Superiority (which requires a court to find "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy") is an often-overlooked area of Rule 23, perhaps because these days, it comes with a nice long, non-exhaustive list of factors to consider, including:

  1. the class members' interests in individually controlling the prosecution or defense of separate actions;
  2. the extent and nature of any litigation concerning the controversy already begun by or against class members;
  3. the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
  4. the likely difficulties in managing a class action.

After all, what litigant (or court) doesn't love slogging through a nice long list?

But, nice long list aside, superiority is an extremely valuable tool in a class-action defense lawyer's kit. Why? Because, when you get down to it, superiority encodes an important policy choice into Rule 23: when a plaintiff is suing for money damages, a class action should not be the court's first choice for resolving the dispute. The court should look to see whether other ways of solving the problem (individual cases, government action) work first.  And it should also look to see whether the class action will do more harm than good.

One recent case, Pipefitters Local 636 Insurance Fund v Blue Cross Blue Shield of Michigan (6th Cir. 2011), illustrates just how useful the superiority requirement can be when wielded properly.

The plaintiffs in Pipefitters sued Blue Cross because, for three years, it had imposed a fee (called the "other-than group" subsidy, or OTG subsidy) on group health customers. The fee helped subsidize the care of out-of-group insureds, such as retired people living on fixed incomes. One of the key merits questions was whether Blue Cross had been acting as an ERISA fiduciary at the time it imposed the fee. Despite the fact that determining whether Blue Cross's fiduciary status required looking at its individual Administrative Service Contracts with each client, the trial court certified a class under Rule 23(b)(3).

Blue Cross appealed. And, in an unusual twist, it was joined by the Michigan Commissioner of the Office of Financial and Insurance Regulation, which filed an amicus brief explaining that certifying a class against Blue Cross could result in "significant, negative financial ramifications to Michigan's senior citizens" because a victory might result in the inability to subsidize older non-group insureds.

The Sixth Circuit reversed the certification on two grounds. Procedurally, it pointed out that the trial court had not based its opinion on sufficient facts. Substantively, it held that a class action was not superior in this case. Specifically, it offered three reasons why the proposed class action would not be superior. First, the proposed class was simply unmanageable.

[T]he district court here would be required to conduct individualized inquiries into the ASC terms and funding arrangements of each ASC customer. That means looking at the contract terms and funding arrangements of 550 to 875 class members. Given the necessary number of individual inquiries, a class action cannot be a superior form of adjudication.

Second, the potential damage awards were large enough to justify individual litigation.

[T]he potential damage awards do not support a finding of superiority. The Fund alone claimed damages in excess of $280,000, and the record indicates that the possible awards of other class members exceed this amount. These are not the types of awards that would preclude individual class members from seeking relief through litigation.

But most important (and most interesting),

The Commissioner contends that, as a result, if the case were to proceed as a class action, BCBSM would potentially be forced to stop collecting more than $100 million dollars annually, which could result in higher premium rates for insured customers or in a reduction in Medigap coverage and a dramatic increase in premium rates for Michigan's senior citizens. The serious financial repercussions to Michigan's elderly population further support a conclusion that a class action is not a superior method of resolving the Fund's allegation.

The Sixth Circuit justified this view by citing an old Third Circuit case, Katz v. Carte Blanche Corp., 496 F.2d 747, 760 (3d Cir. 1974), that had held that a court could consider whether the class action was good for the "public at large." There is a certain logic to this argument. After all, if class action plaintiffs' lawyers want to hold themselves out as quasi-public servants who supplement publicly-accountable attorneys-general, then it would make sense to look at the effect their actions have on the public at large.

So what can defense lawyers learn from this case? Never assume that a class action is the best way of resolving a dispute. Class-action critics have often complained that plaintiffs' lawyers file big cases without considering the bigger picture of how they will affect policy. Pipefitters indicates that courts may actually listen to those arguments.