THE UNDEMOCRATIC CLASS ACTION.

Table of Contents I. Class Action Accountability A. The Endemic Principal-Agent Problem in Class Actions B. Controlling Class Counsel II. The Democratic Critique in Context A. The Law of Class Interest B. Normative Frameworks: Deterrence & Class Interest III. The Political Economy of Class Actions A. The Fundamental Trade-Off: Expertise vs. Control B. Delegation vs. Democracy in Litigation C. Reevaluating Accountability in Class Actions D. The Challenge of Settlement E. Sophisticated Plaintiffs Conclusion Introduction

Class actions are at once among the most consequential and the most controversial elements of civil procedure. A single class action can "hold the fate of an industry in the palm of its hand" (1) or reshape civil rights on a national scale. (2) Yet at the same time, class actions provoke a range of concerns, both constitutional (3) and practical. (4) The locus of this controversy is the complicated relationship between the class and their attorney. (5) Class actions proceed on behalf of members of the class who typically have little to no direct involvement in the litigation. Their interests are represented by "named plaintiffs," but they often serve as no more than figureheads because they lack the means and inclination to supervise the attorney. (6) There is the persistent worry that class members cannot control their lawyers, who, in turn, are free to turn the litigation to their own personal advantage. The concern is that "monsters are loose in the land" (7) as class actions end up lining the lawyers' pockets while the actual plaintiffs receive little to no benefit. Furthermore, class members look to be sacrificing their rights and autonomy in exchange for efficiency and economies of scale. (8)

It is hard to overstate the impact of this concern. Many class action doctrines and statutory fixes (9) developed out of a desire to hold class action attorneys accountable. (10) In light of this worry it is hardly surprising that courts have sharply limited class actions, (11) treating the procedure as something of a last resort and seemingly preferring individual litigation to class actions wherever feasible. (12) It has also been the primary focus of theorists, leading to an ongoing crisis of legitimacy for class actions (13) and prompting a range of proposals to increase the active participation of class members, such as: enhancing class members' exit rights, (14) leveraging mass communication technologies, (15) creating an aggregate litigation market, (16) and substituting non-governmental organizations in place of entrepreneurial attorneys. (17) This idea is not tied to an ideology--defenders and opponents of class actions alike worry about whether the class can really direct the litigation that is supposed to vindicate its rights. (18)

At bottom, this argument identifies a principal-agent problem: the principal (members of the class) cannot adequately control their agent (the attorney). Principal-agent problems are everywhere, though. They dominate both corporate law (19) and politics. (20) But shareholders and citizens both get to hold their agents accountable through elections--they can "throw the bums out of office" or things to that effect. These options are conspicuously absent in class actions or are, for one reason or another, rendered ineffective. (21) Most notably, even when class members have the power to exit the class and potentially "vote with their feet," they rarely have the incentive to actually use it. (22)

Class actions therefore look unusually bad compared to other kinds of collective action because the principal lacks the means to control their agent. (23) I label this argument the democratic critique of class actions, and it has long been the dominant framework for understanding class actions. (24) I refer to this critique as democratic not only because class actions are collective institutions that are often compared to ones that have explicit democratic procedures. The problem as I see it is also that the class members themselves cannot steer their own litigation. (25) The kind of accountability enforced by elites like judges is different, though as we shall see, judges have a role to play. (26) The critique is pervasive, applying to nearly all class actions and definitely to those cases where the class action would be most important--those where each potential plaintiff has such a small stake that it would not be worth litigating on its own. The democratic critique thus renders all class actions suspect.

The democratic critique, however, relies on a mistaken premise: democratic accountability is not always the best way to address principal-agent problems. (27) Drawing on the political economy literature, this Article shows that the democratic critique suffers from two main flaws. First, it focuses too much on ex post controls like voting. (28) Second, and more fundamentally, the democratic critique neglects the complexities of the principal-agent relationship. Numerous studies show that control comes at a cost: the principal will not be able to take full advantage of the agent's expertise, usually the reason they enlisted the agent in the first place. (29) If the principal retains final say over the decision, perhaps through some kind of vote, they end up losing access to a substantial amount of that expertise. (30) All of this occurs even if everyone involved is both scrupulously honest and perfectly rational. (31)

Accordingly, we should ask: if class members could vote on litigation matters, i.e., exercise the democratic accountability that appears to be lacking, would that option actually make them better off? If not, then this more nuanced understanding of principal-agent dynamics robs the democratic critique of much of its force. In class actions, when faced with this unavoidable trade-off between control and expertise, class members are generally better off surrendering control. That is, if class members were given the choice they would plausibly opt for the less democratic or representative procedure. Furthermore, democratic procedures bring complications and pathologies of their own--like pandering. (32) Rather than concentrate on implementing democratic procedures or some substitute for them in class actions, a more fruitful avenue for reform is to ensure that courts are vigilant about the structure of both lawyer fee awards and settlements. (33) These improvements are achievable and would further ensure the attorney is a faithful agent of the class. This approach, rather than class action democracy, better ensures class counsel will serve the best interests of the class. The best answer to the democratic critique, or any principal-agent problem, is not necessarily more democracy. My arguments also suggest the possibility for different rules in the rare cases where class members are exceptionally well-informed, (34) such as when local governments are members of the class. (35)

This Article makes several contributions. Most centrally, by exposing the flaws in the dominant critique, it offers a rejoinder to the widespread wariness, if not outright hostility, to class actions that pervades the law. (36) It also explains why reform proposals have yielded such mixed results: (37) the problems they aim to solve, inspired by the democratic critique, have to some degree been misidentified. Finally, it helps reorient attention to structures that would ensure fair, efficient, and legitimate means of aggregate litigation. Class action law is far from perfect, but it is imperative to correctly diagnose the problems if we mean to improve it. On a practical level, this means, among other things, equipping judges with standards for evaluating class action settlements they can both actually use and that protect the integrity of the litigation. (38)

This Article proceeds in three Parts. Part I details the democratic critique and the endemic principal-agent problem underlying it. Part II further situates the democratic critique in the case law and the literature and explains the relationship between my arguments and deterrence. With the distinct problem of class action democracy clearly identified, Part III reexamines it using the tools of political economy and modern social science, illustrating the trade-off between control and expertise and its consequences in the specific context of class actions.

Before going any further, though, a caveat is in order. Nothing here should be construed as a general statement against democracy. It all depends on the context, and the focus throughout this Article is class action litigation. Litigation is a rarefied environment where expertise is extremely important and, if the class action's procedures are functioning well, (39) the members of the class share roughly the same goal (win the case and receive a large award). This certainly does not describe ordinary politics, where people may disagree about fundamental conceptions of the good, priorities, and so forth. (40) In those situations, democratic procedures are often essential.

1. Class Action Accountability

   1. The Endemic Principal-Agent Problem in Class Actions

      The democratic critique of class actions consists of two main parts: (1) the presence of a principal-agent problem, and (2) that class members cannot resolve that problem because they lack the opportunity or incentive to substantially participate in the litigation. Principal-agent problems are fundamentally problems of accountability and control; the problem is how to hold the agent accountable for their actions and control them so that they act in the best interests of the principal. (41) Such problems are common in a variety of contexts, including ordinary run-of-the-mill litigation. By their very structure as an aggregation vehicle, though, class actions introduce additional complications, especially when we consider the archetypal class action where numerous small claims are aggregated.

      A necessary ingredient in...