Multiple actions involving the same subject matter and the same defendant are a common feature of the U.S. class action landscape. In this series of blog posts, we’ll examine the problem of competing class actions, which presents a variety of challenges and options for the defendant. There is no one-size-fits-all response, but knowing the tools available will give defense counsel and the defendant the best opportunity to tailor a successful strategy to deal with a multiplicity of class litigation involving overlapping or repetitive claims.

Race to Judgment

One option, of course, is to simply defend each action separately. In this scenario, the first action to reach judgment on the merits, whether by settlement or litigation, will generally be conclusive as to all class members despite any competing litigation that remains pending, by virtue of res judicata and claim preclusion principles and the Full Faith and Credit Clause of the United States Constitution. It should be noted that the preclusive effect of the first judgment may well depend on how close the overlap is between the classes and claims asserted in the two actions.

The preclusive effect of settlement creates an undeniable incentive among competing class counsel to be the first to reach settlement. Critics of this phenomenon argue that it undercuts the interests of class members by setting up opportunities for a defendant to pursue a so-called “reverse auction,” forcing class counsel to bid against each other to see who is willing to offer the cheapest overall class settlement. From the defense perspective, simultaneous negotiation with class counsel in multiple cases is inadvisable, and can lead to unnecessary difficulties in obtaining approval of the resulting settlement in the face of inadequate representation claims and other objections by counsel with whom settlement is not reached. However, the fact remains that a defendant facing numerous class actions has strong express or implied bargaining leverage with whichever set of counsel the defendant chooses to negotiate: Be the first to cut a deal, class counsel, or risk being left out entirely.

This leverage is certainly not unchecked. All requirements of Fed. R. Civ. P. 23 other than manageability must still be satisfied by whatever settlement is reached, and the settlement must still be found fair and reasonable to the class on independent review by the trial court after the class is provided with the best practicable notice and the opportunity to object (see Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997)). The settlement must also survive any appeal, and would-be class counsel whose cases are being settled out from under them are highly likely to appeal. To avoid this, defendants sometimes try to bring all would-be class counsel into the settlement by agreement once a deal has tentatively been struck with one set of class counsel. Further, it is not unheard of for courts in first-filed class actions to enjoin settlements, or even settlement negotiations, in subsequently filed class actions, though the scope of their authority to do so is far from settled.

The “race to judgment’ scenario has shortcomings. If class settlement is not the client’s goal, the defendant’s ability to control which case goes to judgment first can be quite limited. Often, the cases in the venues that are the worst from the defendant’s perspective are the cases that are put on the fastest tracks by plaintiff-friendly judges. Moreover, the cost of defending multiple class actions at once can be prohibitive for all but the largest defendants. Worse yet, defeating class certification in one jurisdiction will generally not have preclusive effect in another jurisdiction, particularly as between state and federal court class actions, a subject we will discuss later in this series (see Smith v. Bayer, 131 S. Ct. 2368, 2381-82 (2011)).

First-to-File Rule

Where the competing class actions are each within the same state or are each filed in or removable to federal court, traditional principles of comity between courts can often provide an opportunity to effectively limit the litigation to the first-filed case, or at least consolidate all of the litigation before the judge with the first-filed case. How attractive this option is will depend, of course, on the defendant’s evaluation of the desirability of the venue and trial judge in the first-filed case.

First, there is a longstanding rule of comity whereby a federal court in which a substantially identical action is filed has discretion to stay, dismiss or transfer the second-filed action in deference to the first-filed action. This is known as the “first-to-file” or “first-filed” rule (see, e.g., Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180 (1952)). The rule provides that when actions involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment. The potential use of the rule is less settled when one action is pending in state court. However, the Class Action Fairness Act (CAFA) and the Securities Litigation Uniform Standards Act (SLUSA) now make it easier to get most class actions removed to federal court than once was the case, mitigating this problem to a large degree.

Most states have similar principles of comity among courts of equal jurisdiction which, as a matter of jurisdiction, discretion or statute, can give precedence to the court first seized of jurisdiction.

In subsequent posts, we’ll address other strategies for dealing with competing class actions, including venue transfers, MDL consolidation, and anti-suit injunctions.