Issacharoff - Private Claims, Aggregate Rights

8/10/2019 Issacharoff - Private Claims, Aggregate Rights

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New York University School of Law

New York University Public Law and Legal

Theory Working Papers

NELLCO Year 2008

Private Claims, Aggregate Rights

Samuel IssacharoffNYU School of Law, [email protected]

This paper is p osted at NELLCO Legal Scholarship Repository.

http://lsr.nellco.org/nyu plltwp/93


2/34Electronic copy available at: http://ssrn.com/abstract=1289505

Private Claims, Aggregate Rights

Samuel Issacharoff

When you got nothing, you got nothing to lose.

Bob Dylan, as told to Chief Justice John Roberts1

The big constitutional cases just seem to announce themselves.Mention segregation, abortion, or affirmative action, or Guantanamo, or evena crche, and the blogs go all aflutter. These are the cases that mark theWarren Court era, then the Burger Court, the Rehnquist Court, and now theRoberts Court, though still a work in progress. Will it be 5-4? Will Kennedy

be the new OConnor? And what of stare decisis, of judicial restraint, oftextualism and originalism?

By contrast, the Courts procedural cases seem an afterthought. Oftenthey arise from what can fairly be described as trivial disputes. When cert isgranted, the likeliest response from the cognoscenti Court watchers is, theytook cert on that? After a quick search to make sure there was indeed acircuit conflict, there is then the sage response about how the Court is

devoting its dwindling docket to one more outlier opinion from the NinthCircuit. But even the truest of the Courts repeat players cannot help butwonder, So what?

And so it was with a trio of cases decided at the end of the last Termconcerning some of the real dregs of the procedural brew. The first, SprintCommunications Co., L.P. v APCC Services, Inc., concerned whether a billcollector was capable of filing suit in its own name intrying to enforce debtsowed to operators of payphones (remember those?),2an issue that long ago

prompted one court to call the Rule 17 discussion of a real party in interestthe barnacle of the Federal Rules.3 Another,Republic of the Philippines v

Reiss Professor of Constitutional Law, New York University School of Law; WillistonVisiting Professor, Harvard Law School. My thanks to John Leubsdorf, Arthur Miller, RichardNagareda and David Shapiro for discussion of the issues presented here. Andrew Furlow,Laura Miller and Colin Reardon provided research assistance for this Article. This articlebenefitted from faculty workshop comments at Harvard Law School.

1 Sprint Communications Co., L.P. v APCC Services, Inc., 128 S Ct 2531, 2550 (2008)

(Roberts, CJ, dissenting) (quoting Like a Rolling Stone, on Highway 61 Revisited (ColumbiaRecords 1965)). Aficionados would claim that, notwithstanding the songbook, the song is

classically sung as, when you aintgot nothing, you got nothing to lose.2Sprint,128 S Ct 2531.3 Virginia Elec. & Power Co. v Westinghouse Elec. Corp., 485 F2d 78, 83 (4th Cir

1973)(Rule 17(a) is a barnacle on the federal practice ship. It ought to be scraped away.)(quoting John E. Kennedy, Federal Rule 17(a): Will the Real Party in Interest Please Stand?,51 Minn L Rev 675, 724 (1967)).



Issacharoff Forthcoming 2008 Supreme Court Review2

Pimentel, asked the timeless question of the proper relation between theunderutilized federal interpleader rule and the impossible to comprehend

indispensible party and necessary party requirements of Rule 19 of theFederal Rules4 which are now cleverly restyled since 2007 under the catch-all, required party. Perhaps this was finally the chance for the Court toclear up the verbal anomaly5 of a rule that allows a party to beindispensible yet not necessary, or perhaps not. Closing out the trio cameTaylor v Sturgell, a case presenting the ever-burning question of the role ofvirtual representation in setting the parameters for non-mutual offensivecollateral estoppel, or more simply can one World War II-era vintage planeenthusiast be precluded from demanding FAA documents under the Freedomof Information Act simply because his fellowflight club buddy had already

been told they were not available under FOIA.6

Standing alone, these three cases are of little moment, at best resolvingtechnical issues of pleading or standing that in most instances can be easilyaccommodated by litigants in subsequent cases. Only Pimentel,concerningclaims by a class of human rights victims against the estate of FerdinandMarcos, had any underlying significance apart from the technical issue

presented to the Court.

Taken together, however, the cases form a triptych illuminating a deeperset of issues on the tension between our inherited system of civil procedure

and claims that are fundamentally defined by their aggregative or publicnature. Each case presents claims held by individuals (or individual firms)that are private in terms of the relief sought, but which are defined by theirrelation to comparable claims of similarly situated individuals. In essencethey raise the problems that have challenged courts in trying to define the

boundaries of class actions. But, as Justice Breyer noted in Sprint, classactions constitute but one of several methods for bringing about aggregationof claims, i.e., they are but one of several methods by which multiplesimilarly situated parties get similar claims resolved at one time and in onefederal forum.7

In this Article, I will take up the problem of non-class aggregations. Inparticular, my focus is on the mismatch between rules that define party statusin terms of the private nature of the rights asserted and a set of underlyingsubstantive claims which, either formally or as a practical matter, do not fitwithin the framework of identifiably individual claims.

4Republic of the Philippines v Pimentel,128 S Ct 2180 (2008).5Provident Tradesmens Bank & Trust Co. v Patterson,390 US 102, 117 n 12 (1968).

6Taylor v Sturgell,128 S Ct 2161 (2008).

7128 S Ct at 2545.



Private Claims, Aggregate Rights 3

I. Procedure as the Handmaiden of . . . Procedure.

The problem of the tension between the individual-claim premises ofour procedural system and the pressures of mass society is not new. It is

possible to trace the problem back to the medieval origins of the class actionand the issues attendant to achieving a bill of peace where claimants aremany and precise stakeholdings are diffuse.8 For present purposes, however,I want to go back only 40 years to the Supreme Courts first confrontationwith the mass version of the most ordinary of common law claims in StateFarm v Tashire.

9

Tashire arose from a California road accident, certainly not achallenging concept for modern courts. The problem, however, was that theaccident involved a Greyhound bus, leaving many passengers injured andtwo dead. The central issue in the case was who was at fault, Greyhound orthe driver of the oncoming pick-up truck. The driver of the other vehicle hadno assets to satisfy claims, save for an insurance policy worth $20,000, anamount clearly insufficient to satisfy the total claims should the driver indeed

be culpable. Were the litigation limited to Greyhound and the oncomingdriver, this would have been the most ordinary of tort suits. Liability wouldfall on one side or the other, or would be apportioned if that outcome were

available under controlling state law.In practical effect, whether Greyhound or the other driver was at fault

would also control the outcome for all the passengers bringing claimsbecause the question whether Greyhound bore liability would determinewhether there would be any meaningful recovery. What the common lawtort system could not provide was an organizing procedure to handle thisquestion in the context of multiple claims, rather than a showdown betweentwo parties. The procedural issue was joined when, seeking to limit its costsof defense, the drivers insurer, State Farm, deposited the $20,000 with a

court in Oregon and sought to compel all claimants to seek an equitabledistribution without a rush to the bank precisely the role anticipated underinterpleader. That proved relatively unproblematic since $20,000 would notgo far if the insured were indeed liable and the liability of the insured was acommon question for all potential claimants. The hard issue for the Courtarose when Greyhound sought to achieve similar efficiencies by corralling allclaims into the same forum which would also have allowed for similartreatment of similarly situated passengers.

8The best contemporary treatment is Stephen Yeazell, From Medieval Group Litigation to

the Modern Class Action (1987). See also Robert G. Bone, Personal and ImpersonalLitigative Forms: Reconceiving the History of Adjudicative Representation,70BULRev 213(1990) (reviewing Yeazell, supra).

9386 US 523 (1967).


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At some level of generalization, interpleader was perhaps the mostsuitable common law rule to use as a transition to mass claims. The premise

of interpleader is that there are rivalrous claims to a fixed res and that alegally binding declaration of rights cannot be obtained without the

participation of all possible claimants.10 Interpleader allows the stakeholderto file suit against all potential claimants and compel a once-and-for-alldeclaration of rights as against the entire universe. While Greyhound wasnot operating with a fixed res, it would not have taken an extraordinary stepto conceptualize the question of its liability vel nonto be a common thresholdthat was collectively held by all the injured passengers, independent of theamount that any one passenger might be awarded if negligence were proven.Put another way, either Greyhound was negligent or it was not. Nothing inthe individual circumstances of particular passengers or the particularizednature of the injuries they suffered had any bearing on the liabilitydetermination. In turn, that unifying question cried out for a consistent anddispositive resolution.

