Defending Class Actions

Class actions have become an increasing part of the litigation landscape. In addition to traditional areas such as antitrust and securities fraud, plaintiffs’ lawyers are now filing their product liability and consumer fraud cases as class actions. In recent years we have seen nationwide class actions filed not only in federal court but also in state courts. Because the decision to certify a class is largely discretionary with the trial court, plaintiffs’ lawyers have combed far and wide for hospitable courts, often finding them in rural or small counties in states such as Alabama and Illinois.

The reason for the increased popularity of class actions among the plaintiffs’ bar is of course the in terrorem effect of class certification. It is an unusually brave general counsel who will submit his company to the trial of a nationwide class action. As Judge Frank Easterbrook of the Seventh Circuit has recently written, "[a]ggregating millions of claims . . . makes the case so unwieldy and the stakes so large, that settlement becomes almost inevitable – and at a price that judgment as much as, if not more than, the actual merit of the claims." In re Bridgestone/Firestone, Inc., _____ F.3d _____ (7th Cir. May 2, 2002). For that reason class certification often determines the outcome of these cases. In most cases the class certification battle is over whether the plaintiff’s claims are common to all class members or whether each class member’s claim would depend on facts peculiar to that claimant.

On behalf of our corporate clients, our firm has successfully defeated efforts to certify classes in a variety of contexts and venues across the country. Some recent examples include:

• a nationwide class of owners of boats and recreational vehicles whose plastic plumbing systems were allegedly defective (state court in Tennessee)
• nationwide classes of insurance companies seeking to recover in subrogation water damage claims they paid to homeowners with allegedly defective plastic plumbing (federal court in New Jersey and state court in
• a nationwide class of disabled passengers alleging that a cruise line departing from Galveston violated Texas disability laws (state court in Texas)
• a class of Texas owners of buildings clad with an allegedly defective stucco product (state court in Texas)
• a class of Texas purchasers of a nutritional product that was allegedly labeled falsely (state court in Texas)
• a class of over 1,500 Yellow Pages sales representatives who alleged that their pension benefits had been undercalculated by some $450 million (federal court in Texas)
• a class of working interest owners who alleged damage claims of over $450 million due to the pipeline defendant’s alleged failure to take gas ratably (state court in Texas)
• statewide classes of employers alleging they had been overcharged for workers’ compensation insurance (state courts in Pennsylvania, New Jersey, and Michigan)

In some circumstances, a corporate defendant may find a class action a useful means of resolving a problem potentially damaging to the company, whether it be an antitrust violation, a defective product, or a shareholder claim. By settling the problem on a classwide basis, the company can quantify its exposure and put the problem behind it. Moreover, a class settlement need not be limited to the defendant’s paying class members cash money. It might also offer, for example, the opportunity to sell class members another of the company’s products, such as an insurance policy, computer software, or a car or truck.

In any settlement negotiations our objective is to get for our clients the best possible deal. Obviously what is possible will vary widely depending on the perceived merits of the case. However, we have negotiated for our clients a number of highly satisfactory resolutions of class actions. For example,

• in a class action over allegedly defective floppy disk controllers we persuaded the plaintiffs to dismiss our defendant client without any payment (the co-defendant settled with the class for $2.1 billion) (federal court in Texas)
• after the court certified a nationwide class of purchasers of automobile batteries, we negotiated a settlement with the class in which our client paid less than $200,000, including plaintiffs’ attorneys’ fees (state court in Texas).

Regardless of the size of the settlement, a client who has decided to settle a class action is interested primarily in achieving final resolution of its problem. To achieve the client’s goal, we carefully structure the class settlement to be sure it will withstand any objections by rival plaintiffs’ lawyers or subsequent collateral attack by plaintiffs’ lawyers who came along too late. This includes insuring that the settlement meets all the procedural requirements for a class action,1 that the substantive terms of the settlement will merit approval as fair, reasonable, and adequate to class members, and that the judgment approving the settlement contains an appropriate release and indemnity of our client and an injunction barring similar claims in the future.

We also anticipate the likelihood of opt outs and seek creative ways to minimize our client’s further exposure to opt outs, including where appropriate the use of a mandatory class precluding opt outs or settlement terms allowing our client to withdraw from the settlement if the number of opt outs is too great or reducing the amount of the client’s financial obligation in proportion to the number of opt outs. For example, we have successfully negotiated settlement provisions that:

• allowed our client to withdraw from the settlement if the number of opt outs turned out to be "in [the client’s] sole opinion, excessive" or "in [the client’s] judgment, material"
• allowed our client to "ratchet down" the amount of its payment to a class of its customers by 15 percent if 20 percent of the customers (by sales volume) opted out, by 25 percent if 30 percent of the customers opted out, by 35 percent if 40 percent opted out, etc.

We also defend our clients’ class settlements from either direct or collateral attack. Sometimes our clients face competing class actions brought by rival groups of plaintiffs’ lawyers. If a client chooses to settle with one group, it must be prepared to deal with objections to the settlement from the competing groups. Even where there are not competing classes, a class settlement may draw objections and appeals from plaintiffs’ lawyers whose primary goal is to create sufficient havoc that the defendant also "settles" with them.

• In a recent case, one of our clients faced dozens of competing class actions across the country. It chose to enter into a national class settlement with the representative plaintiffs in a particular state court. We then had to defend the settlement from attack by the competing plaintiffs’ lawyers on several fronts. In the settlement court, we overcame their objections first to the notice of the settlement and then, after an evidentiary hearing, to the merits of the settlement. The competing classes also tried to go forward with their cases in multiple other jurisdictions notwithstanding the pending national class settlement, but we succeeded in getting those courts to stay their end-run attempts.

Even after a class settlement is approved and becomes final, plaintiffs’ lawyers may file collateral attacks either seeking to set aside the settlement altogether or avoid its preclusive effect on behalf of some plaintiff or group of plaintiffs. Case law allows absent members subsequently to challenge class settlements on the ground that the procedures followed in the class action did not afford them due process. The most frequent collateral attacks relate to the adequacy of the notice to the class of the settlement and the adequacy of the representation of the class by the class plaintiffs and their counsel. Fortunately, the Supreme Court in Matshusita² and the Ninth Circuit in Epstein³ have substantially limited the scope of review courts must afford such collateral attacks. Basically the court is restricted to determining whether such due process concerns were fairly addressed by the court approving the settlement and that determination is made primarily by reviewing that court’s own findings. This underscores the importance of defense counsel’s work at the class settlement approval stage. Defense counsel cannot cede to the plaintiffs’ lawyers all decisionmaking regarding, for example, the form and manner of notice. It is defense counsel’s client, and not the plaintiffs’ lawyers, who will suffer if the notice is subsequently declared inadequate. Similarly, while defense counsel obviously cannot control what the court actually does, they can be sure that a judgment and findings approving the settlement are tendered to the court in a form that anticipates and answers any subsequent due process challenges.

On behalf of our clients we have recently defeated:

• a suit brought ostensibly on behalf of the entire class to set aside on due process grounds an earlier nationwide class settlement (federal court in Texas)
• a suit brought on behalf of class members in a single state to avoid the preclusive effect of a nationwide class settlement and to litigate anew their underlying product liability claims against our client (state court in South Carolina).

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