November 01, 2016

Class Action Rule Reform

John M. Barkett

Environmental/toxic tort lawyers involved in class actions, listen up! In April 2016, the federal Civil Rules Advisory Committee recommended for publication and receipt of public comment five changes to Rule 23 of the Federal Rules of Civil Procedure. The Standing Committee on Rules and Practice approved the recommendation in June 2016. I discuss the proposed amendments along with two topics that the advisory committee decided to defer for consideration until further development of the case law.

The proposed amendments incorporate “proposed settlement classes” into the rule, recognizing the realities of how class action practice has developed, and make a slight enhancement to the types of notice given to class members if a class is certified or proposed to be certified for settlement purposes. They also address “objectors” to class settlements and make clear that settlement class notice-related orders are not appealable.

Settlement Classes. Under current Rule 23(e), the claims, issues, or defenses of a certified class may be settled only with the court’s approval. In practice, however, agreements to settle class actions are more often reached before the court has certified the class. The court is then requested to approve the agreement and certify the class for settlement purposes. To recognize this usual practice, the proposed amendments would require court approval under Rule 23(e) for “a class proposed to be certified for purposes of settlement.”

How will a court decide whether the likelihood of settlement approval is high enough to engage the machinery of notice to the proposed settlement class? The answer is found in what would be new Rule 23(e)(1)(A): “The parties must provide the court with information sufficient to enable it to determine whether to give notice of the proposal to the class.”

The proposed rule does not explain what “information” would be “sufficient.” However, the Advisory Committee Note to proposed Rule 23(e)(1) provides a nonexclusive menu of possible items to include in the “sufficiency” submission to the court. Among the items listed in the draft note are (i) the extent and type of benefits that the settlement will confer on the members of the class; (ii) details of the claims process that is contemplated; (iii) the anticipated rate of claims by class members; and (iv) the actual claims experience, if this information is available before a decision on approval is made.

Rule 23(e)(2) explains now that if a settlement proposal would bind class members, the court may approve it only after a hearing “and on finding that it is fair, reasonable, and adequate.” The proposed amendment adds the language underlined below to Rule 23(e)(2), then lists four factors to be considered by the court. Thus, if the amendment is adopted, a court may approve the proposal “only on finding that it is fair, reasonable, and adequate after considering whether:”

(A) the class representatives and class counsel have adequately represented the class;

(B) the proposal was negotiated at arm’s length;

(C) the relief provided for the class is adequate, taking into account:

(i) the costs, risks, and delay of trial and appeal;

(ii) the effectiveness of the proposed method of distributing relief to the class, including the method of processing class-member claims, if required;

(iii) the terms of any proposed award of attorney’s fees, including timing of payment; and

(iv) any agreement required to be identified under Rule 23(e)(3); and

(D) class members are treated equitably relative to each other.

The court would need information on each of these factors to satisfy the “sufficiency” requirement. The reference to Rule 23(e)(3) covers a requirement in existing Rule 23 that the parties seeking approval must file “a statement identifying any agreement made in connection with the proposal.”

These approval requirements are a “floor” and do not supplant the various settlement approval factors set forth in the circuits. The proposed Advisory Committee Note confirms this, stating that “[t]he goal of this amendment is not to displace any of these factors, but rather to focus the court and the lawyers on the core concerns of procedure and substance that should guide the decision whether to approve the proposal.”

Notice. Proposed Rule 23(e)(1)(B) would be titled “Grounds for a Decision to Give Notice.” It keeps the existing language in current Rule 23(e)(1) stating that “[t]he court must direct notice in a reasonable manner to all class members who would be bound by the [settlement] proposal.” But it then adds language that provides a standard by which the court can determine if grounds exist to give such notice—i.e., when doing so “is justified by the parties’ showing that the court will likely be able to: (i) approve the proposal under Rule 23(e)(2); and (ii) certify the class for purposes of judgment on the proposal.”

Because of the additional settlement class language in Rule 23(e)(1), a conforming change was proposed in Rule 23(c)(2)(B), which currently addresses the type of notice that must be given to members of a class certified under Rule 23(b)(3). Notice would be required not just for any class certified under Rule 23(b)(3), but also “upon ordering notice under Rule 23(e)(1) to a class proposed to be certified for purposes of settlement under Rule 23(b)(3).”

The proposed amendments also address the type of notice to be given for a class certified under Rule 23(b)(3). Under current Rule 23(c)(2)(B), if a class is certified under Rule 23(b)(3) (the type of class for which damages are sought), “the best notice practicable under the circumstances” must be given to all members of the class “who can be identified through reasonable effort.” What is the “best notice”? Since Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), the “best notice” has always included first class mail. In a nod to advancements in technology, the advisory committee has proposed the addition to Rule 23(c)(2)(B) of explanatory language stating that “[t]he notice may be by United States mail, electronic means, or other appropriate means.”

