USA Law and Practice Contributed by: Roger Cooper and Lina Bensman, Cleary Gottlieb Steen & Hamilton
1. Policy Development of Collective Redress/Class Action Mechanisms 1.1 History and Policy Drivers of the Legislative Regime As with much of United States law, the United States class action regime has its roots in Early Modern English common law. Over the course of the seven- teenth and eighteenth centuries, English law evolved to accommodate actions in which numerous parties’ interests were involved in order to more consistently and efficiently adjudicate disputes. These early mech- anisms included bills of peace, which aggregated multiple suits premised on a common question, and creditor bills, which sought to jointly resolve the claims of multiple creditors against a single debtor. (Geoffrey C. Hazard, Jr et al, “An Historical Analysis of the Bind- ing Effect of Class Suits”, 146 U. Pa. L. Rev. 1849, 1861–68 (1998).) Although United States legal institu- tions inherited these tools for claim aggregation, they were seldom utilised by United States courts (ibid at 1882, 1886). Over the course of the nineteenth century, United States legal institutions gradually came to develop a more robust programme of representative adjudica- tory mechanisms. In 1844, the United States Supreme Court issued its landmark decision in Smith v Sworm- stedt , clarifying 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 the others” (57 U.S. 288, 298, 14 L. Ed. 942 (1853)). In the ensuing decades, the frequency with which American courts heard class actions and their willingness to bind absent parties increased. This culminated in the 1912 revision to the Federal Equity Rules, which established that “[w]hen the question is one of common or general interest to many persons constituting a class so numerous as to make it impracticable to bring them all before the court, one or more may sue or defend for the whole.” (Rules of Practice for the Courts of Equity of the United States Rule 38, at 11, reprinted in 226 U.S. 627, 659 (1912).) This regime remained in place until 1938, when the Federal Equity Rules were replaced with the Federal Rules of Civil Procedure, and Rule 38 was replaced with Federal Rule of Civil Procedure 23 (“Rule 23”).
In Rule 23’s earliest form, class actions bound absent class members only under certain circumstances, often requiring members to affirmatively opt in to the class in order to reap the benefits of the suit and be bound by its resolution. In 1966, Rule 23 was sub- stantially overhauled in an effort to simplify its frame- work and align it with contemporary developments in decisional law. The single most impactful innovation was the addition of Section (b)(3), which permits class actions when “the 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”. (David Marcus, “The History of the Modern Class Action, Part i: Sturm Und Drang, 1953–1980”, 90 Wash. U. L. Rev. 587, 603–09 (2013).) In contrast with the prior version of Rule 23, the revised Section (b)(3) did not require class members to opt in, facilitating large class actions in areas such as securities fraud, where prospective class members “are in a poor position to seek redress, either because they do not know enough or because the cost of suit is disproportionate to each individu- al claim”. (Charles Alan Wright, “Class Actions”, 47 F.R.D. 169, 179 (1970).) The amendment of Rule 23 transformed the landscape of representative adjudication in United States law, and, naturally, it did not do so without controversy. Over the last sixty years, both critics and champions have continued to advocate for class action reform, animated by concerns such as the impact of class actions on commerce and individual litigants’ ability to co-ordinate a collective response to common inju- ries (Marcus at 611–14). While the regime established by the 1966 amendments to Rule 23 governs class actions to this day, this persistent tension has led to occasional changes and compromises regarding class action policy. For example, in 1995, the United States Congress passed the Private Securities Litigation Reform Act (PSLRA), which sought to deter frivolous securities fraud claims by shifting bargaining power in favour of securities class action defendants. For example, the PSLRA requires that discovery is stayed during the pendency of a motion to dismiss, provides a safe harbour for forward-looking statements such as certain projections and estimates, and caps monetary damages for certain claims. Perhaps most notably, in
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