Clifford Chance

Introduction

In the first two parts of this series, we explored the evolution of class action litigation in the United States, from the explosion of Rule 23 Multi-District Litigations ("MDLs") to the significant backlash and tightening of class certification standards. In this final part, we will examine the trends and strategies that are likely to shape the future of class actions, including the increasing use of arbitration agreements and class action waivers, as well as the ongoing judicial scrutiny of proposed classes.

Courts will rigorously scrutinize proposed classes and deny certification in more cases

There is no doubt that in the near term, class actions will continue to be the scourge of corporations doing business in the US. Dozens of MDL requests will continue to be filed each year, most of which will get granted, and numerous tag-along cases will be consolidated with these MDLs for discovery purposes. The federal court system, which handles 350,000 new criminal and civil case filings in district courts annually, will continue to find itself overwhelmed.^[1] As a result, the reliance on the MDL process to manage the thousands of related class actions will persist.

These class actions will likely span various economic sectors, with particular focus on consumer products such as pharmaceuticals, food and beverage, and household electronics. They will also cover a wide range of legal disciplines, including antitrust, securities fraud, mass torts, discrimination, and product liability. While the percentage of securities fraud cases has declined over the years, antitrust, mass tort, and product liability cases have remained relatively steady^.[2] We expect certain areas, such as data breach, employment litigation, and climate change cases, to continue to increase as a percentage of all class actions in the coming years. And, most of those proposed classes will be certified. Courts have granted certification in roughly 65% of their class action decisions in the last five years, meaning, the odds of defeating class are roughly one in three.

At the same time, courts are expected to continue rigorous scrutiny of proposed classes across a range of disciplines. Plaintiffs will need to meet their burden of proof with factual and expert evidence to sustain a class consistent with Rule 23's requirements. While the certification of securities, antitrust, and other proposed classes was once common, defendants now have a developed set of tools, and a fighting chance, to defeat classes, particularly those seeking monetary damages under Rule 23(b)(3).^[3]

Focus on defense strategies that work

A defense strategy should take advantage of, and build on, an increasing number of cases denying class certification. In particular, we recommend focusing not only on developing facts to counter the merits of the alleged wrongdoing where possible, but also to demonstrate that some absent class members did not experience any injury at all. In a class action alleging an nationwide conspiracy to fix prices, for example, that would likely mean developing facts to show the defendants acted independently (and not did not conspire), but also facts that demonstrate some class members did not pay the allegedly fixed prices, perhaps because they had a pre-existing contract with firm pricing or because they were simply successful at negotiating away announced price increases. In a securities fraud case, that would likely require the development of facts disproving the alleged fraud, where possible, and also facts showing that the shareholder did not receive or rely on the supposed fraudulent statements. Of course, there are many, many ways to challenge class certification under Rule 23(a)(1)-(4) and 23(b)(3), but it is crucially important to build defense strategies that underscore the necessity of individualized assessments to determine whether specific class members suffered harm and, of course, demonstrate that some successfully avoided the alleged harm. In that way, it is clear to the court that it is cumbersome and unworkable to proceed as a class and, instead, that the case will largely devolve into a series of mini-trials on whether each absent class member, in fact, incurred or avoided the alleged harm.

Employ tailored arbitration clauses where appropriate

Employing arbitration agreements with class action waivers can significantly mitigate or even avert the potential impact of class action litigation, and we expect the use of such agreements to continue to grow. The Supreme Court's 2018 decision in Epic Systems Corp. v. Lewis facilitated widespread adoption of such agreements.^[4] The Court upheld employer-employee agreements mandating individual arbitration for disputes and waiving class action participation rights, concluding that the Federal Arbitration Act's support for this means of alternative dispute resolution did not violate National Labor Relations Act protections for collective bargaining.

Consequently, numerous companies across various industries have revised their onboarding systems, terms of use, and other agreements to mandate that employees and consumers resolve any disputes through individual arbitration. More than 50% of non-unionized private employers and almost 66% of larger employers mandate arbitration agreements, with at least 30% of these agreements containing class-action waivers.^[5] While employees will continue to file class arbitrations when they can and will find success in challenging specific class action waivers on various grounds, we expect more companies to consider adopting these provisions in a wider range of contexts. Note, though, that one potentially significant downside is the risk that companies will be flooded with hundreds or thousands of costly and time-consuming individual arbitration demands.

Conclusion

The landscape of class action litigation in the United States has undergone significant changes over the past few decades, from an infrequently used tool to an explosion of class actions so great it required the use of MDLs to manage the burdens on the judiciary to the backlash and tightening of class certification standards. In Part 1 of this series, we explored the dramatic rise in class actions following the 1966 amendments to Rule 23, which facilitated the growth of MDLs and transformed the legal landscape. In Part 2, we delved into the backlash against class actions that emerged in the early 2000s. We discussed key legislative and judicial developments, such as the Private Securities Litigation Reform Act ("PSLRA") and amendments to Rule 23 and significant Supreme Court decisions like Walmart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend. These developments imposed stricter standards for class certification and heightened judicial scrutiny, making it more challenging for plaintiffs to achieve class certification. As we look to the future in this final part, it is clear that the dynamics of class action litigation will continue to evolve and, we believe, the available defenses will grow stronger. Courts will continue to apply rigorous standards to proposed classes, requiring plaintiffs to meet their burden of proof with robust factual and expert evidence. At the same time, corporations will continue to have increased ability to use arbitration agreements and class action waivers as tools to mitigate exposure to class litigation.

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[1] See U.S. Courts, Federal Judicial Caseload Statistics 2023, https://www.uscourts.gov/data-news/reports/statistical-reports/federal-judicial-caseload-statistics/federal-judicial-caseload-statistics-2023.

[2] The percentage of securities has declined for many years as a percentage of all class actions from roughly 12% in 2013 to less than 2% in 2023. In contrast, antitrust, mass tort, and product liability cases have held fairly steady as a percentage of the total, e.g., antitrust cases accounted for 22% of pending MDL cases in 2023, almost exactly the same level as in 2013. Compare U.S. Judicial Panel on Multidistrict Litigation, Calendar Year Statistics, 2023, https://www.jpml.uscourts.gov/sites/jpml/files/JPML_Calendar_Year_Statistics-CY-2023_0.pdf with U.S. Judicial Panel on Multidistrict Litigation, Calendar Year Statistics, 2013, https://www.jpml.uscourts.gov/sites/jpml/files/JPML_Calendar_Year_Statistics-2013.pdf.

[3] See, e.g., https://www.law360.com/articles/1780984/attachments/0 (denying certification of class of caustic soda buyers claiming they paid artificially high prices as a result of a producer cartel); https://www.law360.com/articles/716756/attachments/1 (denying certification of heavy duty truck buyer class).

[4] 584 U.S. 497 (2018).

[5] See Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Economic Policy Institute, (April 2018), https://www.epi.org/publication/the-growing-use-of-mandatory-arbitration/.