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The phrase “negative value suit” is a term of art in class action litigation. This phrase commonly refers to a type of class action that is eminently suitable for class certification. Hence, attorneys seeking to certify a class frequently advance the argument that the proposed class action is a negative value suit, while defense counsel opposing certification contend either that the proposed action is not a negative value suit at all, or an exception to the concept. Generally, the concept of the negative value suit refers to litigation where the value of a claim to an individual, and the potential for recovery, is so small that no rationally minded person would seek an attorney to file a lawsuit. When the value of a claim is minimal, the plaintiffs’ transaction costs, expenses and attorney fees would not make the litigation economically worthwhile. Similarly, where an individual’s claim is minimal, no rational attorney would agree to represent the prospective client because the attorney fee would not justify the attorney’s efforts. Such minimal claims are deemed negative value suits, and are also commonly called “small claims consumer class actions.” Class action jurisprudence is of two minds concerning negative value lawsuits. On the one hand, if individual claims are of great enough value, these claims fall outside the concept of the negative value suit and are not suitable for collective class certification. On the other hand, class action jurisprudence traditionally has embraced minimalist negative value suits as a type of claim suitable for aggregating in a Rule 23(b)(3) class action. Federal Rule of Civil Procedure 23 does not itself use the term “negative value suit,” nor is the 1966 Advisory Committee Note especially enlightening. However, the Advisory Committee Note to subdivisions (b)(3)(A)-(D) suggests a court should inform itself of any actual litigation pending by or against individuals, and contemplate whether “the amounts at stake for individuals may be so small that separate suits would be impracticable.” In addition, the Advisory Committee Reporter indicated that, in promulgating the (b)(3) class category, the committee had predominantly in mind the vindication of “the rights of groups of people who individually would be without effective strength to bring their opponents into court at all.” In order to certify a proposed Rule 23(b)(3) class action, a court must make additional findings of predominance of common questions and superiority of proceeding as a class action. Judicial consideration of a negative value suit is part of the superiority finding necessary for certification. Thus, whether a proposed class action constitutes a negative value suit arises only in the context of proposed (b)(3) actions, and in connection with a superiority argument. A leading federal practice treatise has noted that “a group composed of consumers or small investors typically will be unable to pursue their claims on an individual basis because the cost of doing so exceeds any recovery they might secure. When this is the case it seems appropriate to conclude that the class action ‘is superior to other available methods for the fair and efficient adjudication of the controversy.’” The Supreme Court first recognized the concept of the negative value suit in Phillips Petroleum Co. v. Shutts (1985). In Shutts, a Kansas state class action for recovery of oil and gas royalties, the court noted that the goals of the modern class action included the ability “to pool claims which would be uneconomical to litigate individually.” In Shutts, the court noted that the lawsuit involved claims averaging about $100 per plaintiff, and that “most of the plaintiffs would have no realistic day in court if a class action were not available.” The Supreme Court provided its strongest recognition, endorsement and expansion of the concept of the negative value suit in Amchem Products. Inc. v. Windsor (1997). In Amchem, the court concluded that the text of Rule 23(b)(3) did not necessarily exclude class certification of cases in which individual damages run high. The court stated: “The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone’s (usually an attorney’s) labor.” While the U.S. Supreme Court has recognized the concept of the negative value suit, lower federal courts have developed principles to determine whether a negative value lawsuit exists to support class certification. In many situations, courts have determined either that individual claims are not negative value suits or that individual lawsuits would be feasible. Thus, courts evaluate the size of individual claims and possible recoveries, the availability of punitive damages and the possibility for recovery of attorney fees, among other factors. At least one federal court has rejected the suggestion that a Rule 23(b)(3) class is viable only if the proposed action is a negative value suit, holding that Rule 23(b)(3) does not contain any language limiting its applicability solely to negative value lawsuits. A plaintiff who argues that a proposed class action is a negative value suit carries the burden of offering evidence that the class is indeed a negative value suit, and cannot rely on conclusory assertions that individual claims are minimal. Without evidence, a court may not find that class members’ interests are too small to bring individual actions. Numerous federal circuits have concluded that proposed mass tort class actions do not constitute negative value suits and, therefore, that aggregation of individual tort claims into a (b)(3) class action is not a superior means of proceeding. The 7th U.S. Circuit Court of Appeals, for example, rejected applicability of the negative value suit concept in a tainted-blood-products litigation, stating: “In most class actions — and those ones in which the rationale for the procedure is most compelling — individual suits are infeasible because the claim of each class member is tiny relative to the expense of the litigation. That plainly is not the situation here.” Similarly, the 5th U.S. Circuit Court of Appeals rejected an assertion that a proposed nationwide nicotine-as-addiction class came within the negative value suit rationale for class certification in Castano v. American Tobacco Co. (5th Cir. 1996). The court reasoned that individual damage claims were high and punitive damage claims were available in most states. Hence, the court concluded that “the most compelling rationale for finding superiority in a class action – the existence of the negative value suit – is missing in this case.” Moreover, the 5th Circuit held that the expense of litigation did not necessarily turn an individual’s tobacco litigation into a negative value suit, in part because the prevailing party might be able to recover attorney fees under many state consumer protection statutes. Generally, in any situation where federal or state statutes or common law provides for attorney fees, such provisions defeat the argument that the lawsuit is a negative value suit. Similarly, in any situation where it is possible or feasible for individual claimants to employ a tort lawyer on a contingency fee basis to pursue litigation, courts have been disinclined to deem the litigation a negative value suit. Courts have rejected the applicability of the negative value suit apart from the mass tort context. Hence, courts have found the negative value suit inapplicable in a variety of actions. Finally, some courts have held that where a statute provides for statutory or liquidated damages, and the possible damage award is disproportionate to the actual injury, then the proposed class action is not a superior means for proceeding and falls outside the concept of the negative value lawsuit. This article originally appeared in The National Law Journal , a publication of American Lawyer Media.

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