But the Court could not find a mechanism to allow interpleader withoutclear proof that there was a finite fund and that the satisfaction of one claimnecessarily compromised the claims of others. In this early confrontationwith mass harms, the Court recognized both the need for proceduralmechanisms to achieve finality and the limitations of the procedures in the

Courts toolbox:

We recognize, of course, that our view of interpleader meansthat it cannot be used to solve all the vexing problems ofmultiparty litigation arising out of a mass tort. Butinterpleader was never intended to perform such a function,to be an all-purpose bill of peace. Had it been so intended,careful provision would necessarily have been made toinsure that a party with little or no interest in the outcome ofa complex controversy should not strip truly interested

parties of substantial rights such as the right to choose theforum in which to establish their claims, subject to generallyapplicable rules of jurisdiction, venue, service of process,removal, and change of venue.11

My initial claim is that the recent procedure cases are a reprise of thecentral dilemma in Tashire. In order to recast the cases as exemplars of thetension between collective claims and the individualist presumptions of

10The Court revisits the foundations of interpleader in Ortiz v Fibreboard Corp.,527 US815 (1999) in the context of a 23(b)(1) limited fund class action, what is in effect theplaintiffs version of interpleader.

11Tashire,386 US at 535-36.


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procedural rules, some attention is required to the exact issues presented inthis Terms cases.

A. AReal Party in Interest.

We begin with Sprint, a slight case that generated loud rumblings in a 5-4 split along the Courts familiar fissures. The underlying controversy arosefrom the requirement under the Telecommunications Act that long-distance

phone carriers (the large players in the field) compensate those who installand maintain payphones for the use of their equipment by consumers makingcharge card calls or using 1-800 numbers.12 Under federal law, the payphone

operatorsare supposed to be paid a fixed amount of less than $.50 for eachsuch call,13at least in theory. But disputes frequently arise over these dial-around calls and although the operators have a statutory right to sue fordamages,14the reality is otherwise:

Because litigation is expensive, because the evidentiarydemands of a single suit are often great, and because theresulting monetary recovery is often small, many payphoneoperators assign their dial-around claims to billing andcollection firms called aggregators so that, in effect, theseaggregators can bring suit on their behalf.15

The collection firms described by the Court serve as agents for the payphoneoperators, allowing them to spread the costs of enforcement over the entiregroup.16 The aggregators bring suit in their own name seeking to recover the

12See 47 USC 226 (2000).13

Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat 56 (1996). Congress

directed the FCC to create a per call compensation plan for payphone operators. From 1999through 2004, the FCC set the rate at $.24 per call. Effective September 27, 2004, the FCCincreased the rate to $.494, which is still in effect today. 47 CFR 64.1300(d) (1999). For the2004 increase in rates, see 71 Fed Reg 3014 (Jan. 19, 2006).

14Global Crossing Telecommunications, Inc. v Metrophones Telecommunications, Inc.,127S Ct 1513 (2007) (reaffirming the private right of action under the Communications Act of1934).

15128 S Ct at 2534.16

Among the original plaintiffs in the case, APCC Services is the largest aggregation

service for collecting dial-around compensation for what are known in the trade asindependent payphone service providers (PSPs). Companies like APCC Services seekpayment for PSPs from exchange carriers that connect calls made from payphones. Complaint

at 2-7, Sprint,128 S Ct 2531 (2008) (No. 1:99-CV-00696-ESH). The aggregators send claimsto between 500 and 800 exchange carriers every quarter on behalf of the PSPs. Due to thelarge number of potential exchange carriers, the PSPs would be effectively prevented fromcollecting from any but the largest carriers due to the costs of sending and monitoring such alarge number of invoices. For their service, the aggregators are paid a fee based on thenumber of payphones and telephone lines operated by a given PSP. This general payment


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claims assigned to them, and charge a set fee for their services. Whensuccessful, the proceeds are then re-assigned back to the operators. APCC

Services is the market leader in this field, and the particular controversy thatreached the Court concerned 1,400 different pay phone operators who hadassigned their interests to APCC Services for joint collection.

The technical issue dividing the Court is well-recognized as flowingfrom the need for an actual case or controversy: a plaintiffs alleged injurymust be an invasion of a concrete and particularized legally protectedinterest.17 This is the constitutional reiteration of the long-standing

prohibition on asserting claims of others, known as the prohibition on justertii claims.18 The question was whether the assignment of rights with thecomplete reverter of proceeds would satisfy the legal interest required forstanding on the part of the aggregators. Could a party whose only interest isthe assignment of a chose in actionbring suit in its own name, or would theAmerican courts, following Blackstone, overlook the distinction betweenassignor and assignee as a nicety . . . now disregarded?19

At one level, the entire dispute turns on an extremely formal account ofthe history of assignment of claims. The Court divided on how the Englishand American common law treated such assignments for purposes of creatinga triable controversy. (The Court also divided, stunningly, on the correctinterpretation of a 40-year old student law review comments account of that

history,20 suggesting that something was askew with the Courtsjurisprudential compass.) For the majority, there was no harm in allowingthe assignee to pursue the collective claims because they were well-groundedin established law and the defendant could not claim prejudice. Althoughsuch claims could have been brought as a class action, as Sprint advocated,the Court reasoned that the payphone operators should not be denied

framework extends to situations in which the aggregator is forced to litigate repayment from

the carriers. As part of the contractual services, all PSPs are required to make regularpayments to a litigation fund should any one of them be forced to take their claims to court in effect, a form of common pool litigation insurance. Telephone Interview by Laura Millerwith Ruth Jaeger, President and General Manager, APCC Services (Aug. 27, 2008). As partof the assignment agreement between the aggregators and PSPs, all recovered damages (bothlitigated and non-litigated) from the exchange carriers are turned directly over to the PSPs.128 S Ct at 2535.

17McConnell v FEC,540 US 93, 227 (2003).18 Warth v Seldin, 422 US 490, 499 (1975) (party must assert his own legal rights and

interests, and cannot rest his claim to relief on the legal rights or interests of third parties).19Sprint,128 S Ct at 2537, quoting William M. Blackstone, 2 Commentaries*442.20 Compare 128 S Ct at 2540 (Justice Breyer for the majority reading the Comment to

provide for the assignability of the right to sue) with id at 2556 (Chief Justice Robertsinvoking Comment for uncertainty over same issue). The dispute is over whether a majorityor minority of jurisdictions in the US allowed such assignees to file suit in 1967, as discussedin Michael Ferguson, Comment, The Real Party in Interest Rule Revitalized: Recognizing

Defendant's Interest in the Determination of Proper Parties Plaintiff, 55 Cal L Rev 1452,1475 (1967).


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standing simply because they chose one aggregation method over another.21By contrast, the dissenters saw the severability of the right to sue from the

ultimate recovery as creating a sort of derivatives market for legal claimsunmoored from traditional standing requirements.22

Buried in this dispute is the unexplored legacy of formal constraints onthe legal market that compel such awkward assignments then reassignments.The relation between the payphone operators and APCC Services is a classic

principal-agent relation, with all the complex incentives at play that normallycharacterize such relations. In dissent, Chief Justice Roberts appeared toinvite a simple solution to the agent standing question at least on a going-forward basis. Were APCC Services simply to reserve a contingent interestin the outcome of the case, the real party in interest problem would besolved. Perhaps more interesting than the formalism of the legal resolution isthe question whether such an arrangement would not also better align the

principal-agent incentives that are at stake. Any assignment of interest to aclaims collector who will get paid regardless whether the ultimate collectionsare successful or only partially successful, or not successful at all, is aninvitation for an agent not to take the interests of the principal fully to heart.

Here again it is the formalism of the legal system that may becompelling this apparently suboptimal result. In order to be eligible forassignment of a contingent interest, a firm such as APCC Services would

have to be a law firm. Otherwise, a private firm funding someone elseslitigation and reserving an interest in the outcome could run afoul oftraditional common law prohibitions on maintenance and champerty,23which

bar non-litigants from funding litigation in exchange for an equity stake inthe outcome.24 Conceivably, a firm such as APCC Services could have aworking relationship with a law firm able to undertake contingentrepresentation, but at a cost to its business model. Even having a lawyerhandle the exchange would be insufficient if any non-lawyers werestakeholders in APCC Services; sharing fees with non-lawyers would likely

21128 S Ct at 2545.22

Id at 2551 (Roberts, CJ, dissenting).23 APCC Services is headquartered and incorporated in Virginia. The Virginia Supreme

Court has defined champerty as a bargain with the plaintiff or defendant in a suit for a portionof the land or other matter sued for in case of a successful termination of the suit, which thechampertor undertakes to carry on at his own expense. Ventro v Clinchfield Coal Corp.,199Va 943, 953 (1958). There are very few exceptions to this rule; the one notable one being therepresentation of indigent parties. NAACP v Harrison,202 Va 142, 162 (1960) (The law hasalways recognized the right of one to assist the poor in commencing or further prosecuting

legal proceedings. To deny this right would be oppressive and enable the other party, if hismeans so permits, an advantage over one with little means. Aiding the indigent is one of thegenerally recognized exceptions to the law of maintenance.).

24For a thoughtful discussion of the market constricting effects of these rules, see JonathanT. Molot, A Market in Litigation Claims: A Market Alternative to Judicial Settlement Efforts(Draft on file with author).


