Clifford Chance

Part 1 - An Explosion of Rule 23 MDLs (Mid-1960s through early 2000s)

Whether you regard Federal Rule of Civil Procedure 23 class actions as a valuable tool for holding multinational corporations accountable for wrongdoing that causes widespread harm in the US, or as a flawed process that largely redistributes wealth from corporations to plaintiffs' lawyers who game the system for their own benefit, it is clear that US class action litigation ranks among the most complex, expensive, and burdensome in our judicial system, posing financial risks to defendants that are almost entirely asymmetric.

This three-part series of articles seeks to demystify some facets of US class actions by using data to highlight key long-term trends in litigation under Fed. R. Civ. P. 23 ("Rule 23") in Parts 1 and 2, while offering explanations for these trends, and predictions in Part 3 for future developments. Our analysis is largely based on data from the Judicial Panel on Multidistrict Litigation ("JPML"), which reports annual statistics on the number of requests to consolidate related federal class actions for discovery purposes into Multi-District Litigation ("MDL") proceedings, the success rate of these requests, and the number of tag-along cases transferred by the JPML to these MDL cases.

Changes in the 1960s: Laying the Groundwork for Increased MDL Filings

The evolution of MDLs has been marked by fluctuations in filing rates and the corresponding judicial responses to the burgeoning volume of cases. Enacted in the late 1930s, Rule 23 was not widely used for several decades, partly due to its resemblance to joinder, making it more cumbersome for both plaintiffs and the courts. In 1966, however, the Rule was revised to enhance accessibility. Standards for evaluating class actions were systematized across the federal court system. District courts were instructed to evaluate the suitability of proposed class actions early in the litigation process, which, in practice, often meant doing so based on the pleadings, usually interpreted in favor of plaintiffs. And, perhaps most notably, Rule 23(b)(3) was amended to widen the availability of monetary damages classes by moving from a system where class members had to opt-in to ongoing cases, to one where absent class members were included unless they opted out.

In practical effect, if the representative plaintiff provided factual and expert support for sustaining the class, and the defendants countered that evidence, courts shied away from resolving this dispute at the class stage. Instead, classes were often certified, with factual disputes, including the 'battle of the experts', left for juries. Consequently, the use of Rule 23 surged following the 1966 amendments, prompting the creation of the JPML two years later to assist courts in managing the increase.

Over the next two decades, the number of new MDL requests remained relatively stable at this higher number, averaging around three dozen annually, with about two-thirds of requests, or 25 or so, typically granted. Nearly 15 times as many subsequently-filed 'tag-along' cases, or350 to 375 a year, were consolidated with these cases annually.

A Boom in MDL Cases: The 1990s and 2000s

The 1990s and 2000s experienced a dramatic increase in class actions. The average number of requests for consolidation rose by 33% during the 1900s and then increased a further 50% throughout the 2000s, while the success of these requests remained around two-thirds. Between 1990 and 2009, the JPML transferred more than 176,000 tag-along (or nearly 9,000 annually) to courts handling consolidated class actions, marking a 2,500% increase over the prior two decades.

Numerous factors contributed to this rise. The increased use of the JPML for mass tort and product liability cases played a role, as did a generally lenient interpretation of the Rule 23(b)(3) predominance requirement, which could be met on a class-wide basis for key elements of many causes of action. In antitrust cases, for example, certain Circuits had effectively begun to presume by the late 1970s that antitrust injury could be established class-wide, and, not surprisingly, those Circuits became hotbeds of antitrust class action cases. Similarly, securities fraud class actions increased following the Supreme Court's 1988 endorsement of the "fraud on the market" theory, which presumed investor reliance on alleged fraud based on the academic view that securities market prices efficiently incorporated false statements alongside all other available information. The Supreme Court also endorsed a broadly lenient view of Rule 23(b)(3) in 1997, noting that "[p]redominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws. . . . Even mass tort cases arising from a common cause or disaster may, depending on the circumstances, satisfy the predominance requirement."

Conclusion

The landscape of class action litigation in the US has undergone significant evolution, driven by shifts in legal standards and the strategic responses of both plaintiffs and defendants. The surge in MDL cases observed in the 1990s and 2000s underscores the complexities and challenges inherent in these proceedings. The next article in this series, "The Backlash," will delve into the strategies adopted by defendants to counteract this surge and legislative and judicial developments.

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¹ See, e.g., Judicial Panel on Multidistrict Litigation, Calendar Year Statistics: CY 2023, https://www.jpml.uscourts.gov/sites/jpml/files/JPML_Calendar_Year_Statistics-CY-2023_0.pdf. We recognize that this data is underinclusive because it only captures federal class actions that are filed in 'clusters' that lead to a request for consolidation under the JPML rules (and, thus, omits the many stand-alone class actions filed each year). We believe it is nonetheless a good proxy for overall class action litigation and that it is of unique interest in and of itself, as it generally represents the most complex of complex class action situations, where so many related cases are filed they warrant potential treatment in a consolidated forum.

² From 1973-79, about 38 class actions requested consolidation each year with 70% of which being granted. The 1980s figures are comparable with roughly 2/3 of the approximately 36 annual requests granted.
³ The average number of MDL requests per year increased to roughly 50 during the 1990s and hit 80 during the 2000s.
⁴ There are too many potential causes to address in this article, but we briefly posit a few developments during this period that almost certainly contributed to increased MDL activity.
⁵ See, e.g., Bogosian v. Gulf Oil Corp., 561 F.2d 434 (3d Cir. 1977) ("any evidence which is logically probative of a loss attributable to the violation will advance plaintiff's case"). By the early 1990s, the Third Circuit had received more than 30,000 consolidated class actions from the JPML. The Eleventh Circuit was the next closest with fewer than 1,000. See Judicial Panel on Multidistrict Litigation, Statistical Analysis of Multidistrict Litigation: FY 1992, https://www.jpml.uscourts.gov/sites/jpml/files/JPML_Statistical_Analysis_of_Multidistrict_Litigation-FY-1992_0.pdf.
⁶ Basic, Inc. v. Levinson, 485 U.S. 224 (1988). Within a few years, the number of 10b-5 securities fraud cases had tripled, and by the early 2000s, accounted for nearly half of all pending class actions. See, e.g., Congress, the Supreme Court, and the Rise of Securities-Fraud Class Actions, 132 Harv. L. Rev. 1067 (2019), https://harvardlawreview.org/print/vol-132/congress-the-supreme-court-and-the-rise-of-securities-fraud-class-actions/#footnote-ref-23.