THE SUPREME COURT'S END-OF-TERM RULING ON CLASS ACTION SETTLEMENTS: A Bad Decision That In Any Case, Doesn't Mean What It Says

The end of a Supreme Court term always brings meaty opinions loudly chewed over by the commentariat. Inevitably, other opinions are cast aside as carrion. Invariably, that's a shame.

One such case was the subject of the Court's June 10 ruling in Devlin v. Scardelletti, which addressed an obscure corner of the class action rules. The issue in Devlin was the narrow question whether an unnamed member of a class could appeal a court's judgment settling a class action. (Named plaintiffs represent the class in court, and must fulfill certain legal requirements to do so; unnamed class members, in contrast, simply belong to the class.).

The Court said yes - even unnamed class members could appeal a settlement. Not only is that a bad result the manner in which the Court approached the question is rather worse. The problem with Devlin is that the Court simply doesn't mean what it says there, which is no way for our highest court to conduct its business.

Class Actions: A Primer

Class actions, as most law students know, permit certain people to represent before a court a larger class of similarly situated people. Those people are called the named plaintiffs or the class representatives.

The goal of the class action is to avoid having a bunch of people bring the same lawsuit. Provided it really is the same lawsuit - always the threshold question - it makes sense to decide the issues once, and to bind every member of the class by that decision.

By way of example, let's say a bank has a policy of charging every borrower 5% more than its stated interest rate. Every borrower is then "similarly situated" - they all got stiffed 5%. Each one was overcharged a different amount of money, of course, but that's just an accounting function.

Under class action law, any one borrower who is a client of the bank can serve as the "class representative," suing the bank for the illegal surcharge. Because the claims truly are the same, any borrower is likely to satisfy the requirement that the representatives' claims be "typical," and thus be allowed (after fulfilling a few other legal requirements) to stand in for the class.

Class action litigation can be a wonderful way to preserve resources. But such actions are always unwieldy, and can often be dangerous. Consider the difference between an individual plaintiff's action and a class action. A single car buyer may or may not have a legitimate claim against General Motors. If the claim is serious enough, the buyer may even be willing to foot the bill for a lawsuit; GM can certainly afford to defend it, if it wants to. But it is a different matter indeed when a million car buyers want to sue, and when GM's exposure in compensatory and punitive damages runs into the billions.

Now we are no longer talking about money; we are talking about the company's very survival. As Judge Richard Posner famously remarked, a single jury has the power in American law to "hurl [an entire] industry into bankruptcy." Given this potential, merely filing a class action creates pressure - sometimes huge pressure - on the defendant to settle. Visions of the lonely consumer battling the huge corporation bear no resemblance to the way major class actions are litigated today.

The Facts of Devlin v. Scardelletti

The facts of Devlin are of the barest interest, but need to be recounted here to provide some context for the case. The Transportation Communications International Union administers a pension plan. To remain solvent, the union eliminated a cost-of-living adjustment provision. A retiree sued on behalf of all retirees.

As class actions go, this works: all of the retirees were hurt in the same way. The only differences have to do with how much an individual is hurt - how much money he would have had. But again, that's just a matter of number crunching, and shouldn't prevent the plaintiffs from proceeding as a class.

Robert Devlin was asked to serve as the class representative in the lawsuit. He declined, preferring to sue on his own. His lawsuit was dismissed, precisely because the class action was addressing for all pensioners the issue that Devlin tried to raise in his individual lawsuit, so Devlin's lawsuit would have been redundant. So far, so good. The system worked. The issue was best resolved one time in one case.

Even after his suit was dismissed, Devlin still had three options. First, he could "intervene." That's a procedural device that allows someone with an interest in a lawsuit to come into the suit, even if he wasn't one of the original parties.

And Devlin did move to intervene - but only after the parties to the class action had agreed to a settlement and asked the Court to approve it. The trial court ruled that Devlin's motion was untimely. The time to intervene was while the parties were litigating, not after they had reached agreement.

Second, Devlin could "object" to any proposed resolution of the class action. That is, he could tell the Court, at the hearing at which it considered whether or not to approve the settlement, why he thought any proposed settlement was a bad idea. The Court is bound to consider the views of objectors before blessing a settlement.

Devlin did object - at the right time. The Court heard his objections, and approved the settlement anyway.