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violate yet another of the market-constricting rules of the legal profession.25Finally, were APCC Services to try formally to file suit in the name of each

claimant, there would be high transaction cost barriers in the form of eitherhaving to pay a filing fee for each claim or having to subject the suit to the

procedural rigors of class certification. Bob Dylan is entirely correct, as perChief Justice Roberts, about having nothing to lose but it was the payphoneoperators, whose rights were worthless on their own, who had nothing absentsome collective enterprise.

Viewed in this light, the contractual arrangement devised by APCCServices is a privately structured way of overcoming the barriers to

prosecuting small value claims that independently do not justify the cost oflitigation. In this sense, Sprint was entirely correct that the APCC Servicesarrangement was structured in rejection of or at least as a substitute for the formal aggregative procedures available under the Federal Rules.26 This,however, begs the question why we should prefer what is in effect a publicsubsidy of aggregation, the class action,27 to a mechanism that the marketcreates. In the context of repeat players, such as the commercial interests28whose claims are at stake here, there should be a presumption in favor of

private ordering.29 The exacting safeguards of the class action, a form ofrepresentation bereft of agreed-upon contractual relation between principalsand agent, is neither required nor desirable in the context of informed

relations between market actors.

25Model Rules of Professional Conduct, Rule 5.4.26There is more than a touch of irony in Sprint expressing its profound attachment to the

protections afforded (to others, no less) by formal class action rules. Sprints standard formconsumer contract for its long-distance services provides that its customers must agree to thefollowing: To the extent allowed by law, we each waive any right to pursue disputes on aclasswide basis; that is, to either join a claim with the claim of any other person or entity, orassert a claim in a representative capacity on behalf of anyone else in any lawsuit, arbitration

or other proceeding. Reproduced at http://www.negotiationlawblog.com/2007/07/articles/arbitration/the-fine-print-sprints-arbitration-clause/. This is part of the standard formarbitration agreements designed to make many types of claims unenforceable. For adiscussion of the controversies over the enforceability of these contracts in the consumercontext, see Samuel Issacharoff & Erin F. Delaney, Credit Card Accountability,73 U Chi LRev 157, 170-77 (2006). For discussion of similar issues in the employment context, seeCynthia L. Estlund,Between Rights and Contract: Arbitration Agreements and Non-CompeteCovenants as a Hybrid Form of Employment Law,155 U Pa L Rev 379, 426-30 (2006).

27 See generally Judith Resnik, Money Matters: Judicial Market Interventions Creating

Subsidies and Awarding Fees and Costs in Individual and Aggregate Litigation,148 U Pa LRev 2119, 2144-59 (2000) (arguing that rulemakers liberalized the class action rule in order toenable disadvantaged litigants to pool resources).

28 For a defense of the presumption that contracts among repeat-play commercial actorsshould be entitled to great deference, see Alan Schwartz and Robert E. Scott,Contract Theoryand the Limits of Contract Law,113 Yale LJ 541 (2003).

29 For a related discussion of the relation between formal and informal methods ofaggregations, see Richard A. Nagareda, Class Actions in the Administrative State: Kalven and

Rosenfield Revisited,75 U Chi L Rev 603, 631 (2008).


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The dissents formalism would have frustrated a consensual marketresponse to the emergence of commonly held interests among a group of

private claimants. Without a mechanism to overcome the transactionalbarriers to individual suit, the assertion of rights (including the expressstatutory conferral of rights in the Cable Act) is really no more than just,well, blowing in the wind to turn one last time to the persuasive authorityof Bob Dylan.

B. Required Parties

Sprint presents only one of the reasons for which litigation might be

incomplete without the inclusion of others. For the payphone operators, theinability to jointly administer and prosecute their claims would have meantthe inability to overcome the transactional bars to being able to recovercontested funds. The insufficiency of the stakes is one of the obstacles thatmultiple litigants might face in presenting legally recognized claims.Republic of the Philippines v Pimentel involved another obstacle: the needfor complete adjudication of the interests of other litigants in order to perfecta claim.

At issue in Pimentel was a judgment obtained by a class made up ofthousands of human rights victims of the Marcos regime in the Philippines.

In one of the more far-reaching uses of aggregate procedures, a federaldistrict court in Hawaii had allowed 9,539 Philippine victims in the U.S. to

present their claims to a jury through a statistical sampling of abuses, try thesample cases, then extrapolate the judgments to the class as a whole. 30Obtaining a judgment was one matter; finding the Marcos assets andcollecting was another. There was, however, a brokerage account at MerrillLynch in the U.S., with funds belonging to Arelma, S.A., a Panamaniancompany incorporated by President Marcos in 1972. The $35 million in theaccount could be attached to compensate the class of human rights victims

assuming ownership by the Marcos estate could be established.

31

Unfortunately for the class, the Marcos holdings were subject tocompeting claims. When Marcos finally fled the Philippines in 1986, aCommission was established to recover property looted from the state by the

30The underlying Pimentel class action remains the only extrapolated judgment upheld on

appeal. SeeHilao v Estate of Marcos,103 F3d 767 (9th Cir 1996). Hilaowas a suit filedunder the Alien Tort Statute, which provides aliens with a federal cause of action for tortscommitted in violation of customary international law. Hilao, 103 F3d at 772; see also Sosa v

Alvarez-Machain, 542 U.S. 692, 724 (2004). The degree of judicial creativity available inATS suits, see id at 738 (citing residual common law discretion), may have facilitated theuse of innovative sampling techniques, avoiding the objection that such techniques alter theunderlying substantive state tort law. See Cimino v Raymark Industries, Inc.,151 F3d 297,319 (5th Cir 1998).

31128 S Ct at 2185.


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former president.32 That Commission in 1991 sought a declaration from theSandiganbayan, a special public corruption court in the Philippines, that all

Marcos assets were the product of theft and should default to the state; thatlitigation remains unresolved in the Philippines. As part of the effort torecover looted assets, the Commission and the Republic of the Philippinessought to have Merrill Lynch transfer the Arelma assets to an escrow accountin the Philippines for final disposition. Merrill Lynch refused and soughtguidance from the federal court with jurisdiction over the class action as towhat to do with the competing claims to the assets.

The district court instructed Merrill Lynch to file an interpleader action,in effect forcing all parties to litigate their entitlement to the disputed assetsin the District of Hawaii. As a practical matter, this meant that the districtcourt took it upon itself to resolve the claims of the Philippine governmentand the Philippine Commission for the return of the Marcos plunder. 33 Thatin turn prompted the Philippine governmental interests to assert sovereignimmunity, because under the rules of interpleader they would be aninvoluntary defendant in an American proceeding. Undeterred, the trial courtdecided that the action could proceed nonetheless as a claim by the Pimentelclass because, according to the court, the Philippine claims against the estatewere marginal and the Merrill Lynch assets were unaffected by any foreignstate claims. As against the argument that the Philippine government entities

were indispensible participants over whom the district court could not assertjurisdiction, the court found that there was no risk of harm because therewere no valid claims to the funds that would be compromised.

As a result, the peculiar combination of interpleader and sovereignimmunity implicated Rule 19, an oddly constructed rule that gives federalcourts the power to dismiss or equitably limit the range of lawsuits because oftheir practical effects on either parties (realistically, the defendant) or moresignificantly those outside the litigation altogether. Together with Rule 24(governing intervention by non-parties), Rule 19 marks a significant departurefrom the common law premise that litigation is a contained-world of dispute

32A recurring question in alient tort claims actions has been whether a remedy offered by

the foreign nation at issue should preclude a federal suit in the U.S. from going forward. SeeKhulumani v Barclay Natl Bank Ltd.,504 F3d 254, 259 (2d Cir 2007); id at 295-301 (opinionof Korman, J).

33The judge in question, Judge Manuel Real of the Central District of California who wassitting by designation in Hawaii, is not a stranger to accusations of exceeding his authority.

His trial manner has drawn a significant amount of critical commentary. See, for example,USv Hall,271 Fed Appx 559 (9th Cir 2008) (the catalog of inappropriate behavior by the trialcourt is long, so we merely summarize it here). Most noteworthy, the Ninth Circuit hasordered plenary review of dozens of his old cases for evidence of outcome-determinativejudicial misconduct. Terry Carter, Real Trouble, ABA J (Sept 2008), available athttp://www.abajournal.com/magazine/real_trouble/.


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resolution between two private individuals.34 Both Rules 19 and 24 speak ofinterests that are implicated by a case, even though the formal categories of

finality and preclusion normally would not extend beyond the actual parties toa case. Intervention permits outsiders to a dispute to demand a seat at thetable, even over the objection of the parties to the case. Rule 19 goes furtherand provides a mechanism for courts to refuse to adjudicate a well-pleadeddispute because of the unsustainability of the boundaries defined by the case.

