Innovation or Frolic and Detour: Reconsidering the Authority for the Modern Damages Class Action

September 21, 2022

The massive damages class action—grouping thousands of individual claims for damages together in the name of a common question—is ubiquitous in American law today.  But it wasn’t always that way.  Just 55 years ago, it was an “adventuresome” innovation of the Advisory Committee on the Federal Rules of Civil Procedure, approved by the Supreme Court.  Yet despite skepticism of many judicial innovations of the 1960s, and much debate at the margins of Rule 23(b)(3), we’ve seen few questions that strike at its core.  Before getting aboard the damages class action train, though, it is worth considering where it is going and who is driving it.  This post attempts to do just that, albeit in an abbreviated fashion, and ultimately concludes that closer scrutiny should be given to the authority of courts to award damages to unnamed class members under Rule 23(b)(3).

Early Origins of Representative Litigation in England

Some scholars peg the first class action to a surprising source: a seventeenth century clergyman seeking tithes.1  He brought suit against all the owners and workers of the profitable mines within his vicarage, claiming one-tenth of the output of the mines for the church.  Although miners appeared to defend the suit, the clergyman prevailed.  And when one of the owners of the mine later argued that he was not bound by the decree, the Lord Chancellor held otherwise.  

That suit cannot bear the weight of the modern class action system, though.  As scholars have noted, the decision in that case bears none of the hallmarks of a decision ushering in an entirely new method of litigation and is probably best understood as a remnant of the feudal system under which parishioners shared a communal obligation to the church.2  Indeed, similar obligations were enforced through the ecclesiastical courts dating back to the Middle Ages—in one case, the rector of a parish successfully sued four of his parishioners (as representatives for the others) asserting his right to customary burial fees.3  The obligations of such fees were communal in nature.

Justice Story’s Categories for Representative Litigation in Equity

Indeed, the hallmark of representative—or class-based litigation—at equity was the assertion of a right held in common, or in some cases, rights held in a common fund or property.  Joseph Story categorized the various cases for representative litigation as follows: “(1) where the question is one of a common or general interest, and one or more sue, or defend for the benefit of the whole; (2) where the parties form a voluntary association for public or private purposes, and those, who sue, or defend, may fairly be presumed to represent the rights and interests of the whole; [and] (3) where the parties are very numerous, and though they have, or may have separate and distinct interests; yet it is impracticable to bring them all before the Court.”4  But he cautioned that even that third category “appl[ied] only where the rights of the parties are in common with each other so that the benefit of the judgment inure[d] to the whole class and not to individual members thereof.”5 

Given that today’s attorneys are not really used to thinking about rights in this way, examples may be helpful.  For the first category, Justice Story described a suit by some crew members of a privateer seeking their portion of prize money obtained from a ship—the crew would have had a common interest in obtaining that money. For the second category, Justice Story cited a case brought by certain partners of a works project against other partners for alleged mismanagement and embezzlement of the partnership funds—the partners had formed the voluntary partnership and their interests were aligned in opposing embezzlement. In the third category, Justice Story cited suits involving parishioners like those described above, as well as a suit by some tenants against the lord to establish some right, such as “a right to cut turf”—the tenants might have distinct interests in their right to cut turf, but any right to do so would have inured to the tenants in common.8

The Supreme Court Approves Justice Story’s Framework for Representative Litigation in Equity

Perhaps because of this emphasis on rights held in common (and the move away from communal societies akin to those of the Middle Ages), the class action device was infrequently used for much of American history.  But when it was, the Supreme Court approved the device under this equitable tradition.  In Smith v. Swormstedt, the Court endorsed a representative suit by some traveling preachers against other traveling preachers over access to a common fund known as the “Book Concern,” which had been created and funded before the preachers’ church divided in two.  Recognizing that there were many more traveling preachers not made parties to the suit, the Supreme Court stated that “where the parties interested are numerous, and the suit is for an object common to them all, some of the body may maintain a bill on behalf of themselves and of others; and a bill may also be maintained against a portion of a numerous body of defendants, representing a common interest.”9  The court then described and endorsed the rules of equity on this subject set forth in Justice Story’s treatise.10

