Transnational Class Actions in the Shadow of Preclusion

Abstract

The American class action is a procedural tool that advances substantive law values such as deterrence, compensation, and fairness. Opt-out class actions in particular achieve these goals by aggregating claims not only of active participants but also passive plaintiffs. Full faith and credit then extends the preclusive effect of class judgments to other U.S. courts. But there is no international full faith and credit obligation, and many foreign courts will not treat U.S. class judgments as binding on passive plaintiffs. Therefore, some plaintiffs may be able to wait until the U.S. class action is resolved before either joining the U.S. suit (and reaping its rewards) or relitigating the case abroad. Transnational class actions thus give some plaintiffs “litigation options.” The few courts and scholars that have recognized this phenomenon have proposed methods to identify litigation option holders and exclude them from opt-out treatment. Some U.S. judges, for example, have refused to certify classes that include citizens of foreign countries that may not recognize U.S. class judgments. This Article shows that this conventional wisdom is misdirected: citizenship is the wrong measure; courts are poorly positioned to identify relitigation risk; and the social costs of excluding option holders may well outweigh the benefits. Instead, courts should certify classes of foreign and domestic plaintiffs in service of policy goals such as deterrence and intraclass fairness regardless of foreign preclusion law. At the same time, this Article suggests innovative approaches to achieve some preclusion previously unremarked upon in transnational cases. Prior approaches are insufficient, in part, because they rely on courts without acknowledging the informational asymmetries between courts and parties or the limited tools available for judicial resolution. This Article explains how private incentives and private information may fill the gap in interjurisdictional preclusion law. Parties should be encouraged to negotiate private preclusion agreements in cases in which preclusion matters. In addition, courts can coordinate informally to curb costly relitigation. In summary, this Article uses values derived from lawmaking choices and a practical assessment of the litigation environment to respond to litigation options in transnational class actions not by excluding option holders but instead by permitting aggregation and seeking alternatives to preclusion law. This Article applies these lessons to transnational class actions filed in a single jurisdiction (e.g., a U.S. court), as well as to dueling class actions filed in two countries simultaneously and to U.S. recognition of foreign aggregate judgments whatever their form.The appendices for this paper are available at the following URL: http://ssrn.com/abstract=2609339