So far, so good. Unfortunately, Rule 19s attempt to bring common lawconcepts of interested parties into alignment with the demands of modernlitigation quickly runs into difficulty, beginning with its odd structure andclumsy language. Rule 19(a) identifies persons to be joined if feasible,characterizing them as necessary if either complete relief cannot be granted intheir absence or if the practical effect of an adjudication would be to implicatetheir rights or interests. Rule 19(a) identifies some, but not all, of the situationsin which the reach of a case goes beyond the formal parties.

Thus, for example, Rule 19(a)(1)(A) provides that a party would berequired if in that persons absence, a court cannot accord complete reliefamong existing parties . . . . This definition of a required party would notallow the expansion of any suit for money damages against a solventdefendant. Even if there would be tremendous efficiencies in resolving relatedclaims once and for all, it is difficult to claim that complete relief within the

suit as presented may not be afforded among the existing parties. Similarly,Rule 19(a)(1)(B)(ii) speaks of the risk of inconsistent obligations as requiringthat additional parties be added. But multiple trials over the same events donot produce inconsistent obligations even if the jury determinations diverge,unless the defendant is obligated to comply with an impossible-to-meetuniform course of conduct. In any action for damages, a defendant could paya winning plaintiff while avoiding payment to a losing plaintiff and incur noobligations that could not be met simultaneously. To return to the example ofthe bus accident from Tashire, complete relief may be afforded to all parties inany one-on-one part of the litigation, even if repeat adjudications foundGreyhound sometimes negligent and sometimes not negligent for the exact

34In an important article to which I shall return, Professor Abram Chayes well captures the

essence of the common law dispute resolution model:(a) The lawsuit is bipolarit concerns two separate and easily

identifiable parties;(b) The lawsuit is retrospectiveit addresses completed events;(c) The right asserted and the remedy sought are interdependentthe

latter flows from the former;(d) The lawsuit concerns a self-contained episodethe impact of the

judgment is confined to the parties to the litigation; and(e) The process is party-initiated and party-controlledthe issues and

facts in the case are developed by the parties and presented by themor their attorneys to the final arbiter.

Abram Chayes, The Role of the Judge in Public Law Litigation,89 Harv L Rev 1281, 1282-83(1976).


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same conduct. Indeed, except in cases of indivisible remedies like the classicsorts of injunctions cases that might well trigger mandatory class-action

treatment the impracticability of complete relief or the compromise of therights of non-parties is rarely triggered.

As a result, the Rule 19 inquiry usually ends without any impact on thecase because only if the Rule 19(a) hurdle is crossed are the operationalconsequences of the Rule engaged. This takes the form of Rule 19(b), whichallows a defendant to seek dismissal when a court is unable to join a needed

party, as, for example, when the court would not have jurisdiction over theadditional party. Rule 19(b) reads as a familiar balancing test that asks aboutthe amount of prejudice to all parties if the case does or does not go forward,the systemic interests in ensuring that some forum is available to provide aremedy, and the equitable tools that the court might use to protect the interestsof all affected parties.

The structure of the Rule puts courts in the unfamiliar posture of havingto abide by a highly formal assessment of the parties whose joinder might benecessary, rather than proceeding immediately to a more conventional

balancing of interests to manage equitably the litigation process.35 TheSupreme Court captured the difficulty of the inquiry: "To say that a court'must' dismiss in the absence of an indispensable party and that it 'cannot

proceed' without him puts the matter the wrong way around: a court does not

know whether a particular person is 'indispensable' until it had examined thesituation to determine whether it can proceed without him."36 That difficulty isin turn compounded by the language of the Rule itself. Although Rule 19(a)referred to necessary parties, Rule 19(b) concerned indispensible parties,yielding the result that "the decision to proceed is a decision that the absent

person is merely 'necessary' while the decision to dismiss is a decision that heis 'indispensable.'37 Little changed with the 2007 stylistic revisions to theFederal Rules, which tried to paper over the problem by substituting theuniform term required. Now the Rule allows that persons required for

purposes of Rule 19(a) may turn out not to be required for the action toproceed after all under Rule 19(b).38

Because Rule 19 neither expands the jurisdictional reach of courts norgives parties potentially affected by litigation a right to restructure the case, itdoes not realize its ambition of ensuring that the full range of disputed rights

35This is not a uniformly held assessment of the Rule. Wright & Miller, for example, are

much more impressed with the post-1966 reforms which allowed a more orderly procedureby which courts can make a more limited initial inquiry under Rule 19(a). 7 Charles AlanWright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure 1604 (2001).

For the common law background of Rule 19, see Geoffrey C. Hazard, Jr., IndispensableParty: The Historical Origin of a Procedural Phantom,61 Colum. L. Rev. 1254, 1271 (1961)(tracing rules in equity that parties with an interest be joined if possible)

36Provident Bank,390 US 102, 119 (1968).37Idat 118.38Pimentel, 128 S Ct at 2189.


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are adjudicated. As reflected in Pimentel, Rule 19 cannot provide theorganizational mechanism to achieve optimal aggregation,39leaving its use

in the hands of parties who strategically wish to force a suit to be dismissedrather than efficiently join all necessary parties.40 The result is that there islimited force to this innovative procedure, despite Rule 19(b)s grant of

broad equitable power to courts to shape cases to align all necessary parties,or even to dismiss if the case could better be handled in another court. Eventhese equitable powers are triggered by the constricted ability to get to Rule19(b) through the required parties provision of 19(a).

Pimentel presented the relatively unusual circumstance where the Rule19(a) threshold could be met. The district court in Hawaii was set to decidecompeting claims to a limited fund which could have practical consequencesfor the Philippine entities that could not be made parties to the suit. Thisenabled the Supreme Court to find that the district court had beeninsufficiently attentive to the importance of the sovereign interest of thePhilippines in not having its claimed governmental assets disposed of by anAmerican proceeding.41 Because of the narrow circumstance of sovereignimmunity presented, Rule 19 could be held to dictate dismissal for failure to

join a required party.

Of more concern here, however, is the inability of Rule 19, or any otherexisting procedure, to resolve the claim of the Pimentel class to the Merrill

Lynch assets. The Supreme Court reversed the courts below for conceivingthe litigation as an effort to satisfy the claims of the Pimentel class, ratherthan viewing the object of Rule 19 as the public stake in settling disputes bywholes, whenever possible.42 This use of Rule 19 allows only thetermination of well-pleaded cases because of third-party effects. Becauseneither interpleader nor Rule 19 could provide the organizing basis forcomplete resolution of all the disputed claims against the Marcos estate, thealternative was dismissal of the entire action. At best, the class is left to waituntil sufficient time has passed for an American court to determine that thePhilippine interest in the Arelma assets had been abandoned. Given that theSandiganbayan had already sat on the claims for 17 years, the prospect ofrelief does not seem imminent.

39Jay Tidmarsh & Roger H. Transgrud, Complex Litigation: Problems in Advanced Civil

Procedure95

(2002).

40

Id.41

The Republic and the Commission have a unique interest in resolving the ownership of

or claims to the Arelma assets and in determining if, and how, the assets should be used tocompensate those persons who suffered grievous injury under Marcos. 128 S Ct at 2190.

42128 S Ct at 2193, quoting Provident Bank, 390 US at 111.


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C. Whos Your Wingman?

Despite the easy unanimity of the Courts decision, Taylor v Sturgellmay well be the most troubling of these cases. The underlying facts involvethe plans for an F-45 airplane, a model apparently sought out by somevintage airplane enthusiasts. Although the plans were held by the FAA, theagency refused to release them pursuant to an exemption in FOIA for tradesecrets. For some undisclosed reason, the manufacturer, Fairchild, sought to

protect its ongoing interests in this long retired, fixed-wing, single-engineplane. That prompted suit by Greg Herrick, a member of the Antique

Aircraft Association (AAA), who wanted to restore his private F-45 to itsoriginal condition. Herrick lost in the Tenth Circuit, which upheld theapplication of the trade secrets exemption under FOIA.43

Shortly after Herrick lost his case on appeal, his friend Brent Taylorretained the same lawyer to file the same request, only this time in DistrictCourt in D.C. Not only was the case filed by the same lawyer, usingdocuments obtained by Herrick in discovery in his case, but Taylor andHerrick were planning to work on an F-45 restoration together. Moreover,Taylor was the executive director of the AAA, although there was noevidence that he had directly participated in Herricks litigation. In short,

Taylor sought to press the exact same claim for the same information basedon the same legal theory pursued by the same lawyer in order to restore whatmay have been the same aircraft.

For the D.C. Circuit, this view of FOIA as a chance to ply the differentcourts of appeals looking for a favorable ruling was too much of a goodthing. In a provocative opinion by Judge Douglas Ginsburg, the court foundthat Taylor could be bound by his virtual representation by Herrick in the

prior litigation, even if Herrick had evinced no desire to represent anyone buthimself. By contrast to Sprint, the effect of the Ginsburg opinion would have

been to impose a class-wide obligation upon the first party to file suit over aparticular claim or issue, without any of the corresponding protections foundin the formal processes of class certification.