Representative Litigation After the Merger of Law and Equity

When law and equity merged, Professor Moore both refined and expanded upon these rules in the new Federal Rules of Civil Procedure.  He took Justice Story’s three categories and grouped them primarily into the first category of the new Rule 23, which authorized a class action “when the character of the right sought to be enforced for or against the class is … joint, or common, or secondary in the sense that an owner of a primary right refuses to enforce that right and a member of the class thereby becomes entitled to enforce it.”  He then placed the so-called “common fund” cases—those where plaintiffs were seeking money from a fund to which others had rights—into a second category, “when the character of the right sought to be enforced for or against the class is … several, and the object of the action is the adjudication of claims which do or may affect specific property involved in the action.”  Finally, he proposed a third category for cases “when the character of the right sought to be enforced for or against the class is … several, and there is a common question of law or fact affecting the several rights and a common relief is sought.”11  These categories were generally referred to as “true,” “hybrid,” and “spurious,” respectively.  The roots of the first two categories can be seen in Justice Story’s summary of equitable practice, but Professor Moore readily admitted that “[t]he spurious class action ha[d] not been recognized in … England.”12 Instead, he thought it justifiable in the federal courts because, unlike in England where injured parties might be able to join as plaintiffs, the requirements of diversity jurisdiction might serve as a roadblock to such joinder.13

Although at first blush “spurious” class actions might seem the forerunner of today’s damages actions, they were not for one very important reason:  Professor Moore took the position in his influential treatise on Civil Procedure that, although judgments in “true” class actions bind the class and judgments in “hybrid” class actions bind persons having claims affecting specific property, judgments in “spurious” class actions were conclusive only on parties and privies to the proceedings.  Thus, “spurious” actions weren’t really class actions at all, at least not the way we think of them.  It is true that there was the possibility for broader application of rulings—plaintiffs could wait to see if a favorable ruling was reached in a matter, then intervene to try to take advantage of that ruling without having to show an independent basis for federal jurisdiction or satisfy the statute of limitations.14  But there was also no notice provision and plaintiffs accordingly bore the burden of learning of their claim and bringing it forward as a party, rather than simply riding along as a member of the class.  Under those circumstances, the “spurious” class action was a far more limited tool than it might otherwise sound from its description.

A 1966 Innovation in the Federal Rules Spawns the Modern Class Action

The big adventure thus came in 1966, when the Federal Rules Committee moved away from a focus on the nature of the right and toward a focus on potential remedies.  As it had in the previous version, the first category encompassed most of the representative litigation claims brought at equity—"those where prosecuting separate actions would create a risk of inconsistent adjudications that would establish incompatible standards of conduct for the party opposing the class or that, as a practical matter, would be dispositive of the interests of other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.”  If rights held in common are adjudicated piecemeal, such adjudication would be dispositive of the interests of nonparties.  Likewise, if rights to a common fund are adjudicated piecemeal, such adjudication would, as a practical matter, impede the ability of others with rights in the common fund to protect their interests.  

The second category was new, though also at least partially supported by the equitable tradition of injunctions.  That category includes cases where the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.  The Advisory Committee gave civil rights cases as a good example of the category, and indeed Pomeroy’s Equitable Jurisprudence noted that “the illegal, unlawful, or improper acts of public officers may be restrained when they would produce irreparable injury, or create a cloud upon title, or when such remedy is necessary to prevent a multiplicity of suits.”15  What limitations equity might impose on available injunctions in other contexts is a subject for another post.

The focus of this post is the third category, which authorizes class-action treatment “where the court finds that questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”  Justice Ginsburg called this an adventuresome innovation, and indeed it was.  For the first time, the Federal Rules gave courts (and the plaintiffs’ bar) a tool to amass and resolve—in a binding fashion—damages claims through representative litigation not involving common rights or common funds.  This addressed the problem for business posed by unnamed class members’ attempts to “intervene” in spurious class actions, but it also created a variety of other problems for business as courts asserted a new—and greater—power than they had under either law or equity—the power to resolve the claims of individuals who were not truly “parties” to the suit and whose rights were distinct from those who were parties to the case. 

This power has imposed significant costs on the American legal system.  Indeed, corporate legal spending to defend against class actions has been estimated to top $3 billion each year.16  That number does not capture the spend by plaintiffs’ attorneys or the courts.  Nor does it capture the many billions of dollars spent on class action awards or settlements each year.

Authority for this Innovation?

                The Rules Enabling Act?

