Title

Prvatizing Mass Settlement

Originally uploaded in SSRN.

Abstract

From BP’s oil spill in the Gulf of Mexico to the National Football League’s (NFL) inability to honor Super Bowl tickets, corporate defendants are contravening the established litigation wisdom and offering full compensation to victims—without haggling to pay pennies on the dollar, without stall tactics and frivolous motions; indeed, without any litigation at all. These offers have often been dismissed as rare one-off exceptions to the rule.

This Article challenges that claim, suggesting that these private mass settlements are instead relatively common features in our aggregate litigation system. The Article explores the reasons that, contrary to traditional wisdom, defendants would voluntarily settle claims. It argues that in cases of clear culpability, defendants can mitigate the harm to corporate reputation and reassure shareholders. But, these settlements can also operate at the opposite end of the spectrum, with far more substantial consequences. Correctly structured, these settlement offers allow defendants to preclude the certification of a class action. These settlements thus offer an incredibly powerful tool in deterring or rendering impotent nuisance-value litigation by de facto converting any claim from an opt-out class action into an opt-in settlement. While arbitration provisions have been used as a mechanism for preventing class certification, they inherently can only reach contractual relationships; bilateral mass settlements are not so constricted, allowing them to reach any mass claim.

This transition from opt-out to opt-in mechanisms upends the traditionally assumed relationship between the interests of compensation, deterrence, and legitimacy with respect to mass wrongs. This balance is far more complex than has been posited in the existing analyses and demonstrates that the twin fundamental assumptions of our class action system are not unchanging truths but instead mere default positions. Indeed, in this new world, defendants now have the ability to prevent almost every class from being certified against them—yet, as the analysis demonstrates, they may not choose to do so. In short, this Article seeks to replace our conception of the public aggregate litigation system with a new, more comprehensive model that also incorporates the private ordering that is driving this new emerging generation of aggregate claims mechanism.

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