Future Conduct and the Limits of Class-Action Settlements

The Laboratorium 2013-03-30

My latest article, Future Conduct and the Limits of Class-Action Settlements, has just been published in the North Carolina Law Review. I’ve been working on this one for a long time—two and a half years—and have been struggling with the ideas for even longer—nearly five. I’ve kept it under wraps until now because I wanted to be sure I had the details right.

This is my fullest and strongest argument against the late Google Books settlement. In the course of studying it, I came to realize that it was only the most visible example of a new and deeply worrying trend in class-action law. I found half a dozen other settlements, from antitrust to real estate, that used the same dirty trick the Google Books settlement did: giving the defendant a release for the future that would allow it inflict in new and unprecedented harms on the members of the class suing it. This article is my attempt to make sure that no one ever tries such a thing again—and that if anyone does try, the courts are ready to stand guard against it. It’s a sustained (nearly 90 pages) explanation of how these releases work, why they’re deeply dangerous to class members, and why they’re fundamentally illegal. As I said at a conference, “The Google Books settlement is dead; I would like you to come with me to the graveyard with pitchforks and stakes.”

Here’s an example, to give a sense of the kinds of unearthly forces from the outer darkness the Google Books settlement was trying to summon. Imagine that in 2003, BP had had a minor oil spill from a well in the Gulf of Mexico: a few thousand barrels. Now imagine a class action supposedly on behalf of all the residents of the Gulf states, and imagine a “settlement” of that class action that released BP from all liability not just from this past spill, but from all future spills. If such a settlement had been in place at the time of the Deepwater Horizon explosion, Tony Hayward could have stayed on his yacht all spring and summer without lifting a finger to stop the spill.

The courts should not be in the business of handing out these unprecedented future-conduct releases in class actions. The article is a careful explanation of why. Here’s the abstract:

This Article identifies a new and previously unrecognized trend in class-action settlements: releases for the defendant’s future conduct. Such releases, which hold the defendant harmless for wrongs it will commit in the future, are unusually dangerous to class members and to the public. Even more than the “future claims” familiar to class-action scholars, future-conduct releases pose severe informational problems for class members and for courts. Worse, they create moral hazard for the defendant, give it concentrated power, and thrust courts into a prospective planning role they are ill-equipped to handle.

Courts should guard against the dangers of future-conduct releases with a standard and a rule. The standard is heightened scrutiny for all settlements containing such releases; the Article describes the warning signs courts must be alert to and the safeguards courts should insist on. The rule is parity of preclusion: a class-action settlement may release future-conduct claims if and only if they could have been lost in litigation. Parity of preclusion elegantly harmonizes a wide range of case law while directly addressing the normative problems with future- conduct releases. The Article concludes by applying its recommendations to seven actual future-conduct settlements, in each case yielding a better result or clearer explanation than the court was able to provide.