So where is the authority for the power of courts to resolve claims of unnamed class members through Rule 23(b)(3)?  The most obvious potential source is the Rules Enabling Act, which affords the Supreme Court “the power to prescribe general rules of practice and procedure and rules of evidence for cases in the United States district courts (including proceedings before magistrate judges thereof) and courts of appeals.”17  The caveat is that such rules “shall not abridge, enlarge or modify any substantive right.”18  The Supreme Court has said that this means that the Rule must “govern[] only the manner and the means by which the litigants’ rights are enforced…; if it alters the rules of decision by which the court will adjudicate those rights, it is not [valid].”19

In Shady Grove, a plurality of the Supreme Court held that “rules allowing multiple claims (and claims by or against multiple parties) to be litigated together are . . . valid,” and that “Rule 23—at least insofar as it allows willing plaintiffs to join their separate claims against the same defendants in a class action” is authorized by the Act.20  It reasoned, “A class action, no less than traditional joinder (of which it is a species), merely enables a federal court to adjudicate claims of multiple parties at once, instead of in separate suits.  And like traditional joinder, it leaves the parties’ legal rights and duties intact and the rules of decision unchanged.”21

But joinder requires an unnamed class member to be made a party to the litigation.  Representative litigation—the forerunner to class actions—was an exception to traditional joinder rules, allowing the adjudication of rights without making an individual a party.  The modern damages class action is thus, at most, a hybrid extension of traditional joinder and equitable practice.  Unnamed class members are not parties for all purposes.22  They are not brought before the Court in the way that parties traditionally are, they are not considered for purposes of statutory diversity jurisdiction or venue, nor are they entitled to take discovery or move for summary judgment in the way that named plaintiffs might be, nor are they bound by any decisions in the case until after class certification.23  Indeed, Justice Scalia himself—years before his opinion for a plurality of the Court in Shady Grove—wrote a dissent explaining that nonnamed class members are not parties and are only “bound by the class judgment, even though they are not parties to the judgment, because they are represented by class members who are parties.”24  In these respects, the damages class action is nothing like “traditional joinder” and does not “leave[] the parties’ legal rights and duties intact.”

So does it matter—for purposes of judicial authority—that unnamed class members are not in fact “parties” in the traditional sense?  One could certainly argue that it does.  After all, that undercuts the reasoning of the plurality in Shady Grove.  A federal court providing relief to unnamed class members is more than just adjudicating claims of multiple parties at once.  It is adjudicating claims—and in many cases, providing relief to—nonparties in the traditional sense.  And it is doing so under circumstances that equity would not have reached.  That raises real questions about judicial authority under the Rules Enabling Act.  To be sure, Rule 23 imposes certain procedural protections for the parties when it authorizes this class action procedure—for example, notice and an opportunity to opt out, and scrutiny of the adequacy of representation for the unnamed class members.  But the fact that Rule 23 addresses some procedural matters does not mean that it is entirely procedural in nature.

                Article III?

Setting aside the Rules Enabling Act issue, there lurks a potential Article III issue.25  Does the federal “judicial Power” extend to the award of damages to persons not brought before the court as “parties” to the case, in the traditional sense?  The core of the “judicial Power” is the power “to render dispositive judgments” resolving “particular cases and controversies” within the jurisdiction of the federal courts.26  It has long been assumed that the power to issue binding “judgments” includes the power to order certain remedies.27  The question with respect to Rule 23(b)(3) class actions is whether that remedial power includes the authority to issue a traditional remedy at law (damages) to persons that are neither joined as parties in the traditional process at law nor sharing in the common rights that courts were thought to be able to adjudicate at equity. 

In other contexts, the Supreme Court has recognized limits on the federal judicial power in equity.  The Court has emphasized, for example, that the equitable powers conferred on lower federal courts by the Judiciary Act of 1789 do not include the power to create remedies previously unknown to jurisprudence,28 and the Court has never suggested that Article III could prove a font of equitable powers substantially greater than those.  To the contrary, at least some Justices have forcefully questioned exercises of equitable powers that go beyond the English tradition.29  Justice Thomas, for example, has questioned the authority of the federal courts to issue both “structural” injunctions30 and “universal” injunctions.31  In doing so, he has expressly noted that “as a general rule, American courts of equity did not provide relief beyond the parties to the case.”32  Justice Gorsuch, too, has criticized the practice of awarding relief to nonparties through universal injunctions.33  This reasoning casts considerable doubt on a mechanism that permits courts to award damages to nonparties (or at best, quasi-parties).  

Despite this doubt, the damages class action has escaped significant scrutiny on this score.  Perhaps it is time for another look. 

 

Brown v. Vermuden, 22 Eng. Rep. 796, 802 (Ch. 1676).
2 Raymond B. Marcin, Searching for the Origin of the Class Action, 23 Catholic U. L. Rev. 515, 516 (1974).
3 Stephen C. Yeazell, The Past and Future of Defendant and Settlement Classes in Collective Litigation, 39 Ariz. L. Rev. 687, 688 (1997) (discussing Martin v. Parishioners of Nuthamstead, in Select Cases from the Ecclesiastical Courts of the Province of Canterbury, c. 1200-1301 (Norma Adams & Charles Donahue, Jr. eds., 1981).
4 Joseph Story, Commentaries on Equity Pleadings and the Incidents Thereof, According to the Practice of the Courts of Equity of England and America ch. IV, § 97 (2d ed. 1840)
5 Joseph J. Simeone Jr., Class Suits under the Codes, 7 Case Western Law Review 1, 14 (1955); see also Story § 120 (“[I]n all of [these cases] there always exists a common interest or common right, which the Bill seeks to establish and enforce, or a general claim or privilege, which it seeks to establish, or to narrow, or take away.”).
6 Story, supra, § 98.
7 Id. § 108
8 Id. § 121.
9 57 U.S. 288, 302 (1853).
10 Id.
11 Fed. R. Civ. P. 23 (1938).
12 James Wm. Moore, Federal Rules of Civil Procedure: Some Problems Raised by the Preliminary Draft, 25 Geo. L. J. 551, 575 (1937).
13 Id.
14 See Advisory Committee note on the 1966 revisions.
15 Pomeroy’s Equitable Jurisprudence, vol. iv, § 1345 (1905).
16 Carlton Fields 2022 Class Action Survey, at 6.
17 28 U.S.C. § 2072(a).
18 Id. § 2072(b).
19 Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 559 U.S. 393, 407 (2010) (internal quotation marks omitted).
20 Id. at 408.
21 Id.
22 Devlin v. Scardelletti, 536 U.S. 1, 9 (2002).
23 Some courts have reasoned that unnamed class members do not have to establish personal jurisdiction over defendants.  See, e.g., Mussat v. Iqvia, Inc., 953 F.3d 441, 447 (7th Cir. 2020), cert. denied. 141 S. Ct. 1126 (2021) (“We see no reason why personal jurisdiction should be treated any differently from subject-matter jurisdiction and venue: the named representatives must be able to demonstrate either general or specific personal jurisdiction, but the unnamed class members are not required to do so.”).  The Chamber has criticized that reasoning.  See, e.g., Br. of Washington Legal Foundation and the Chamber of Commerce of the United States of America as Amici Curiae in Support of Petitioner, Iqvia, Inc. v. Mussat, No. 20-510 (S. Ct.).
24 Devlin, 536 U.S., at 18 (Scalia, J., dissenting) (citing Restatement (Second) of Judgments §§ 41, 75, Comment a (1982)).
25 Article III vests “[t]he judicial Power of the United States” in the Supreme Court and in inferior courts to be established by Congress and specifies that the power shall extend, inter alia, to “all Cases, in Law and Equity, arising under this constitution, the Laws of the United States, and Treaties made … under their Authority.”  It also extends—without express mention of “equity” to “Controversies . . . between Citizens of different States.”).
26 Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 218‑19 (1995) (quoting Easterbrook, Presidential Review, 40 Case W. Res. L. Rev. 905, 926 (1990)).
27 Missouri v. Jenkins, 515 U.S. 70, 124 (1995) (Thomas, J., concurring) (assuming that “the remedial authority of the federal courts is inherent in the ‘judicial Power,’ as there is no general equitable remedial power expressly granted by the Constitution or by statute” and arguing that “[a]s with any inherent judicial power …, we ought to be reluctant to approve its aggressive or extravagant use, and instead we should exercise it in a manner consistent with our history and traditions.”).
28 Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 332 (1999).
29 See, e.g., Department of Homeland Security v. New York, 140 S. Ct. 599 (2020) (Gorsuch, J., concurring in grant of stay); Trump v. Hawaii, 138 S. Ct. 2392 (2018) (Thomas, J., concurring); Jenkins, 515 U.S. at 124 (Thomas, J., concurring).
30 Jenkins, 515 U.S. at 126 (Thomas, J., concurring). 
31 Hawaii, 138 S. Ct. at 2425 (Thomas, J., concurring).
32 Id. at 2427 (Thomas J., concurring).
33 Department of Homeland Security v. New York, 140 S. Ct. 599 (2020) (Gorsuch, J., concurring in grant of stay).