In this Article, I imagine a post-class-action landscape for shareholder litigation. Projecting an environment in which both securities-fraud and transactional class actions are hobbled by procedural or substantive reforms–most likely through the adoption of mandatory-arbitration provisions or fee-shifting provisions–I assess what shareholder litigation would disappear, what (if any) would remain, and what a post-class-action landscape would look like. I argue that loss of the class action would remove a layer of legal insulation that prevents institutional investors from having to pursue positive-value claims against companies. Currently, the class action effectively ratifies fund fiduciary passivity in the face of fraud, for example, as long as the institution files a claim form to collect its share of a class action settlement that has been judicially certified. But without the class action, monitoring and litigation costs for such institutions may increase because fund fiduciaries must monitor their portfolios for, and litigate, positive-value claims. Failure to do so could expose them to liability to fund beneficiaries. I offer some suggestive, but incomplete, evidence about how many funds will have positive-value claims. Whether institutions in fact pursue such claims will decisively determine whether shareholder litigation has a post-class-action future. I also argue that bizarre gaps in liability coverage for public-pension-fund fiduciaries–who serve the funds that have traditionally been the most active litigants–may have unpredictable effects on trustee behavior outside the class action, may tilt in favor of bringing claims, and may also lead to herding behavior in arbitration. I also assess how loss of the class action would affect plaintiff law firms. I argue that the end of the class action means, at a minimum, abandonment of the idea that investors should be compensated for losses due to fraud or other corporate malfeasance. And I demonstrate that loss of the class action leaves investors in smaller firms with no legal remedy for wrongdoing, even if some form of litigation survives.
Finally, I argue that shareholder litigation without class actions–should institutional investors choose to pursue it–would create a new distortion in the private enforcement regime, what I call the “semi-circularity problem.” Without class actions, negative-value claimants would no longer be able to recover for their damages in shareholder litigation. But they would still be forced to subsidize the losses of positive-value claimants to the extent that the smaller investors own shares in defendant companies that must pay damages claims to large institutional investor plaintiffs. Loss of the class action device creates a two-tier legal system for investors: one in which large institutions may recover while individuals and smaller institutions do not from the same fraud (or mispriced deal), and one in which smaller investors that still own defendant companies must reach farther into their pockets to compensate large institutional investor losses for that fraud (or mispriced deal).