The pressure to settle a class action that has made it past the certification stage is usually overwhelming. Regardless of the merits of the underlying claims, most companies will refuse to bet the company on a favorable jury verdict. In recent years, three independent legal developments, from three separate sources, have converged to alleviate this pressure for consumer sector companies facing unfair and deceptive practices and other class action litigation related to their marketing and advertising practices (as well as other types of consumer class actions such as antitrust and product liability cases):
- Congress diverting large class actions from state court to federal court
- The Supreme Court tightening federal pleading requirements
- Circuit Courts of Appeals tightening federal class certification standards
While far from a perfect fix, these changes in the law have made it tougher for plaintiffs’ lawyers to shake down American businesses via meritless class actions.
The Class Action Fairness Act (CAFA) funnels large class actions to federal courts. Once in federal court, the Supreme Court decisions in Twombly and Iqbal impose a finer filter at the motion-to-dismiss stage. And if a lawsuit proceeds beyond the pleading stage, the federal circuit court decisions in In re IPO and In re Hydrogen Peroxide and their brethren impose stricter standards for class certification. Taken together, these three independent developments will operate to limit the number of class actions that proceed to the expensive stage of discovery and that are ultimately certified.
Notably, these developments will cull the herd only of its weakest members. A lawsuit based on facts that plausibly suggest wrongdoing will, as always, survive a motion to dismiss. And a class action supported by a factual record showing that it is legitimately appropriate for class treatment will also survive this increased scrutiny. The cases that will not survive are those that are facially meritless or inappropriate for class treatment, and they will be weeded out at an earlier stage of the litigation, thus “secur[ing] the just, speedy, and inexpensive determination” of purported class actions. (Fed. R. Civ. P. 1).
For a more in-depth discussion on these developments, click here.
- James Speyer and Trent Norris
