
state action would be adequate to protect the class’s interests. The court
eventually determined that the consent relief achieved in the state action was
sufficient, dismissed the case, and denied attorneys’ fees.

                                          CONCLUSION
   Class actions can be important vehicles for protecting the rights of those
injured by anticompetitive or unfair practices while, at least in theory, maximiz-
ing judicial efficiency and reducing the litigation burden defendants face. Class


 48. Id. at 4.
 49. See Erichson, supra note 1, at 47.
 50. 506 F.2d 631 (2d Cir. 1974).
2005]         EVALUATING THE “SUPERIORITY” OF A CLASS ACTION               1393


actions can, however, be inefficient, costly, and unnecessary, particularly if
government law enforcement has solved or is likely to solve the problem the
proposed class putatively addresses. Courts considering requests for class
certification should therefore take a close look at pending or completed
government law enforcement actions and investigations to determine their effect,
if any, on the proposed class action.

								
To top