This Article explores the procedural concerns that arise when regulatory agencies mimic class actions by collecting big monetary judgments on behalf of victims. Over the past decade, agencies have collected over $10 billion to compensate people hurt by massive frauds, false advertising, and defective drugs, using proceeds from penalties levied against regulatory violators. Today, the Securities and Exchange Commission regularly seeks awards against large public companies and distributes the money to injured investors through “Fair Funds.” The Federal Trade Commission similarly seeks restitution against parties profiting from unfair trade practices and distributes awards to consumers. Even the U.S. Postal Service distributes the ill-gotten profits of scam artists to victims of mail fraud. However, unlike private lawsuits, agencies afford few safeguards for the victims they compensate. Agencies lack adequate procedures to hear victims’ claims, identify conflicts between different parties, or coordinate with other kinds of lawsuits. I argue that agencies should continue to play a role—albeit a limited one—in compensating victims for widespread harm. However, when agencies compensate victims, they should adopt rules similar to those that exist in private litigation to resolve differences between victims, improve judicial review, and coordinate with private lawsuits. I propose three solutions to give victims more voice in their own redress, while preserving an agency’s flexibility to enforce the law: (1) that agencies involve representative stakeholders in settlement discussions through negotiated rulemaking; (2) that courts subject agency decisions to hard look review; and (3) that courts and agencies coordinate overlapping settlements before a single federal judge.
The Federal Rules of Civil Procedure were originally based upon a straightforward model of adjudication: Resolve the merits of cases at trial and use pretrial procedures to facilitate accurate trial outcomes. Though appealing in principle, this model has little relevance today. As is now well known, the endpoint around which the Federal Rules were structured—trial—virtually never occurs. Today, the vast majority of civil cases terminate in settlement. This Article is the first to argue that the current litigation process needs a new regime of civil procedure for the world of settlement.
This Article begins by providing a systemic analysis of why the Federal Rules inadequately prevent settlement outcomes from being distorted relative to the underlying merits—as defined by reference to substantive law—of a given dispute. It then explains how the Federal Rules can actually amplify these distortions. Indeed, notwithstanding the well-worn adage that settlement occurs in the “shadow of the law,” scholars have shown that non-merits factors exert significant influence on settlement outcomes. However, these insights have not been considered together and combined with a systemic focus on the ways in which the influence of these factors on settlement outcomes is actually a product of the basic structural features of the Federal Rules. This Article takes these next steps to explain that the “shadow of the law” that is cast on settlements is fading. Further, this Article discusses a new phenomenon in the current litigation environment—namely, that litigants’ increased reliance on prior settlements as “precedent” for future settlement decisions may move settlement even further out of the “shadow of the law” and into the “shadow of settlement” itself.
This Article then traces these problems to three foundational assumptions underlying the Federal Rules of Civil Procedure, all of which have become outmoded in a world of settlement. In rethinking these assumptions, it provides a new conceptual account that contextualizes previously isolated procedural reform proposals as challenges to these foundational assumptions. It also explains how these reformefforts ought to be refined and extended with a specific view toward systematically redesigning the basic model and operation of the Federal Rules for a world of settlement. Lastly, it sets forth new proposals that seek to reorient current rules expressly toward the goal of aligning settlement outcomes with the merits of underlying claims.
What emerges is a new vision of procedure—one in which the application of pretrial procedural rules do not merely facilitate trial but are designed to provide litigants with guidance regarding the merits of claims and are used to align settlement outcomes more meaningfully with the dictates of the substantive law. In describing this vision, this Article lays the groundwork for the design of a new Federal Rules of Civil Settlement.
This Article identifies a market-based solution for monitoring large-scale litigation proceeding outside of Rule 23’s safeguards. Although class actions dominate the scholarly discussion of mass litigation, the ever increasing restrictions on certifying a class mean that plaintiffs’ lawyers routinely rely on aggregate, multidistrict litigation to seek redress for group-wide harms. Despite sharing key features with its class action counterpart—such as attenuated attorney-client relationships, attorney- client conflicts of interest, and high agency costs—no monitor exists in aggregate litigation. Informal group litigation not only lacks Rule 23’s judicial protections against attorney overreaching and self-dealing, but plaintiff’s themselves cannot adequately supervise their attorneys’ behavior. Plaintiffs’ attorneys may represent thousands of geographically dispersed clients, which fosters collective-action problems and makes individual, case-specific information hard to obtain.
