Judges should tighten reins in class action litigation, group says.

If judges keep a more watchful eye on class action settlements and fee awards, the outcomes of class action litigation could improve and abuses in the litigation could be eliminated, claims a study by the RAND Institute for Civil Justice.

The study, Class Action Dilemma: Pursuing Public Goals for Private Gain, offers judges guidelines for exercising closer scrutiny over settlements and attorney fees in class actions that seek money damages. Business leaders have called for reform in class action rules to respond to increases in class action litigation.

The debate over class actions seeking damages has been largely about whether, when, and where they should be allowed. Those in favor of change argue that trial lawyers have increased the amount of litigation, imposing higher costs for businesses and greater burdens for courts. Proponents of class action litigation contend that the suits are a necessary means of securing remedies for wronged consumers and mass tort victims while encouraging more responsible behavior on the part of corporate defendants.

"These proposals raise hot-button political issues on which there is no consensus and that are unlikely to be resolved any time soon," said the study's lead author, Deborah Hensler, a RAND senior fellow and Stanford University Law School professor. "However, many of those on both sides of the political divide share concerns about current class action practices in money damage suits. By shifting the focus of the debate to improving the way these suits are litigated, the antagonists could find common ground."

Judges' role crucial

Emphasizing that "judges hold the key" to better practices, Hensler and her colleagues made detailed suggestions about how to evaluate settlements and attorney fees. "The single most important action that judges can take to support the public goals of class action litigation is to reward class action attorneys only for lawsuits that actually accomplish something of value to class members and society," the researchers said.

They also urged judges to dismiss cases that have no legal merit and to refuse approval for settlements that lack worthwhile outcomes.

Judges already have the power to regulate class actions along these lines, the study noted. So what stands in their way? The authors cited three obstacles: a judicial culture that stresses calendar clearing above all other values; a belief that court efficiency is measured in terms of dollars spent rather than dollars spent effectively; and an absence of broadly available information on class action practices and outcomes that might provide an incentive for class action practitioners and judges to elevate their performance.

Many judges "need to be educated" about their obligations and powers in class actions by more experienced colleagues, the study said. Acknowledging that better judicial management might be more costly, researchers said saving money by limiting judicial scrutiny is "a foolish economy that has the long-term consequence of wasting society's resources."

The public policy question at stake in class actions that seek money "is whether the entrepreneurial behavior of private attorneys produces litigation that is, on balance, socially beneficial," the study pointed out. Judges must police the balance between public good and private gain because members of the class rarely monitor the behavior of their lawyers and because "the powerful financial incentives that drive plaintiff attorneys to assume the risk of litigation intersect with powerful interests on the defense side in settling litigation as early and as cheaply as possible, with the least publicity."

Recent reform efforts have focused on eliminating abuses by incorporating guidelines for distinguishing "good" and "bad" cases in the criteria for class certification. But the lack of political consensus about what distinguishes meritorious class actions and nonmeritorious class actions has stymied these efforts. The researchers also argued that judges with different beliefs about the proper objectives of class actions seeking damages are unlikely to apply guidelines consistently.

However, judges can be given guidelines for assessing settlements and attorney fees in cases that satisfy existing certification criteria, the researchers said. By denying approval to settlements that lack merit and rewarding attorneys only for what they accomplish, over the long run judges can drive "bad" cases from the system.

The findings of the study were released in early November. A copy is available on RAND's Web site at http://www.rand.org/ publications/MR/MR969.1.pdf.