Class Action Review

     Strategic Significance of Aggregate Litigation. The Chinese Drywall litigation gives a pretty clear example of the strategic importance of aggregate litigation. Personal jurisdiction allowed the court to assert jurisdiction over companies that had deliberately created products for the US market and sought to sell into specific states, but which had nonetheless never had employees or offices in the US. While, by comparative standards, asserting jurisdiction on those facts is not remarkable, it allows US courts to reach the foreign defendants. What made the litigation worth pursuing, however, was the ability to aggregate many claims into one action. The multidistrict litigation process joined with class actions allowed thousands of claims to be joined into one action so that the costs of legal research and briefing, discovery, and preparing for trial did not overwhelm the potential recovery. It is extremely unlikely that a contingency fee lawyer would have taken an isolated case, but the lure of tens of millions of fees against hundreds of millions of damages tends to attract extremely competent counsel. Competent counsel for companies or individuals doing business with the United States take into account the risk such business can create given the availability of aggregate litigation.

     Class Certification.  In the Chinese Drywall litigation, the court dealt with the class certification in the same judicial order in which it approved the settlement. In many cases, however, the class certification is handled separately. As a practical matter in many cases the class certification decision is the most important decision in the case. Because of the extreme exposure that comes with a certified class, in many cases the defendants settle when a class is certified rather than face a massive damage award. On the other hand, if a class is not certified, the unappealing economics of a non-certified case often lead the plaintiffs to settle or drop the case altogether. Note that in an exception to the general rule, class certification decisions can be appealed on an interlocutory basis.

     Judicial Review of Fees and Settlement Terms. In the normal non-aggregate case, the court does not review either fees or settlement terms. The assumption is that the parties are capable of bargaining with their attorneys over fees and assessing the fairness of settlement terms. In aggregate settings, however, the attorneys tend to be dominant. Agency issues can arise, with the attorneys taking care of their interests in a way that does not serve the class. When a case is settled, the court will review both whether the settlement provides enough to the class and whether fees are appropriate. In the Chinese Drywall order, the court works through different ways fees can be set. You will also note the way the court worked through whether taking everything into account the settlement was fair to the class. Here, given the cost of continuing litigation and the uncertainty of being able to collect a US judgment, the court found a settlement that was not sufficient to make the plaintiffs completely whole was nonetheless fair.