An answer to this monitoring problem comes from an unlikely and potentially controversial source: alternative litigation financing. Self-dealing and high agency costs arise in aggregate litigation principally because of the contingent-fee attorney’s dual roles as agent and investor. These roles can pull lawyers in divergent directions; because attorneys front massive litigation costs, they may be tempted to coerce clients into settling so that they can recoup and profit from their investment. Third-party litigation financing, which involves hedge funds, private investors, and venture capitalists investing in and profiting from large-scale litigation, can ameliorate this critical conflict of interest by allowing the financier to bear the financial risk. Shorn of financial self-interest, the lawyer is then free to act as a faithful agent. Although alternative litigation financing can be controversial, this Article seeks to marry profit-seeking capitalists and aggregate litigation in a way that benefits society as a whole and plaintiffs in particular.
The civil litigation system aims to resolve disputes in an efficient, centralized, and final manner. In the context of mass tort litigation, one technique courts often use to achieve these goals is what I call “scaling up”: holding individual trials, and then applying results from these trials to similarly situated individuals. Scaling up, however, presents two difficulties. First, the technique risks compromising defendants’ Due Process rights by creating impermissible settlement pressure. Second, scaling up requires the initial court to structure the litigation so that it may serve as a template for follow-on proceedings; where this is not done, attempting to graft the results of one proceeding onto the remaining group of similarly situated individuals may simply lead to more protracted litigation.
Yet these difficulties are not inherent to the technique; in fact, courts can scale up in a way that avoids these problems. In order to mitigate the Due Process problem, courts should not apply the results of individual trials to subsequent trials involving similar claims until a substantial number of trials have been completed, and until it has become clear that any verdicts unfavorable to defendants are not flukes or outliers. And to ensure that scaling up does not simply lead to more protracted litigation, the initial trials should be structured so as to maximize the likelihood that individuals in follow-on litigation can invoke the findings under the issue preclusion doctrine of Parklane Hosiery v. Shore. The American Law Institute has made a proposal with these considerations in mind with respect to issue classes. This Note argues that a similar approach should be taken in the Multidistrict Litigation (MDL) process, where most mass tort litigation occurs today. This approach would be particularly useful if applied to one device that is being used with increasing frequency in the MDL process: the bellwether trial.
The federal courts are currently divided on how to determine the diversity citizenship of trusts. Several circuits hold that trusts take the citizenship of their trustees. Another circuit holds that trusts take the citizenship of the trust’s beneficiaries, and yet another considers the citizenships of both the trustees and the beneficiaries. But beyond this circuit split, a more significant problem plagues the law in this area: The courts of appeals have failed to recognize the distinction between traditional and business trusts. The former—what is most commonly thought of as a trust—is a gift and estate planning tool. The latter is an alternative to incorporation, and is designed to run a business and generate profit for investors.
In this Note, I examine the differences between traditional and business trusts in the context of federal diversity jurisdiction. After discussing the history of diversity jurisdiction and the nature of these two forms of trusts, I explore the current circuit split over the citizenship rules for trusts. I then propose a new rule that fits within the current Supreme Court case law in the field: Traditional trusts take the citizenship of their trustees, while business trusts take the citizenship of their members—the beneficiaries. Having proposed a rule that depends upon the type of trust at issue, I conclude by explaining that a trust can be classified by determining the primary purpose for which it was organized.
Recent Supreme Court decisions such as American Express v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), represent dramatic developments with implications that extend far beyond the arbitration context. These decisions are a product of what the author refers to as the “contract model” of the Federal Arbitration Act (FAA). Heretofore largely unquestioned, the contract model posits the FAA’s original and dominant purpose as the promotion of private ordering in dispute resolution, as free as possible from state regulation. The model has, in turn, helped courts and commentators claim that the FAA requires arbitration agreements to be enforced strictly “according to their terms”—without regard to the way those agreements might compromise procedural values, such as when they preclude classwide relief.
