July 17, 2018 Articles

A Road Map to the Upcoming Rule 23 Amendments

Four core amendments address class notice, "frontloading" class notice, final settlement approvals, and professional objectors.

By Jonathan H. Beemer

In April 2018, the U.S. Supreme Court approved amendments to Rule 23 of the Federal Rules of Civil Procedure governing all class actions filed in federal court. Assuming Congress takes no further action, the Rule 23 amendments will go into effect on December 1, 2018. These are the first substantive changes to Rule 23 since 2003, and they are the culmination of over five years of review by the Advisory Committee on Civil Rules, which included extensive public comment from private practitioners, public interest legal organizations, academics, and the judiciary. The amendments principally address the standards for class action settlement approval, as well as the recurring issue of serial objectors to class action settlements. While the amendments may not represent a radical change in federal class action litigation, certain components warrant close consideration by practitioners in the field going forward.

The Rule 23 amendments can be broken down into the four core revisions below.

Rule 23(c)(2)(B)—Class Notice
The amendment to Rule 23(c)(2)(B) requires a court to direct the best notice practicable to class members when a class is certified under Rule 23(b)(3) (i.e., an opt-out class) or when the court orders notice of a proposed settlement under Rule 23(e)(1) for a class seeking certification for settlement purposes only. See Proposed Fed. R. Civ. P. 23(c)(2)(B). Thus, the amendment acknowledges the common practice of providing notice to class members simultaneously under both Rule 23(e)(1) and Rule 23(c)(2)(B) when the parties seek “preliminary approval” of a class action settlement. The revised advisory committee notes state that this amendment to Rule 23(c)(2)(B) “recognizes the propriety of this combined notice practice.” See Fed. R. Civ. P. 23(c)(2) advisory committee’s note to proposed 2018 amendment. The contents of such class notice (the nature of the action, class definition, class claims and defenses, opt-out date, etc.) as enumerated in the current Rule 23(c)(2)(B) remain unchanged.

Amended Rule 23(c)(2)(B) also permits class notice to be by United States mail, “electronic means, or other appropriate means.” See Proposed Fed. R. Civ. P. 23(c)(2)(B). The revision is intended to modernize notice methods through the use of email and future technological means that can reliably reach the largest number of class members. The advisory committee notes acknowledge that the most appropriate notice method will depend on the particulars of a given case, and the notes encourage courts and parties to tailor the “means, format, and content” of the notice to the relative sophistication of the class. See Fed. R. Civ. P. 23(c)(2) advisory committee’s note to proposed 2018 amendment (acknowledging method of notice in sophisticated securities class actions may not be appropriate in other class actions). The amendment’s explicit permission to use email and other means for class notice will likely increase the importance of engaging claims administrators early in the process to assist with developing effective notice plans.

Rule 23(e)(1)—“Frontloading” Class Notice
Recognizing that a court’s “decision to give notice of a proposed [class action] settlement . . . is an important event,” the amendment to Rule 23(e)(1) authorizes such notice only after the court determines that class certification and final settlement approval are likely. See Fed. R. Civ. P. 23(e)(1) advisory committee’s note to proposed 2018 amendment. Specifically, under the amended rule, the party seeking to provide settlement notice to the class must first show that the court will likely be able to (1) grant final settlement approval under Rule 23(e)(2) and (2) certify the class for purposes of judgment on the proposed settlement (assuming the court has not previously certified the class). See Proposed Rule 23(e)(1)(B).

The advisory committee notes detail certain types of information that can be appropriately presented to a court to satisfy the requirements of new Rule 23(e)(1)(B). This includes information on (1) the extent and type of benefits the settlement will confer on class members, (2) the contemplated claims process and the anticipated claims rate by class members, (3) the planned distribution of any unclaimed settlement funds, (4) the likely range of litigated outcomes and the risks of full-blown litigation, (5) the extent of completed discovery in the class action or parallel actions, (6) the existence of other pending or anticipated litigation asserting claims that would be released under the class settlement, (7) the handling of attorney fee awards under Rule 23(h), and (8) the identification of any agreements between the parties under Rule 23(e)(3) (i.e., any agreements made in connection with the settlement, including agreements with objectors).

