Sr. Privacy Counsel
Rule 23 of the Federal Rules of Civil Procedure and its state analogues, which govern class action lawsuits in the United States, may be the most important laws in modern litigation. In an era when most civil suits settle, class actions dominate the settlement landscape. Given the trend towards higher settlement values, recent Supreme Court opinions that have been interpreted as anti-class-plaintiff are turning out to challenge class action defendants. In this article, we examine these recent rulings, trends, and challenges in class action litigation settlements.
The challenges of class action discovery
1. The age of the mega settlement
A series of Supreme Court decisions over the last decade appear facially bad for plaintiffs. The Court’s 2011 decision in Wal-Mart v. Dukes increased the burden for class action plaintiffs seeking damages to use “rigorous analysis” to show common merits issues at the class certification stage. (564 U.S. 338.) The Supreme Court doubled and tripled down on this trend in Comcast Corp. v. Behrend. (569 U.S. 27.)
Critics hailed these decisions as pro-class-defendant. Meanwhile, plaintiffs have been busy adapting. We’re seeing the results of this adaptation in the form of sharply increasing settlement values. A Cornerstone Research study on securities class action filings in particular demonstrates that the average settlement amount tripled recently in a single year, from $18.7 million in 2017 to $64.9 million in 2018. The study concluded: “Record levels of market capitalization losses reported for case filings in 2018 may suggest that large settlements will persist in upcoming years. Propelled by mega settlements of $100 million or higher, total settlement dollars rose to just above $5 billion in 2018. This was the third-highest total in the prior 10 years.”
Time and time again, the size of the settlement comes down to whether or not the class is certified. In the Cornerstone Research study, cases settled before class certification were $12.6 million, compared to $18 million for cases settled after class certification. Getting class certification right can mean the difference between millions of dollars.
2. The imperative to get class certification right
If you’re a class action litigator, it’s intuitive to you that most class actions settle, and that whether or not a class is certified can make or break your settlement size. What may not be intuitive to you is that Dukes has made the settlement consequences of class certification more stark for defendants.
Professor Maureen Carroll has shown that “prior to 2011 [and Dukes], the link between certification and settlement pressure was more complicated, and depended on whether the plaintiffs were bringing claims for individualized monetary relief.” Before Dukes, even if a class was certified, plaintiffs may have had merits claims that were individualized and expensive for each plaintiff to litigate, which relieved for defendants some settlement pressure from a class being certified.
However, after Dukes, class plaintiffs must argue and show evidence of common merits at the class certification stage. As a result, once a class or several classes are certified, class plaintiffs may proceed on the merits under a united front. Without costly, individualized claims to litigate, class plaintiffs may dictate the settlement terms.
Because Dukes has shifted much of plaintiff’s burden to develop the case’s merits at the class certification stage, the boundary between class and merits discovery has blurred. And because a class certification decision can dictate an order of magnitude or more difference in settlement value, it’s imperative that defendants get class discovery right.
3. Growing pre-settlement costs
The 2019 Class Action Survey gives the headline: “Class action spending reaches highest level since 2008.” In fact, the figure—$2.46 billion in US corporate legal spending on class actions in 2018—has remained somewhat even over the past decade when you adjust for inflation.
Billable attorney hours tell another story. Aggregate attorney time spent on class actions is rising sharply, more than 3x since 2011.
This trend—increasing attorney time over the past decade—is reflected in a series of alarming anecdotes. Text IQ has researched over a hundred class action litigations from the past decade, and the highest figure for discovery costs we could find from the beginning of this time period is from In Re Fannie Mae Securities Litigation. (552 F.3d 814 [D.C. Cir. 2009].)There, discovery costs for the defense reached $6 million, or nearly 10% of the overseeing agency’s annual budget.
A decade later, discovery costs have not relented. In 2016, the defendants in Nelson v. American Family Mutual Insurance Co. said that it would cost them $7.7 million to produce emails that plaintiffs requested for precertification discovery. (2016 U.S. Dist. LEXIS 93778 at *17-19.) In 2017, Chevron asked the Southern District of New York to award it $19 million to offset their discovery costs stemming from earlier proceedings. This amount reflected only attorneys’ fees, not vendor fees, so the total amount spent on discovery was probably much higher.
4. Broadening scope
The scope of discovery is increasing, but the amount of time that defense have to complete it remains the same. A blog post from law firm Winston & Strawn notes that many districts have local rules establishing a timeframe of 3 months for filing for class certification. However, Rule 23 makes no mention of any deadline. It requires only that the court determine class certification “at an early practicable time.”
Increasingly, these 90-day deadlines are criticized as inconsistent with Rule 23. In 2018, the Ninth Circuit described the Central District of California 90-day class certification deadline as “unrealistic in light of recent case law regarding the need to establish a sufficient factual record at the class certification stage.” (Balser v. Hain Celestial Group Inc., 640 Fed.Appx. 694, 696–97 [9th Cir. 2016].)
5. The trade-off
These compressed deadlines are combining with the broadening scope of discovery to place defendants in a bind. In many cases you will want to push for an extended deadline to perform a thorough document review, even knowing that costs will swell as this discovery continues.
Being on the wrong side of this trade-off between cost and time can create a disaster. In the Phipps v. Wal-Mart Stores, a gender discrimination class action in 2018, the defendant had three months to perform discovery on over 26 million documents for responsiveness, confidentiality, and privilege. (792 F.3d 637 [6th Cir. 2015].) Defendants eventually produced fifteen damaging privileged documents that revealed major changes in Wal-Mart’s compensation policies that would help Plaintiffs advance their gender discrimination allegations. Wal-Mart’s request to decertify the class was denied.
Defendants are turning to technology to navigate the growing scale of discovery in short timeframes, and their technology is falling short. In In re Domestic Airline Travel Antitrust Litigation, a 2018 class action lawsuit against several airlines, the defendants used an established technology assisted review (TAR) method to help code the enormous review population for responsiveness, but that process ran into what the court called a “glitch.” (221 F.Supp.3d 46 [D.D.C., 2016].) Approximately 600,000 documents were ultimately found to be responsive to the plaintiffs’ requests, but TAR identified over 3.5 million documents as potentially responsive. This was an unacceptable disconnect that left parties with no choice but to request an extension. It took them six months to correct their failed discovery, and the case has since settled.
6. Rising risk
Class actions capture the public imagination in a way that no other litigation does. Often, the public narratives are so simple—a corporation “wronging” its employees or customers for example—and the scale of alleged damages is so enormous. Intuitively, it makes more sense that Julia Roberts would win an Oscar for her performance in Erin Brokovich involving a consumer class action litigation, and not, say, a corporate governance dispute. It is also intuitive that the more the public is captivated by a litigation, the greater the potential for that litigation to create reputational harm to the defendant.
It’s no wonder why respondents to the class action survey named cost as the least of their worries. When asked to name the most significant risk variable, “exposure” was the top response, followed by legal variables that could affect the case, and then “reputational impact.” And since the survey began, the portion of class actions described as “bet-the-company” or “high stakes” has more than quadrupled, from 8.6% to 26%.
Discovery is at the heart of class action litigation. And discovery is what Text IQ is transforming with AI. Reach out to us for a demo of our legal solution for privilege and responsive reviews, powered by unsupervised machine learning. You can also read these previous blog posts about our solution for first pass review automation: