Document Type

Article

Publication Date

1986

Center/Program

Center for Contract and Economic Organization

Center/Program

Center on Corporate Governance

Abstract

Today, virtually everyone has a proposal for "reforming" class action litigation but both consensus and coherence are lacking. Some proposals are bluntly restrictive. For example, the Reagan Administration would reduce attorney's fees, place a ceiling on product liability, and partially repeal treble damage statutes.1 In the same vein, the United States Supreme Court has shown itself parsimonious on the question of fee awards, by authorizing fee waivers,2 approving offers of settlement that seemingly permit fee shifting against the plaintiff's attorney,3 and curtailing the traditional bases on which a fee award may be enhanced. 4 Other proposals have offered essentially neutral procedural reforms; new criteria for fee awards,5 new pleading requirements, 6 expanded hearings at the settlement approval stage, 7 procedures for the appointment of special guardians,8 the greater use of sanctions for the filing of frivolous actions,9 and greater coordination among federal and state judges. 10 Conversely, a third group of proposals seeks to expand and streamline the use of class actions. An ABA Committee has recommended that Rule 23 of the Federal Rules of Civil Procedure be amended to allow federal judges to certify virtually any maintainable class action as a mandatory class action,11 and several commentators have urged an expanded use of the mandatory class action in the case of the mass tort action.12 Still, a recent Supreme Court decision may halt this incipient trend because it seems to imply that the right to opt out from the class action has a constitutional dimension as an element of due process. 13 Policy issues thus overlap with constitutional ones because the rights of the individual plaintiff frequently come into conflict with those of the plaintiff class as a whole.

Largely lacking in this recent outpouring of commentary has been any sustained focus on the incentive effects on the plaintiff's attorney of these proposed reforms. This Article will focus on incentives and the unstable dynamics within the large class action. To evaluate them it is first necessary to understand the context itself. Frequently, commentators begin with such a preface and then turn to very specific contexts: antitrust class actions, products liability cases, securities litigation, "mass disaster" cases, civil rights litigation, and so on. Although this tendency to subdivide the field into specialized subcategories is understandable (because it allows each expert to stress the uniqueness of his or her context and to plead for specially tailored rules), such a taxonomic approach obscures the common denominators among these distinct subcategories. The starting point for this Article is the recognition that the similarities overwhelm the differences-that there is a broader context that this Article will describe as that of "entrepreneurial litigation." Today, most observers would probably concede that some litigation contexts-most notably, derivative, securities, and antitrust litigation- are ones in which the plaintiff's attorney functions in such an "entrepreneurial" mode, but they might resist this description as applying to mass tort or products liability litigation. Yet, any attempt to draw categorical lines among these contexts is suspect, unless we can distinguish these contexts in terms of objective criteria. Part I will seek to identify these relevant characteristics and thereby to define "entrepreneurial litigation." Its focus is largely on the relationship between the adversaries and how it is shaped by the relative presence or absence of the factors that distinguish entrepreneurial litigation.

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