Art. III and class representatives under Rule 23 | July 18, 2024
The Fifth Circuit had a nice summary of the current circuit-split over whether class representatives have constitutional standing to litigate harms of class members that the representative didn’t suffer herself. In Chavez v. Plan Benefit Services, 22-50368 (5th Cir. July 15, 2024), the Court summarizes the two primary approaches to analyzing the standing of class representatives to maintain a class action for harms not exactly like those of the representative: One approach is the “class certification approach,” while the other is “the standing approach.” Under the former approach, if a class member has standing, that’s enough for Art. III purposes, and the court moves on to address issues re the dissimilarity in injuries suffered under other Rule 23 prerequisites. But under the later approach, the class representative may be found to lack standing to pursue the class members’ claims if those injuries are not like the class representative’s injuries. The First, Third, Sixth, and Ninth Circuit follow the class certification approach, while the Second and Eleventh Circuit take the standing approach. The Fifth Circuit concludes that the plaintiff in Chavez has standing under both approaches.
Opting Out of Class Actions to Maximize Recovery | 1/25/23
Legal claims are valuable assets. But businesses often either fail to pursue a recovery strategy at all or employ a strategy that falls short of maximizing the asset’s value. In the context of large securities class actions in particular, this can a very costly mistake. An article by Prof. John Coffee had some eye-popping data on just how costly the mistake can be. Here are three examples:
WorldCom lItigation—Class settlement of $6.2 billion, but three California pension funds opted out and settled their opt-out claims for $257.4 million. Five New York City pension funds also opted out and settled their $130 million in claims for $78.9 million. Their counsel announced that this settlement amounted to "three times more than they would have recovered if they had joined the class.”
AOL Time Warner litigation—Class settlement of $2.4 billion, but opt out did much better: “the University of California settling for $246 million, the Ohio State Pension Funds for $144 million, CalPERS for $117.7 million, and CalSTRS for $105 million.” And “the State of Alaska settled its $60 million claim for $50 million and said that it had done 50 times what we would have recovered from the class.”
Qwest litigation—Class settlement of $400 million, but this was the first class settlement “in which the total payments to opt outs actually exceeded those to the class,” totaling $411 million.
These datapoints buttress a simple proposition: For class members with large standalone claims, it may pay more to opt out. The full article discussing these and other datapoints can be found here. It’s worth a read, particularly if you or a loved one think you may have a large securities fraud claim.
See John Coffee, Accountability and Competition in Securities Class Actions: Why "Exit" Works Better than "Voice", 30 Cardozo L. Rev. 407 (2008).