This Article questions both the descriptive accuracy and normative persuasiveness of the contract model. It argues that when placed in their proper historical context, the FAA’s text and legislative history appear equally consistent (if not more so) with a purpose to improve upon the widely discussed procedural failings of the courts circa 1925. From this standpoint, the FAA can be understood as an offshoot of ongoing efforts at the time to reform procedure in the federal courts—efforts spearheaded by figures such as Roscoe Pound and Charles E. Clark, and that eventually culminated in the Federal Rules of Civil Procedure in 1938. The FAA, in short, was arguably a type of procedural reform.
These insights lead the author to propose a “procedural reform” model of the FAA, one that he contends is both more faithful to the statute’s history (legislative and otherwise) and more adept at answering the difficult questions that confront arbitration law in the age of “contract procedure.” The author considers two recent examples to illustrate.
Plaintiffs seeking to institute a civil action in federal court must plead the grounds for the court’s subject-matter jurisdiction over their claim; if they cannot adequately do so, their claim will be dismissed. Recently, courts have started to apply the plausibility rule announced in Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal—which requires plaintiffs to plead facts plausibly showing their entitlement to relief—to the pleading of subject-matter jurisdiction. This Note argues that such a novel shift in how jurisdiction is pleaded is neither supported nor necessitated by Twombly and Iqbal and is fundamentally incompatible with long-settled jurisdictional doctrine. It therefore recommends that district court judges redouble their attention to the articulation of procedural rules of decision (eschewing reliance upon boilerplate) and desist from imposing heightened pleading of subject-matter jurisdiction without considering the question as a matter of first impression.
Foreign law has become an increasingly important element of many cases brought before federal courts. Rule 44.1, which controls determinations of foreign law, is intended to make the process for determining foreign law as painless as possible, but like the regime that preceded it, it has become a procedural minefield for those wishing to rely on foreign law, as courts have declined to apply Rule 44.1 when it should be used, either deliberately or due to uncertainty as to its application. This is in large part due to the lack of concrete standards outlined in the rule. This Note examines the standards associated with the rule and their application in the years immediately after its promulgation and concludes that the reliant party’s burden of production with respect to foreign law should vary based on whether statutory text is provided. If a statute is available, the courts should be required to undertake a Rule 44.1 analysis, while if a statute is unavailable, the reliant party should bear the burden of producing substantial evidence of foreign law. This standard, elaborated in the text of Rule 44.1, should ensure that as many foreign law determinations as possible can be resolved on the merits.
This Note attempts to answer the question of which choice-of-law regime ought to apply to bankruptcy cases. Taking the facts of a recent Second Circuit case as my example, I argue that Congress should amend the Bankruptcy Code to include a blackletter second-order choice-of-law section for use in all bankruptcy cases. First, Part I examines the state of Second Circuit jurisprudence on the question before this case, probing the reasoning and basic justifications for the resulting rule. Second, Part II establishes a normative framework, drawing on both bankruptcy and choice-of-law theory, for evaluating any proposed answer to this dilemma. I show here that the Second Circuit solution does not meet this framework and thus must be discarded. Third, Part III articulates my proposed solution, showing that it is most consistent with this framework.
A discriminatory school district is sued, placed under court supervision, remedies the discrimination, and is released from court supervision. What next? There is a growing, and worrisome, trend towards the resegregation of schools following their release from supervision. While the problems of resegregation have recently drawn attention among social scientists and journalists, the procedural hurdles to litigating a claim of resegregation remain largely unexamined. Indeed, certain procedural hurdles could greatly impede litigation to challenge resegregation. This Note examines the defense of preclusion in the resegregation context, and concludes that in two categories of cases—pre-1966 class actions, and post-1966 “implied” class actions—school districts cannot rely on preclusion to defeat an action challenging resegregation. The first category, pre-1966 class actions, were filed before the 1966 Amendments to Rule 23, which provide greater procedural protections to ensure adequate representation. The second category, implied class actions, were filed after the 1966 amendments, never formally certified as class actions, but informally treated as such by courts. Because many pre-1966 class actions and post-1966 implied class actions do not provide the procedural protections to satisfy the constitutional requirement for adequate representation, judgments releasing school districts from court supervision cannot properly bind future plaintiffs challenging resegregation.