Despite the deep-rooted historic tradition that everyone should have hisown day in court and the prohibitionon binding non-parties to a judgmentin which they did not participate,44 the D.C. Circuit found that underexceptional circumstances that tradition could yield to other considerations.Ginsburg explained that courts also have an obligation to promote judicialefficiency, protect defendants from repetitive litigation, and ensureconsistency of results across similar cases.45 So long as there was identity of

43Herrick v Garvey,298 F3d 1184 (10th Cir 2002).44Richards v Jefferson County,517 US 793, 798 (1996). See alsoMartin v Wilks,490 US

755, 761 (1989).45Taylor v Blakey,490 F3d 965, 971-72 (DC Cir 2007).


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interests across the cases and so long as the first litigant provided adequaterepresentation, there was no reason to relitigate the claims if one of three

additional factors were met: a) a close relationship between the parties; b)substantial participation by one party in the others case; or c) tacticalmaneuvering to avoid being bound by the first decision.46 These factors had

previously enabled courts to expand the range of preclusion from its narrowcommon law legacy,47 but Ginsburg took this logic over the divide toadversely bind non-parties to the outcome of a judgment obtained in theirabsence. In Ginsburgs view, the close relationship between Taylor andHerrick was in itself sufficient to bind Taylor to the outcome of the adverseruling by the Tenth Circuit.

The loose test devised by the D.C. Circuit could not stand. 48 The effectwould have been to transform Herrickpost facto into the representative for aclass of potential claimants, each bound to the outcome of his litigationwithout notice or the ability to participate. Ginsburgs inquiry into theidentity of interests and the adequacy of representation represent an informalattempt to recreate the preconditions for class certification under Rule 23(a).Similarly, turning preclusion on the close relationship between the partiesis a poor substitute for the specifications on the relationship among classmembers under the three provisions of Rule 23(b). Most critically, however,the history of modern class action law, from Hansberry v Lee49forward, is

one of greater procedural protections before rights may be terminatedwithout direct participation. A loose standard of creating a representativeaction after the conclusion of litigation appeared a rash act of judicialfrustration, confirming the insight from the leading treatise on procedure:Impatience with repetitive litigation of common issues . . . has enticed somecourts to rely on virtual representation in circumstances that go beyondanything that is easily justified . . .50

For the Supreme Court, the relaxed transformation of individual suitsinto representative actions violated core principles of litigant autonomy.Relying on an important decision by Judge Diane Wood of the SeventhCircuit, the Court ruled that, [a]n expansive doctrine of virtualrepresentation . . . would recogniz[e], in effect, a common law kind of classaction.51 Justice Ruth Bader Ginsburg invoked two cases, South Central

46Id.47Most notably, these were some of the same considerations that allowed the use of non-

mutual issue preclusion. See Blonder-Tongue Laboratories, Inc. v University of IllinoisFoundation,402 US 313, 320-27 (1971); Parklane Hosiery Co. v Shore,439 US 322, 335-37(1979).

48 Although I find the case intriguing, I joined an amicus brief of civil procedure andcomplex litigation professors urging reversal.

49311 US 32 (1940).5018A, Wright, Miller & [Cooper], Federal Practice and Procedure512-513 (2d ed. 2002).51 128 S Ct at 2176, quoting Tice v American Airlines, Inc., 162 F3d 966, 972 (7th Cir

1998).


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Bell Telephone Co. v Alabama52

andRichards v Jefferson County,53in whichthe Court had rejected attempts by Alabama state courts to hold one group of

taxpayers to the litigated position of another group of unsuccessful taxlitigants, again in the absence of a formallycertified class action. Further, asthe Court established in Martin v Wilks54 a case involving the third-partyeffects of a settlement of employment discrimination claims by blackfirefighters against the City of Birmingham, even a class actionwill not have

preclusive effects beyond the actual members of the class.55 The easyholding in Taylor followed:

[V[irtual representation would authorize preclusion based on

identity of interest and some kind of relationship betweenparties and nonparties, shorn of the procedural protectionsprescribed in Hansberry, Richards, and Rule 23. Theseprotections, grounded in due process, could be circumventedwere we to approve a virtual representation doctrine thatallowed courts to create de facto class actions at will.56

For all the lack of suspense in the result, the core problem in Taylorremains unresolved. At the end of the day, Taylor and Herrick were pressingthe exact same claim, one that turned on the authority of the FAA and

Fairchild to invoke a trade secrets exception to a statute, and not on anyparticularized inquiry about who the plaintiff happened to be. In Martin vWilks, for example, the asserted injury to the white firefighters challenging acivil rights consent decree was a presumptive claim to the jobs in question.Similarly, if we go back to Hansberry v Lee, a case challenging raciallyrestrictive housing covenants in Chicago, the black plaintiffs were seeking tomove into a specific home and the issue was whether they were foreclosedfrom challenging the covenants by virtue of a prior lawsuit to which theywere not a party.

What sets apart the earlier cases is not that there were similar claimsraised by others, but that the right being asserted against the FAA by Herrickand Taylor was vested in undifferentiated fashion to the entire citizenry by afederal commitment to freedom of information. Taylor and Herrick couldmake no argument about an individual entitlement, and could not claim theywere denied something in their personal capacity. Viewed this way, Taylorand Herrick have generalized grievances that put them perilously close to the

52526 US 160 (1999).53517 US 793 (1996).54490 US 755 (1989).55For an early defense of the outcome inMartin, see Samuel Issacharoff, When Substance

Mandates Procedure: Martin v Wilks and the Rights of Vested Incumbents in Civil RightsConsent Decrees,77 Cornell L Rev 189 (1992).

56128 S Ct at 2176, quoting Tice, 162 F3d at 973.


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taxpayers who repeatedly find themselves without standing when seeking tochallenge government conduct.57 While the private right of action in FOIA

removes the standing challenge, it does not to address the undifferentiatednature of the claim. As the FAA argued, because the duty to disclose underFOIA is owed to the public generally, a broader conception of preclusionshould be available in public law cases.58 Or, put another way, Taylor andHerrick were already in effect litigating for the entire public but only ifeither of them won. Once one of them prevailed, the plans would be in the

public domain,59 and available to all. The question is whether there is anymechanism by which estoppel could run in both directions, resolving thematter regardless of who prevailed.

Rather than reaffirm the application of settled rules of procedure, Tayloragain exposed the inability of modern procedure to capture litigation overclaims that exist only in the aggregate. Herrick could have been filed as aclass action for binding class-wide relief under Rule 23(b)(2), but as I shallargue in the next Section, there was no incentive to do so. Either Herrickindividually was going to get the plans or he was not; he had no incentive toexpand the scope of his litigation, assume obligations to others, and increasethe cost of prosecuting the claim by bringing a class action that would gethim no more return on his investment. Perhaps, as in Pimentel, more usecould have been made of an interpleader action by the FAA, arguing in effect

that the claims for the F-45 plans were a common res needing unitaryadjudication. But, here again, the potential interpleader defendants wouldhave been the entire American population, requiring notice and serviceacross the country a clearly ludicrous undertaking. At the end of the day,as against the specter of limitless claims holders, the Court could only quotefrom David Shapiro to the effect that the human tendency not to wastemoney will deter the bringing of suits based on claims or issues that havealready been adversely determined against others.60 Maybe, maybe not.

Indeed, perhaps because the role of law is often to restrain the humantendency, the Court did allow an alternative way of binding Herrick.Turning to the law of agency, the Court remanded for further examination ofthe question whether Taylor was acting as Herricks de facto agent. Without

57For the most recent discussion of the taxpayer standing cases, seeHein v Freedom FromReligion Foundation, Inc.,127 S Ct 2553, 2563 (2007).

58Quoted at 128 S Ct at 2177.

59 The Court rejected the force of this point, in what appears to me a disingenuous

distinction: a successful FOIA action results in a grant of relief to the individual plaintiff, nota decree benefiting the public at large. 128 S Ct at 2177. As a formal matter, the Court is

right. The government is not bound by issue preclusion and not even a determination in oneCircuit binds the government in other courts outside that Circuit. U S v Mendoza, 464 U S 154(1984). Nonetheless, once released through FOIA, neither the government nor Fairchildwould any longer have exclusive control of the F-45 design specifications.

60128 S Ct at 2178, quoting David Shapiro, Civil Procedure: Preclusion in Civil Actions97(2001).


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a clear doctrine to determine the preclusive boundaries of public law claims,the Court licensed an inquiry into the relationship between Herrick and

Taylor, allowing the FAA to defend against subsequent lawsuits on the basisof the personal contacts between successive litigants. The boundaries of thisimprecise inquiry into the relationship of the litigants (how many meetings?dinner? drinks? discuss F-45s or airplane plans?) are potentially as unseemlyas they are irrelevant to the underlying issue. Preclusion on the basis of whoyour friends are cannot be sound doctrine.

