Over the past 25 years, I have had the good fortune of getting to know and working with both plaintiff and defendant class action lawyers from many states, and to teach class action practice in dozens of local and national CLE programs and at a great law school. I also have represented clients in class action cases in many jurisdictions, both state and federal, including the state courts of Massachusetts. All of these experiences have given me the opportunity over an extended period to learn and reflect upon the varieties of class action practice.
When I speak with my counterparts from other states, one thing I tell them invariably makes their jaws drop — namely, that Massachusetts’ version of Rule 23 does not allow opt outs. I have not done an exhaustive review of all state class action rules, but based on my experience and my interactions with out-of-state class action lawyers, we seem to be the only state that does not permit class members to opt out of damages class actions. The absence of such an opt-out right also distinguishes Massachusetts state court practice from all federal court practice. And, as I’ll explain below, that difference alone has significant practical ramifications.
This and other disparities between Federal Rule 23 and Massachusetts Rule 23 have always existed. Yet even the briefest look at the history of the two rules suggests that it is beyond time to consider updating our state court rule.
The Development of the Modern Class Action
Rule 23 of the Federal Rules of Civil Procedure underwent a significant transformation in 1966 when then-Harvard Law Professor and later-Associate Justice of the Massachusetts Supreme Judicial Court, Benjamin Kaplan, assisted by a young protege named Arthur Miller, crafted the overhaul that established the modern class action. The rule was restructured in several ways. The most dramatic change was found in subsection (b)(3), which allows damages claims of large numbers of people to be joined in a single representative lawsuit. The expansion of federal class action procedure to encompass ordinary claims for monetary relief was later described by Professor Kaplan as “adventuresome,” a description that turned out to be an understatement. In fact, the new rule would ignite an explosion of complex litigation and a new cottage industry for lawyers and other professionals.
The balance struck by Federal Rule 23(b)(3) aims to achieve efficiency without compromising fairness. To that end, the Advisory Committee foresaw that some members of a (b)(3) class might want to retain the right to pursue their damages claims individually, rather than be stuck in a potentially slow-moving, complex, and bloated case with dozens or even thousands of strangers, represented by lawyers and named plaintiffs they do not know and did not choose. To help ensure that the new procedure would be both efficient and fair, the Committee provided that class members would have the right to receive notice of the class action and to exclude themselves from it. This notice and opt-out right was reserved for the newly created breed of damages class actions; it did not extend to claims for other types of relief governed by subsections (b)(1) and (b)(2) (often referred to as “mandatory” class actions).
In addition to the right to opt out, Rule 23(b)(3) imposed two new requirements for class certification. Specifically, a court may certify a (b)(3) class only if it finds that common issues predominate over individual issues, and that a class action is superior to other available forms of adjudication. These requirements of predominance and superiority do not apply to (b)(1) and (b)(2) class actions. However, class actions under all three subsections of Rule 23(b) also have to satisfy the four prerequisites of Rule 23(a) (numerosity, commonality, typicality, and adequacy).
Since the crucial 1966 amendments, Fed. R. Civ. P. 23 has been amended six times, often in material ways. For example, the 2018 amendments provided significant clarification of the procedures and standards for approval of proposed class action settlements.
The Massachusetts Variant
In 1974, the Massachusetts Supreme Judicial Court adopted its own revision of Rule 23 modeled largely on the 1966 version of the federal rule. Still, the SJC departed from the federal paradigm in significant ways.
For one thing, Massachusetts Rule 23(b) does not contain the three subsections of its federal counterpart, but collapsed all possible types of class actions into a single part. It provides that “[a]n action may be maintained as a class action if the prerequisites of subsection (a) are satisfied and the court finds that the” requirements of predominance and superiority are met. In other words, the Court subjected every type of class action to which the Massachusetts rule applies to the same requirements that apply only to (b)(3) class actions under the federal rule. And, in doing so, it omitted entirely the right for class members to opt out.
This mixing and matching of the various requirements from the well-designed federal rule may have been an attempt at simplification. Whatever the motivation, though, it has led to difficulty.
Personal Jurisdiction Under the Massachusetts Rule: An Unintended Consequence
The most significant difficulty came to the fore in 2008. The plaintiffs in Moelis v. Berkshire Life Ins. Co., 451 Mass. 483 (2008), were purchasers of life insurance policies. They brought an action against their insurer for alleged consumer fraud and, among other things, sought certification of a nationwide class of policyholders. The Superior Court denied nationwide certification and the SJC affirmed.
The difficulty, the SJC held, was that Massachusetts courts could not exercise personal jurisdiction over the claims of the out-of-state class members consistent with due process. That was clear from the United States Supreme Court’s landmark decision in Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985). Shutts held that courts could, as a matter of due process, exercise jurisdiction over the damages claims of out-of-state class members, even if those class members did not have minimum contacts with the forum state, because Rule 23(b)(3) afforded them the opportunity to exclude themselves from the class. The opt-out right was the escape valve that protected the non-resident class members from what otherwise would have been unconstitutional extensions of judicial power.
If the opt-out right is what permits extra-territorial classes to be certified, the lack of an opt-out right can preclude such certifications. That was the holding in Moelis. Specifically, the SJC held that the absence of that escape valve from the Massachusetts version of Rule 23 means that nonresident class members who do not have sufficient minimum contacts with the state could not constitutionally be subjected to jurisdiction here. In other words, forcing class members to be bound by the proceedings of, and any judgment reached by, a court in a state with which they lack minimum contacts would deprive them of rights guaranteed by due process. Because the nonresident policyholders at issue in Moelis did not have sufficient minimum contacts with Massachusetts, and the state version of Rule 23 did not allow them to exclude themselves from the case, the SJC held that the Superior Court was correct in declining to certify a nationwide class.
The practical effect of Moelis is that, in many class actions, Massachusetts state courts lack the power to certify classes that would reach beyond state borders. That restriction significantly limits the utility of the class action device.
Some defendants may welcome that limitation because it limits their exposure in any given case. However, the claims of out-of-state class members can often be brought in copycat cases in other jurisdictions, which can result in a defendant having to litigate in more than one forum. Also, and perhaps more important, defendants often choose to settle class actions brought against them. When they do, their goal is to achieve global peace. If, as part of their settlements, they cannot get released from the claims of nonresident class members, they may remain vulnerable to further litigation in other jurisdictions. The ability to include all persons with similar claims in one class action lawsuit thus can benefit all parties involved. And while one solution would be to litigate the claims in federal court, not all class actions are subject to federal subject matter jurisdiction.
A Call to Action
The absence of an opt-out provision is not the only disparity between the federal and state versions of Rule 23. In contrast to the federal rule, the Massachusetts rule has been amended only twice since its adoption in 1974, and neither amendment involved the rule’s core provisions. (Both involved the ability of Massachusetts IOLTA to receive funds left over from class action settlements, a worthy goal but one having nothing to do with class certification.) This author is unaware of any effort that may have taken place since 1974 to subject Mass. R. Civ. P. 23 to a critical review. There also is something to be said for more closely aligning the federal and state rules, at least where the Massachusetts rule’s unique provisions do not represent improvements over the federal version. Now would seem to be as good a time as any for the SJC, through its Standing Advisory Committee on Rules of Civil Procedure, to examine lessons learned from five decades of class action experience here and elsewhere and consider whether, and if so how, our current rule can be brought into the modern age.