Defendant class actions are rare beasts. Rule 23 clearly authorizes them, but plaintiffs rarely file them, and defense counsel rarely encounter them. (I've only seen one or two in the wild myself.)
An article by law professor Francis X. Shen that appeared in the Denver University Law Review, The Overlooked Utility of the Defendant Class Action, notes that only about 177 class actions have ever been reported. Professor Shen argues that this comparative rarity doesn't reflect a difficulty in using the device so much as it does a misunderstanding of its usefulness.
What is a defendant class action, anyway? Simply put, it's a class action where, instead of joining a number of plaintiffs with a single representative, the plaintiff joins a number of defendant with a single representative. A defendant class action has to meet the same Rule 23 requirements as a plaintiff class action. And therein lies the problem. A defendant class action requires an adequate class representative. And most defendants have no interest in serving as a representative for a class of similarly-situated defendants. A proposed representative that doesn't want the job is not adequate; a proposed representative that does want the job is arguably even less so. Moreover, in a Rule 23(b)(3) class action, most defendants would likely exercise their right to opt out.
As a result, most defendant classes are brought under Rule 23(b)(1). (Professor Shen's empirical analysis confirms this, the largest group of defendant class actions were constitutional challenges, which could be brought under the "inconsistent rulings" provision of Rule 23(b)(1). These constitutional challenges also benefit from the fact that the defendants--usually government personnel--have a strong incentive to clarify certain rules about how they should act; they're not personally on the hook for damages.) And, because of the due process concerns involved with imposing injunctions against people who can't defend themselves, courts are very reluctant to certify defendant classes under Rule 23(b)(2).
Despite these crushing disadvantages, Professor Shen believes that the defendant class action would be useful in cases where coordinating defendants is difficult. As he puts it:
The crux of my argument is that it is more likely for this mid-size group to overcome collective action problems when they are on the defendant side. The reason for this logic is straightforward; on the defendant side, parties do not have to initiate the proceedings.
This analysis sounds odd enough--do defendants really suffer from collective action problems in cases like these? But when Professor Shen provides examples of what he means, it's clear that he's not really envisioning a Rule 23 class action as it exists under United States law. Professor Shen offers two hypothetical cases:
- RIAA lawsuits against downloaders, and
- securities class actions against corporations and corporate personnel.
The first hypothetical demonstrates the problem with trying to bring a Rule 23(b)(3) defendant class. What young music downloader wouldn't opt out of an RIAA class action given the chance?
As for the second hypothetical, Professor Shen believes it would enhance deterrence in cases of corporate misconduct:
To the extent that it was not just a few "bad apples," but instead is in part driven systematically by certain kinds of corporate cultures, we want a legal device that can possibly change those cultures. A defendant class action might do that. In operation, if future members of a firm knew that they could be held liable (as a defendant class member) for any harm caused by the firm, it seems more likely that they would stand up to their bosses when asked to do illegal tasks.
Of course, nothing currently prevents lawyers currently from naming many individual defendants in securities cases involving "certain kinds of corporate cultures." And other firm personnel already know they will suffer for any harm caused by the firm: they will lose their jobs, and have to explain their tenure at the previous firm when looking for more employment. By contrast, if they're sued for damages in a defendant class, what will prevent them from opting out of any additional liability?
Professor Shen views this as a "system design" problem. In other words, he argues for changing the rules of the defendant class action to allow for drafting defendants into a defendant class, possibly applying a presumption of liability against them to give them an incentive to litigate, and possibly assessing a "litigation tax" to make sure they contribute to the costs of defense. He does concede that
It remains to be seen, for instance, how the proposed tools of system design will hold up in practice.
Amen to that.