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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.
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