Appeals. To make it clear that an order under Rule 23(e)(2) approving a settlement class cannot be appealed by the parties under Rule 23(f), a proposed amendment would say that expressly. And to accommodate the interests of the United States, Rule 23(f) would be modified to give the United States 45 days after an order is entered granting or denying class certification to file a petition for permission to appeal, instead of 14 days as is now allowed for all other petitioners who seek permission to challenge a class certification order.

Objectors. Some class action settlements have objectors. If an objection is rejected, the objector may take an appeal. The appeal will then delay implementation of the settlement, including distribution of any funds to class members and payment of attorneys’ fees. That delay puts the objector in a position to extract consideration in return for dropping the appeal. To address the payment of such a “tribute,” Rule 23(e)(5), addressing objections, would be modified as follows:

(A) In General. Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court’s approval. The objection must state whether it applies only to the objector, to a specific subset of the class, or to the entire class, and also state with specificity the grounds for the objection.

(B) Court Approval Required For Payment to an Objector or Objector’s Counsel. Unless approved by the court after a hearing, no payment or other consideration may be provided to an objector or objector’s counsel in connection with:

(i) forgoing or withdrawing an objection, or

(ii) forgoing, dismissing, or abandoning an appeal from a judgment approving the proposal.

(C) Procedure For Approval After an Appeal. If approval under Rule 23(e)(5)(B) has not been obtained before an appeal is docketed in the court of appeals, the procedure of Rule 62.1 applies while the appeal remains pending.

Let me elaborate. The additional text in proposed Rule 23(e)(5)(A) is self-explanatory. The objection must be substantively specific, and its scope must be described relative to the objector, the class as a whole, or a subset of the class.

Under subparagraph (B), the objector cannot receive any consideration for forgoing or withdrawing an objection or an appeal without court approval. And the court must hold a hearing before approval can be granted.

And what is “procedure of Rule 62.1”? Rule 62.1 addresses a motion for relief filed in the district court that the court lacks authority to grant because an appeal has been docketed already. Rule 62.1 allows the district court to defer consideration of the motion, deny it, or state “that it would grant the motion if the court of appeals remands for that purpose . . .” While the case law is not clear on whether the district court would lack the authority to address a motion approving a payment to an objector, the approach taken in the proposed Rule 23(e)(5)(C) avoids the need to consider that case law.

Backburner Issues.” The advisory committee decided to keep under study two additional topics for possible future amendment. The first is referred to as the so-called “pick-off” issue: where a defendant offers to settle the class representative’s claim in full in an effort to moot the action (unless a new class representative can be found). In Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), Justice Ginsburg wrote for the Court’s majority that such an offer to settle that is not accepted “has no force,” and therefore the action is not moot. In its submission to the standing committee, the advisory committee explained that it was “monitoring activity in the lower courts” since the Campbell-Ewald decision, and may return to the issue “if pick-off issues continue to be important.”

The second issue has been labeled “ascertainability” in the class action jurisprudence. Some courts have rejected class certification where the members of a proposed class could not be reasonably ascertained (e.g., members of a consumer class who paid cash for a product in issue in the class action and who cannot be identified). The circuits are split on the question of whether “ascertainability” is essential for class certification or merely requires a refined class definition to accommodate members who can be identified. In its 2015–16 term, the Supreme Court denied petitions for certiorari in two matters that would have presented the issue for resolution, but it seems only a matter of time before the Court resolves the issue. In the meantime, the advisory committee has indicated it will continue to monitor case law developments on this topic.

Public Comment. Public comments on the proposed amendments to Rule 23 can be made on the website of the Administrative Office of the United States Courts beginning in the fall of 2016 until early 2017. Public hearings will also be held on the proposed amendments during the public comment period.

Then What Happens? The advisory committee will consider public comments and then vote on whether to finalize any amendments to Rule 23 in the spring of 2017. If amendments are approved, they will follow four steps before they can become effective. The first three are approval by the standing committee, the Judicial Conference (the “legislature” of the federal judiciary), and the Supreme Court. If approved by the Supreme Court, the amendments will be transmitted to Congress in the spring of 2018. And if Congress takes no action, the amendments will become effective December 1, 2018.

John M. Barkett

Mr. Barkett is a partner in the Miami, Florida, office of Shook, Hardy & Bacon LLP, and a member of the editorial board of Natural Resources & Environment. He may be reached at