II. The Costs of Procedure

Some thirty years ago, Professor Abram Chayes set out to define adomain of public law litigation.61 Chayes tried to delineate the role of courtsin structural challenges to the administration of government by contrasting

public law claims to the presumptions of a legal system founded primarily oncommon law disputes. For Chayes, the critical features of a common lawlitigation was that it emerged from the autonomous conduct of the parties tothe dispute. This was reflected both in the fact that the decision to litigate orsettle was party-initiated and party-controlled, and that the boundaries of thedispute were self-contained. This last insight was critical because it meantthat the impact of any judgment was confined to the parties themselves. As a

descriptive matter, it is unclear that the presumed lack of effects of ajudgment beyond the actual litigants can truly be the case in any systembased on the precedential value of an evolving common law. Nonetheless,the general contours of private versus public law were well set out.

The emergence of a defined universe of public law litigation laid thefoundation for the alteration of constitutional procedure that began with theWarren Court and has continued to this day. Judicial scrutiny ofadministrative practices led to the reemergence of a discrete procedural due

process case law. In its initial incarnation in the cases leading up to

Goldberg v Kelly,

62

the process constraints of notice and a hearing and theright to counsel were invoked to structure the conduct of the state in a waythat made it amenable to judicial oversight. Subsequent cases, most notablyMathews v Eldridge,

63refined the categorical commands of the early processcases to apportion procedural protections according to the importance of theclaimed rights at stake. Further procedural refinements relaxed barriers tointervention64or even standing65in such cases, and seemed to welcome the

61Chayes, 89 Harv L Rev 1281 (cited in note 34).

62397 US 254 (1970).63424 US 319 (1976). As cogently expressed by Judge Posner, [t]he less that is at stake, . .

. the less process is due. Van Harken v City of Chicago,103 F3d 1346, 1353 (1997).64See Carl Tobias, Standing to Intervene,1991 Wis L Rev 415.65Northeastern Fla. Chapter, Associated Gen. Contractors of America v Jacksonville,508

US 656 (1993).


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multifaceted role that courts had to play in cases involving institutionalconditions, constitutional rights, or voting arrangements to give just a brief

account of the deeper reaches of judicial superintendence of core structuralarrangements of our society.66

As mass harm cases have come to assume a more central role in themodern litigation landscape, some of the bright-line divisions between therole of courts in private and public law have been eroded. The emergence ofmultidistrict coordination and the general rise of managerial judging67haveforced courts increasingly to view even common law claims through the

prism of their potential multiparty effects. In turn, the question was joinedwhether mass torts could be fitted within Chayes model of public lawdisputes, and whether the individual, autonomous claims of the common lawcould survive translation to mass society.68 If the defining feature of publiclaw was its polycentric quality, reaching well beyond the particularlitigants who happened to appear in court, then mass harms even as simple asthe Greyhound bus accident in Tashire seemed to present a similar reach

beyond the presumed bi-polarity of the common law.

Easy recourse to labels and categories can obscure the core insight thatoriginally led to the analogy. Following Chayes, there was a temptation todispute how well the analogy to public law really worked and what happenedwhen private stakeholders rather than the state were the object of scrutiny.69

Notwithstanding the definitional disputes, the issue is not really whetherdiffuse common law disputes are fully a form of public law, but rather whatdo to about the manifestly public dimension of such private law disputes.Undoubtedly, a case like Taylor loses the characteristic feel of private law

66 For the emergence of the jurisprudence of the administrative state, see Richard B.Stewart, The Reformation of American Administrative Law,88 Harv L Rev 1669 (1975).

67 Judith Resnik, Managerial Judges, 96 Harv L Rev 374 (1982). The move toadministration and settlement of disputes rather than the presumption of trials is confirmed inthe 1983 amendments to the Federal Rules of Civil Procedure, Arthur R. Miller,The August1983 Amendments to the Federal Rules of Civil Procedure21 (Federal Judicial Center 1984),and the subsequent marked decline in civil trials. Arthur R. Miller, The Pretrial Rush to

Judgment: Are the Litigation Explosion, Liability Crisis, and Efficiency Cliches Eroding

Our Day in Court and Jury Trial Commitments?, 78 NYU L Rev 982 (2003). For anoverview of the increased managerial conception of the role of courts, see Samuel Issacharoff,Civil Procedure(2d ed 2008), Chapter 8.

68See David Rosenberg, The Causal Connection in Mass Exposure Cases: A "Public Law"

Vision of the Tort System,97 Harv L Rev 851 (1984); Jack B. Weinstein,Individual Justice inMass Tort Litigation: The Effect of Class Actions, Consolidations, and other Multiparty

Devices41 (1995); Howard M. Erichson, Mass Tort Litigation and Inquisitorial Justice,87Georgetown LJ 1983, 1985 (1999); Peter Schuck, Mass Torts: An Institutional Evolutionist

Perspective,80 Cornell L Rev 941 (1995). For a recasting of this debate to focus on the roleof private counsel as private attorney general, see William B. Rubenstein,On What a Private

Attorney General Is and Why it Matters, 57 Vand L Rev 2129 (2004). For a syntheticoverview of this field, see Richard Nagareda,Mass Torts in a World of Settlement(2007).

69SeeJonathan T. Molot,An Old Judicial Role for a New Litigation Era,113 Yale LJ 27,

35-36 (2003).


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because the rights at stake are an artifact of a statutory commitment togovernmental accountability to the citizenry at large. But in most mass harm

cases, it is not so much that the underlying claims are public, but rather thatthe defining private law conditions of autonomy and self-containment cannot

be met. Instead, cases such as Sprint and Pimentel assume the form ofclassic private law contract or tort claims under the conditions of masssociety, even allowing for the extraordinary international dimension of theclaims at issue in Pimentel.

Viewed from this perspective, two final observations emerge. The firstis the striking parallel between the actual form of the disputes in the threeSupreme Court cases from this past Term and the modern tripartite divisionof the class action device. The second is a return to the critical divide inSprint to examine core relations between public and private ordering in thedisposition of aggregated claims. I will address each of these in turn.

A. Class Action Formalism

Following the decisive amendments in 1966, contemporary class actionpractice employs different procedures, depending primarily on the reliefbeing sought. As set out in the three provisions of Rule 23(b), class actionsare formed by interlocking claims on a limited potential source of recovery

(Rule 23(b)(1)(B)),70by the demand for common injunctive relief against adefendant (Rule 23(b)(2)), or by the efficiency of common resolution of acommon demand for damages (Rule 23(b)(3)). The class action rules try todraw a bright-line between those claims that are inseparable from whichindividuals cannot opt out, and those in which some limited form of litigantautonomyis preserved. As conceptualized in the ALIs Aggregate Litigationapproach,71the distinction is between claims for divisible versus indivisibleremedies, with the former requiring more limited protections for thoseindividuals who will be bound to the collective resolution of the claims.72

Each of the class action provisions has proven to be a contestedbattleground. The limited fund class action, like the interpleader action inTashire,is narrowly construed to require both a fixed res that marks the outer

bounds of the controversy and a set of claims against that fixed res whoseexcessive valuation is not determined by litigation or settlement in otherwords, something that looks like the multiple personal injury claims against

70Although phrased more broadly, the only real use of Rule 23(b)(1) is through subsection

(b) to create what is termed a limited fund class action. In effect, this is the procedural vehicle

for plaintiffs to file an interpleader action protecting an equitable distribution of the proceedsand stopping a run on the bank. This is discussed in Samuel Issacharoff, Governance and the

Law of Class Actions,1999 S Ct Rev 337.71American Law Institute, Principles of the Law of Aggregate Litigation (Tentative Draft

No. 1, Apr. 7, 2008), at 2.04. I serve as Reporter on this Project.72See Phillips Petroleum Co.v Shutts,472 US 797, 821-822 (1985).


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State Farms paltry $20,000 indemnification obligation in Tashire.73 Courtshave similarly restricted efforts to expand the reach of injunctive class

actions to capture even commonly created damages claims.74 Finally, claimsfor collective prosecution of damages have engendered constant skirmishesover the exacting if imprecise requirements of adequacy of representationunder Rule 23(a) and of predominance and manageability in Rule23(b)(3).75

The three procedural decisions from last Term follow the basic contoursof Rule 23, but each avoids the burdens that could defeat or at least frustrateefforts at class certification. Pimentel is the most directly analogous to aclass action because the underlying claims had already emerged from a classsuit against the Marcos estate. The critical problem was that the dispositionof the assets required a final declaration of rights against the Marcos holdingson behalf of all possible claimants. Even without the complicating factor ofsovereign immunity, the class mechanism could not integrate the disparate

potential claims needed for a final disposition of assets. In order to achieveclosure, such a final accounting had to include other potential claimants whoshared no interest with the class of human rights claimants (indeed, werelikely rivals for the same assets) and could not possibly be fitted within anyof the Rule 23(a) prerequisites (e.g., typicality, commonality) that arenecessary for the certification of a class. As a result, the class mechanism for

addressing the limited recovery, certification under 23(b)(1), could not beinvoked to achieve closure.