Third, Devlin could have moved to intervene solely for the purposes of appeal. He didn't. He simply appealed.

She ruled that because Devlin was affected by the judgment approving the class action settlement (which he most certainly was), and because he objected to the settlement in the trial court (which he did), he had a right to appeal.

The Silent Death of the Class Action?

In assessing the Court's decision, it is difficult to know where to start - for so much of it is wrong, or wrongheaded.

To begin, the aim of class action litigation is to avoid having a lot of lawsuits addressing identical claims. In order to proceed with a class action, a court must certify that the class representatives are truly representative -- that is, their interests are typical of those of the non-named class members. This is the only fair way to have a court judgment bind people who are not themselves before the court.

The rules affecting class actions should be interpreted with that aim in view. The Devlin majority, to the contrary, encourages any member who is in the class (or believes he or she is) to get involved in the litigation whenever - and as belatedly - as he or she may choose, by essentially eliminating all barriers to appeal.

The only limit to the right to appeal recognized in Devlin appears to be that to invoke it, one must object to the proposed settlement. Does that mean that anyone who mails a letter to the court saying "I object" is suddenly a party for purposes of appeal - even if it is not clear that they were properly a class member in the first place?

When Can Unnamed Class Members Intervene? The Court's Vague Guidelines

And the real problem goes well beyond appeal. By the court's logic, there is nothing to stop an unnamed class member from simply deciding he wants to participate in the litigation at any time. That may spell the end of the class action as an efficient alternative to multiple individual litigations.

The majority's thoughts on the subject of when unnamed class members can intervene are the opposite of helpful. Justice O'Connor notes that "non-named class members ... may be parties for some purposes and not for others." On what principle are we supposed to distinguish those purposes? Justice O'Connor doesn't say, but her examples are not encouraging.

This salutary rule discourages you from filing your own lawsuit, and so it's consistent with the overall goal of class litigation. But it is, more importantly, a peripheral rule - not one that relates to how the litigation will be conducted, which is the central issue in class action litigation. Thus, noting nonnamed class members can toll the statute says little as to what such members can do vis-a-vis more central class action rules.

Similarly, Justice O'Connor notes that "nonnamed class members cannot defeat complete diversity." ("Diversity" means diversity of citizenship - a prerequisite for a federal court lawsuit that does not raise a question of federal law). This is presently true, though there are proposals before Congress which would eliminate the importance of this rule by ensuring a federal forum for genuinely national class actions. And again, the important point is that this rule doesn't get to the real question, which is how the nuts and bolts of class litigation will proceed. When it comes to these nuts and bolts, how much of a role will non-named class members have? The Court's opinion doesn't specify.

According to the majority, "[w]hat is most important to this case is that non-named class members are parties to the proceeding in the sense of being bound by the settlement." Well, yes - that's the point of certifying a class. But if that's what's important, then what is the justification for drawing the line at the right to appeal? Does this mean that non-named class members can do everything named class representatives can do, at every stage of the litigation? And if they can, what is the purpose of having named class representatives at all? If that is the justification for permitting a class member to appeal, it will serve equally well to justify, say, showing up at a deposition and starting to ask questions. Why not?

After all, the class member's interests are on the line. He has every reason to think that he has a right to file motions, pose interrogatories (written questions that a party must answer), and demand to be heard in court.

The Devilish Potential Consequences of Devlin

The Court has thus created an opportunity to anyone (read: any plaintiff's lawyer) to enter into class litigation, or merely threaten to do so, unless her interests are served. In this way, the Court has made a bad situation immeasurably worse.

Devlin, of course, is about appellate, not trial court litigation. But missing from the majority's opinion is any reason (or, failing that, precedential or other legal authority) for why a non-party may be magically transformed into a party because the litigation has proceeded to an appellate court. Devlin is, in that sense, literally without precedent.

Any unnamed class member who tried to start litigating in the trial court would undoubtedly be told he couldn't. If he appealed (citing Devlin), and if he found himself in front of the Supreme Court, he would likely get an opinion saying that he was free to try to intervene, but had no business trying to participate in the litigation.

The majority would, of course, distinguish Devlin on the grounds that, after all, it's about an appeal. It couldn't say much more than that, however, because Devlin's reasoning would squarely support the unnamed class member.