AUCTIONING CLASS SETTLEMENTS.

Although class actions promise better deterrence at a lower cost, they are infected with problems that can keep them from delivering on this promise. One of these problems occurs when the agents for the class--the class representative and class counsel--advance their own interests at the expense of the class. Controlling agency cost, which often manifests itself at the time of settlement, has been the impetus behind a number of class action reform proposals. This Article develops a proposal that, in conjunction with reforms in fee structure and opt-out rights, controls agency costs at the time of settlement. The idea is to allow the court, once a settlement has been achieved, to put the class's claims up for auction, with the settlement acting as a reserve price. An entity that outbids the settlement becomes owner of the class's claims and may continue to pursue the case against the defendant. A successful auction results in more compensation for the class. On the other hand, if no bids are received, the court has evidence that the settlement was fair. The prospect of a settlement auction also deters class counsel and the defendant from negotiating a sweetheart deal that sells out the class. The Article works through a series of theoretical and practical issues in settlement auctions, including the standards that a court should use to evaluate bids, the limitations on who may bid, and ways to encourage the emergence of an auction market. [ABSTRACT FROM AUTHOR]