Similarly, Taylor presented a classic case for the creation of a (b)(2)class that would also not come into being. There was absolute commonalityin the circumstances of all individuals what is often termed thecohesiveness of the class for (b)(2) purposes who might want to obtain

73This is, for practical purposes, the holding of Ortiz v Fibreboard,527 US 815 (1999).74 There is an active division in the Courts of Appeals on whether incidental claims for

damages can form part of a (b)(2) class, and on what exactly is an incidental claim fordamages. The polar positions are found inAllison v Citgo Petroleum Corp.,151 F3d 402, 425(5th Cir 1998) (permitting inclusion of equitable back-pay claims in a (b)(2) class but notpermitting additional claims for legal damages), and Robinson v Metro-North CommuterRailroad Co.,267 F3d 147, 164 (2d Cir 2001) (using ad hoc balancing to define what areincidental claims for monetary relief in a (b)(2) class). For a contrast of the approaches, seeLesley Frieder Wolf, Note, Evading Friendly Fire: Achieving Class Certification After theCivil Rights Act of 1991, 100 Colum L Rev 1847 (2000). The third leading approach is the useof hybrids with elements of both (b)(2) and (b)(3) protections in place. SeeAllen v Int'l Truckand Engine Corp.,358 F3d 469, 470-72 (7th Cir 2004).

75The Supreme Court has demanded a rigorous examination of the requirements of Rule,

Gen. Tel. Co. of the S.W. v. Falcon, 457 US 147, 161 (1982), including a demanding

examination of Rule 23(b)(3) in the settlement context. Amchem Products, Inc. v Windsor,521 US 591, 624 (1997). As formulated by the ALI, the resulting doctrinal battles leadadvocates of class certification . . . to frame legal and factual issues at high levels ofgenerality so as to argue for their commonality, whereas opponents of class certification havean incentive to catalogue in microscopic detail each legal or factual variation suggesting theexistence of individual questions. 2.02, Reporters Notes, Comment a.


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airplane specifications from the FAA. Unitary adjudication of the demandfor the plane specifications would satisfy concerns of both equity and

efficiency in resolving the matter once and for all, and the same for all thesimilarly situated claimants. The problem was that there was no incentive forany claimant, or any claimants counsel, to seek to certify a class. Noindividual claimant could possibly get more from leading a class action(either one gets the airplane specifications or one does not) and there was noincentive to undertake the additional litigation burdens of seeking to certify aclass. Under FOIA, the only relief available is a governmental obligation todisclose the requested information, so whether the action is brought in thename of one or many does not increase what may be obtained. Further,

because no damages are available, the only source of compensation for aprevailing attorney is statutory attorneys fees which are computed on anhours-worked lodestar basis. This in turn means that an attorney has noincentive to expand the scope of the dispute since it benefits neither the clientnor the attorney herself. In short, a case that called out for class-wideresolution on behalf of all vintage plane enthusiasts was doomed to fly solo.

Finally, Sprint was the one of these cases where the class action seemedtailor-made for just this kind of small claim aggregation. To invoke the classaction, however, would have mired the claimants in a drawn-out procedural

bog. First, a class certification procedure would have been an opportunity

for rival firms including those who had not done the preparatory work toclaim that they should be class counsel.76 Even if APCC Services (or itsattorneys) emerged as class counsel, any proposed certification would haveto withstand challenge as to the predominance and manageability of joint

prosecution,77and any decision on certification would then be subject to thepotential delays of interlocutory appeal under Rule 23(f). As discussedpreviously, the fact that the payphone operators were repeat-player claimantsagainst the long-distance carriers meant that private contract was a cheaperway to proceed than the cumbersome class action device.

The disutility of the class action for many forms of aggregate claims isnot limited to smaller cases such as the ones from last Term. The mostsignificant class action cases of the last decade were Amchem Products v.Windsor and Ortiz v. Fibreboard, the two attempts to use class actionsettlement procedures to close out asbestos liabilities for not only currentclaimants but future ones as well. While there are many reasons to beskeptical of the way these work-out deals were structured and negotiated, theCourts response was to ratchet up the formalism of the rules to curtail what

76See Geoffrey P. Miller, Competing Bids in Class Action Settlements,31 Hofstra L Rev

633, 633 (2003).77

For a critique of the misguided nature of the Rule 23(b)(3) categories, see Allan Erbsen,From Predominance to Resolvability: A New Approach to Regulating Class Actions, 58Vand L Rev 995, 1005-06 (2005).


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it termed the adventuresome use of the class device. 78 As a result, classactions seemed to drop out of the available set of tools for attempting to

settle most mass torts,79absent some extraordinary willingness of a settlingdefendant to allow some form of future claims to return to the tort system.80

Perhaps naively, the Court in the asbestos cases may have thought that itwas restoring the primacy of what Justice Souter in Ortiz would term theday-in-court ideal of individual claimants represented by individualattorneys proceeding to trial.81 That account cannot withstand the realities of

plummeting rates of cases actually being tried to judgment,82 nor theemergence of a raft of alternative mechanisms outside Article III courts that

bundle claims in efforts to achieve closure.83 While most of the responsesare private aggregations of claims portfolios through the plaintiffs bar,84other pathways have developed. In asbestos, a statutory option has emerged,offering an alternative to the perceived disutility of the class action device incontested mass torts.85

Thus it is noteworthy that the most important post-Amchem judicialdevelopments on the proper considerations for the resolution of mass harmscomes not through the processes of litigation in Article III courts, but through

78Amchem, 521 US at 617.

79SeeHoward M. Erichson,A Typology of Aggregate Settlements,80 Notre Dame L Rev1769, 1776 (2005) (describing the settlement class action as precisely the tool thatAmchemand Ortizrender nearly unusable for global resolutions of personal injury mass torts).

80 This was the form taken in the sweeping settlement of personal injury claims for

exposure to the diet drugs fen-phen. For one of the many appellate treatments of thissettlement, see In re Diet Drugs (Phentermine/Fenfluramine/Dexfenfluramine) Products

Liability Litigation, 369 F3d 293 (3d Cir 2004). Under the fen-phen settlement, individualswhose claims matured after the settlement were allowed to receive payments on a fixed matrixformula or allowed to opt-out at the time their injury presented itself and bring individualclaims in the tort system, absent any claim for punitive damages. For an affirmativeassessment of this settlement as properly balancing the individual interests of future claimants

against the need for finality, see Richard A. Nagareda,Autonomy, Peace, and Put Options InThe Mass Tort Class Action,115 Harv L Rev 747 (2002); for a critical assessment arguing infavor of compelled aggregation, see David Rosenberg,Mandatory-Litigation Class Action:The Only Option For Mass Tort Cases,"115 Harv L Rev 831 (2002).

81527 US at 846.

82The best empirical accounts are compiled in Symposium, The Vanishing Trial,1 JEmpir

Legal Stud 459 (2004).83

The historic emergence of private responses to the need for efficient aggregation of mass

claims is discussed in Samuel Issacharoff and John Fabian Witt, The Inevitability of AggregateSettlement: An Institutional Account of American Tort Law, 57 Vand L Rev 1571 (2004).Richard Nagareda provides the most comprehensive account of the development of new

institutional and legal responses in Richard A. Nagareda,Mass Torts in a World of Settlement(2007).

84This is discussed in Samuel Issacharoff, Shocked: Mass Torts and Aggregate Asbestos

Litigation after Amchemand Ortiz,80 Tex L Rev 1925 (2002).85

See Elizabeth J. Cabraser, The Class Action Counterreformation,57 Stan L Rev 1475,

1476 (2005).


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a specific exception for asbestos bankruptcies under Section 524(g) of theBankruptcy Code.86 Rather than the formalized processes of class actions,

Section 524(g) places a premium on private work-outs of mass torts a topicI return to in the next Section and offers the finality of bankruptcy

protection for properly consummated private settlements. A debtor seekingbankruptcy protection for asbestos liabilities may proceed through a pre-packaged bankruptcy (known in the trade as pre-packs) by showing thatthe plan is supported by a majority of the affected claimants, representingtwo-thirds of the amounts claimed against the debtor.87 The real work isdone by the requirement that the reorganization be supported by 75 percentof the debtors asbestos claimants in order for the debtor to be able to get achanneling injunction the bankruptcy procedure that forecloses any claimagainst the debtor not obtained (channeled through) the bankruptcy court.88The channeling injunction is critical because it provides protection againstclaims made not only by present claimants (including the minority whomight oppose the reorganization), but by future claimants as well.

To the untutored eye, the 524(g) workout looks strikingly similar to theefforts to obtain a judicial imprimatur for workouts of present and futureclaims, as were struck down in Amchem and Ortiz. For good reason, as itappears that way to the tutored eye as well. The practical effect is that anagreement broadly supported by present claimants can be used to cram down

the claims not only of dissenting plaintiffs, but of future claimants as well.The bankruptcy workout includes a Future Claimants Representative whoassumes a fiduciary responsibility.89 But the major difference is that thestatutory scheme substitutes an Article I judge for an Article III judge, hardlya stirring form of enhanced protection for the due process interests that are atstake.

