David Rosenberg, Avoiding Duplicative Litigation of Similar Claims: The Superiority of Class Action vs. Collateral Estoppel vs. Standard Claims Market (Harv. L. Sch. L. & Econ. Res. Paper Series, Discussion Paper No. 394, Dec. 2002).
Abstract: This paper focuses on situations in which numerous plaintiffs have similar, but independent claims for substantial damages against the same defendant. These cases frequently result in the prosecution of multiple separate actions and the waste legal resources in duplicative litigation. All else being equal, the legal system could achieve substantial economy by avoiding litigation of "common questions" more-than-once, and instead adjudicating them once-and-for all. The paper describes the relative cost-effectiveness of three alternative means for avoiding duplicative litigation of civil actions for damages: class action, collateral estoppel and leaving the matter to the standard process for separate action driven by market forces. The class action design I consider aggregates all similar claims, regardless of whether they are pending or even accrued, on a mandatory basis, with on option for exit (opt-out) by class members. Regarding collateral, I propose and examine a "two-way" regime that expands the prevailing rules by extending the benefits or detriments of final judgment in the first case to preclude both defendant and non-party plaintiffs from relitigating common questions in subsequent cases. The third regime employs market forces to reduce duplicative litigation. My central conclusions are that while, as an abstract matter, two-way collateral estoppel and class action have comparable capacity to avoid duplicative litigation, under currently governing rules and practice both alternatives entail high management costs. Courts are likely to incur more expense in managing class action. However, analysis indicates that two-way collateral estoppel fails to control duplicative litigation as effectively as class action; indeed collateral estoppel itself creates incentives for the parties to engage in unavoidable, duplicative litigation that offsets its administrative cost advantage. I also conclude that the separation process poses less of a problem of duplicative litigation than is commonly assumed. Indeed, some degree of duplicative litigation may be socially desirable. Moreover, my analysis suggests that the separate action process may prove the most cost-effective means of avoiding the residuary of inefficient duplicative litigation. Finally, I reject the general objection to two-way collateral estoppel that it systematically vests defendant's with higher stakes than plaintiffs, and thus distorts the accuracy of adjudication, undermining the ability of civil liability to minimize the sum of sum of accident costs. Asymmetrical investment incentives favoring institutional (mass production) defendants against individual plaintiffs is the baseline of the civil system as established by the standard market process Confronting a series of similar claims, the common defendant will exploit scale economies to invest at the optimal level that maximizes aggregate net benefit from litigating common questions. The investor in a single or even a large fraction of claims on the plaintiffs' side lacks the scale economies and consequent investment incentives equivalent to defendant's opportunities. This asymmetry in opportunity to exploit scale economies is eliminated by class action. Two-way collateral estoppel exacerbates the asymmetry in defendant's favor - it does not create it - but that only strengthens the case for class action to equalize plaintiffs' litigation power with that of defendant's.