Because Section 524(g) provided a more welcoming port for judicially-supervised and judicially-enforced private settlement, the locus of asbestosworkouts shifted there following Amchem and Ortiz. Perhaps notsurprisingly, the most significant mass tort class action case followingAmchem and Ortiz emerges not from the overly formalized class actioncontext but from the more flexible procedures of bankruptcy. In In reCombustion Engineering,

90Chief Judge Scirica of the Third Circuit had toapply to a complicated pre-pack what the Amchem Court defined as thestructural assurance of fair and adequate representation for the diverse

86SeeFrancis E. McGovern,Asbestos Litigation II: Section 524(g) Without Bankruptcy, 31

Pepperdine L Rev 233, 241 (2003); Issacharoff, 80 Tex L Rev at 1939 ("These prepackagedbankruptcies dramatically lower the transaction costs associated with conventionalbankruptcies ....") (cited in note 84).

8711 U.S.C. 1126(c).

88See11 U.S.C. 524(g)(2)(B)(ii)(IV)(bb).

8911 U.S.C. 524(g)(4)(B)(I).

90391 F.3d 190 (3d Cir 2004).


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groups and individuals affected.91 At immediate issue in CombustionEngineering was a multi-tiered payment scheme that created a private pre-

petition trust for the bulk of the payout to present claimants and what was ineffect a diminished corpus to serve as the bankruptcy estate for satisfyingfuture claimants.92 The two were linked because the approval of the

bankruptcy trust was the predicate for the realization of the pre-petition trustand, accordingly, present claimants had a strongincentive to vote for the planin order to get the benefits of the second trust.93

Examining the disputed reorganization as a bankruptcy case, JudgeScirica was able to recapture the essential equitable inquiry that wasobscured by the procedural formalism of Amchem and Ortiz. As theSupreme Court has insisted, [e]quality of distribution among creditors is acentral policy of the Bankruptcy Code.94 The Court looked to the classaction asbestos cases for the controlling principles of equity and concluded,[t]hough Ortiz was decided under [Rule] 23(b)(1)(B), the Court'srequirement of fair treatment for all claimants a principle at the core ofequity also applies in the context of this case.95 As applied to the case, the

proposed resolution failed, not because of any formal requirements of Rule23 or any hypothesized need to return to the premise of the day-in-courtideal, but because the concerns of equity were sufficient to strike down a

plan that gave preferential treatment to a group of voting claimants at the

expense of those neither present nor voting.

B. Private Aggregation and the Emergence of Informal Regulation.

In its confrontation with the sweeping asbestos cases a decade ago, theSupreme Court recognized the fundamental question for all aggregation ofclaims: the indispensible role of an agent able to solve the coordination

problem among similarly situated claimants. Quoting the Seventh Circuit,the Court observed, The policy at the very core of the class action

mechanism is to overcome the problem that small recoveries do not provide

91521 U S at 627.

92As described by the Third Circuit, Combustion Engineering contributed half of its assets

to a pre-petition trust (the CE Settlement Trust) to pay asbestos claimants with pendinglawsuits for part, but not the entire amount, of their claims. The remaining, unpaid portion ofthese claims, known as stub claims, provided prepetition trust participants with creditorstatus under the Bankruptcy Code. 391 F 3d at 201. The result was twofold. First, the stubclaimants would remain as creditors able to vote on the plan of reorganization. Second, the

actual bankruptcy trust (what remained after the creation of the CE Settlement Trust) couldtreat present and future claimants equally, even though present claimants would get thebenefits of the pre-petition trust that were unavailable to any future claimant.

93391 F 3d at 242 n 56.

94391 F 3d at 239, quotingBegier v IRS, 496 U S 53, 58 (1990).

95391 F 3d at 242 n 57.


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the incentive for any individual to bring a solo action prosecuting his or herrights. A class action solves this problem by aggregating the relatively paltry

potential recoveries into something worth someone's (usually an attorney's)labor.96

On this view, the class action is a corrective to the inability of theprivate market to overcome the transactional barrier to the prosecution ofprivate claims. The class action is a trade-off. In exchange for greaterjudicial supervision and exacting standards of non-contractual aggregation,the entrepreneurial agent (i.e., class counsel) is provided a low-cost means ofcreating a litigation entity.97 The corollary, however, should be arecognition that where private mechanisms emerge that similarly overcomecollective action barriers, they should not only not be condemned, theyshould be protected. Indeed, when dealing with the sorts of claims that havehistorically been recognized by the common law, there is no obvious reasonto prefer public ordering to private ordering.98 It is possible to read a

preference for privately managed aggregation into the requirement in Rule 23that the decision to certify a class should compare the costs and benefits ofthe available joinder devices.

Privately ordered aggregation has certain characteristic features. As

with the class action, intermediaries are needed to bring these claims into a

form that overcomes the transaction costs barriers. These intermediaries are

typically lawyers who are capable of bundling the claims informally throughmarket aggregations. The viability of the claims then turns on the ability to

lower transactional barriers, which includes the ability to amortize costs from

the few cases that might need to be tried, and the calculation of damages

payouts through a simple matrix formula.99 As presented in Sprint, the

question is whether there is anything sinister about this. For any one of these

cases, the costs of actually prosecuting the claim would exceed its likely

value. But no one with feet on earth believes that any one of these claims

stands alone. It is hard to find a normative justification for driving out of the

system claims of legal merit whose enforcement is compromised by the hightransactions costs of our system. In most markets, the impulse is to find

96Amchem Products, Inc. v Windsor, 521 US 591, 617 (1997), quoting Mace v Van RuCredit Corp.,109 F3d 338, 344 (7th Cir 1997).

97David L. Shapiro, Class Actions: The Class as Party and Client,73 Notre Dame L Rev913, 917-18 (1998) ("[T]he notion of the class as entity should prevail over more individuallyoriented notions of aggregate litigation.").

98This is the core of the legal process approach to the relation between law and private

arrangements. See Henry M. Hart, Jr., & Albert M. Sacks, The Legal Process: BasicProblems in the Making and Application of Law159-61 (William N. Eskridge, Jr., & Philip P.Frickey eds., 1994) (describing private ordering as the primary process of socialadjustment).

99This is the crux of the argument developed in Issacharoff & Witt, 57 Vand L Rev 1571

(cited in note 83).


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ways to lower transactions costs in order to preserve value, not to drive up

the deadweight cost of doing business.

In some private aggregations the obstacle to effective litigation is notthe small payout available for any given plaintiff, but the high fixed costs orthe risks of loss in particular cases. A low expected return from a case can bethe product of the low level of anticipated damages, or the high cost of

prosecuting the claim, or the high risk of failure. As in cases whereaggregation is necessitated by the small value of an individual claim, cases ofhigh risk or high fixed costs require the ability to pool risk for those casesthat do go to trial or to spread the fixed costs among similar cases. 100 Thus,the problem of efficient aggregation goes beyond the types of claims in

Sprint to reach cases whose necessary aggregation is compelled bysomething other than the low value of a claim. Here, again, Sprint isinstructive because the Court came close to burdening private aggregationwith the imprecisions of formal procedural law.

But the burdens of procedure should not lead to an overstatement of whatmay be accomplished through private ordering. Our attention thus far has

been directed to the failings of public ordering through the formal proceduralsystem to address the challenge of aggregation. The prospect of privateordering through market-based mechanisms, as presented in Sprint, appearsin this context as a healthy tonic for the overly burdened demands for formal

aggregations. As with all partially regulated areas of behavior, we mightexpect a hydraulic effect whereby sophisticated market actors will seek toevade regulation by searching out less regulated byways that might offersimilar results. In a radically different domain, for example, the limitationsimposed by our campaign finance system on candidates and parties raisingand spending money directly may lead interest groups to find otherinstitutional actors capable of leveraging financial resources into enhancedelectoral prospects.101

Private ordering is a welcome addition to ordering through the public

domain, but it is inherently limited. The ability to aggregate the low-valueclaims of the payphone operators, for example, turned on the unique natureof the business at issue. In Sprint, both the long-distance carriers and the

payphone operators were repeat players in the long-distance calling market.Despite the low-value of any particular transaction, there were still incentivesto contract for the representation of the payphone operators, even if no sngletransaction was worth prosecuting on its own. By contrast, in the typical

100This is an application of the basic economic model of litigation and settlement to the

problem of efficient coordination of related cases. For the basic economic model, see RichardA. Posner,Economic Analysis of Law597 (7th ed. 2007); Steven Shavell, Suit, Settlement, andTrial: A Theoretical Analysis Under Alternative Methods for the Allocation of Legal Costs,11J Legal Stud 55, 56-57 (1982).

101 This is an argument developed in Samuel Issacharoff & Pamela S. Karlan, The

Hydraulics of Campaign Finance Reform, 77 Tex L Rev 1705 (1999).


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Issacharoff

Documents

Issacharoff - Private Claims, Aggregate Rights