The proposed change to Rule 23(e)(1) essentially represents a formalization of current practice, given that many class action litigants already provide courts with this level of information at the preliminary approval stage. Nonetheless, by mandating these details at preliminary approval, the amendment should create uniformity for litigants and the courts, as well as provide class members with sufficient opportunity to fully assess a proposed settlement before the opt-out deadline and final approval hearing.

Rule 23(e)(2)—Codification of Final Settlement Approval Standards
In a further effort to create uniformity in class action practice, amended Rule 23(e)(2) essentially codifies the factors courts must consider when determining whether a proposed class action settlement is “fair, reasonable, and adequate.” See Proposed Rule 23(e)(2). The advisory committee notes acknowledge that each circuit has developed a set of considerations to assess final settlement approval. However, these circuit tests may not always have direct bearing on the particulars of a given case and can “potentially distract[] attention from the central concerns that inform the settlement-review process.” See Fed. R. Civ. P. 23(e)(2) advisory committee’s note to proposed 2018 amendment.

Accordingly, amended Rule 23(e)(2) will require courts to consider the following factors, at a minimum, when making determinations on final settlement approval:

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

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

(C) Whether 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 any proposed method of distributing relief to the class, including the method of processing class member claims;

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

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

(D) Whether class members are treated equitably relative to each other under the proposed settlement.

Many of these factors have long been recognized in the judicially created tests articulated by the circuit courts. See, e.g., City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974) (enumerating factors for final settlement approval such as the expense and duration of the litigation, the attendant risks in establishing liability and damages, and the reasonableness of the settlement in light of such litigation risks), abrogated on other grounds by Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000); Reed v. Gen. Motors Corp., 703 F.2d 170, 172 (5th Cir. 1983) (weighing factors such as the absence of fraud or collusion in negotiating the settlement, the expense and duration of the litigation, plaintiffs’ probability of success on the merits, and the range of possible recovery); Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir. 1998) (assessing factors such as the risk, expense and duration of further litigation, as well as the amount offered in the settlement).

However, amended Rule 23(e)(2) places a core emphasis on the adequacy of the proposed relief to the class, including the efficacy of settlement distribution, equitable treatment of class members, and the terms of attorney fee awards. In doing so, this amendment may require more detailed information by litigants concerning the mechanics of claims processing and distribution, as well as the specific basis for the amount and timing of proposed fee awards. On this point, the advisory committee notes indicate that although attorney fees must ultimately be assessed under Rule 23(h), the overall class relief as detailed at final approval can be a significant factor in determining an appropriate fee award. See Fed. R. Civ. P. 23(e)(2) advisory committee’s note to proposed 2018 amendment. In sum, the specific enumeration of factors under the new Rule 23(e)(2) will likely result in a gradual departure from the prevailing tests in the respective circuits toward a more uniform standard for final settlement approval.

Rule 23(e)(5)—Class Member Objections
Perhaps the most significant change in the forthcoming amendments concerns the recurring issue of serial objectors to proposed class action settlements. Current Rule 23(e)(5) permits any class member to object to a proposed class action settlement requiring court approval and allows the objection to be withdrawn only with the court’s approval. See Fed. R. Civ. P. 23(e)(5). The rule was intended to provide class members with a meaningful opportunity to raise valid objections to the scope of settlement amounts and releases, which, in turn, can assist courts in determining whether a proposed settlement is fair, reasonable, and adequate.

Regrettably, under the current rule, there has been an increased incidence of so-called “professional objectors,” who file baseless objections to proposed class settlements (or appeals to court-approved settlements) in an effort to delay the distribution of settlement proceeds and attorney fees. Because settlement amounts and attorney fees normally cannot be distributed until a court-approved settlement is final, professional objectors seek to extract compensation from class counsel in exchange for withdrawing their objection or appeal.

Numerous courts have recognized that these extortionate practices provide no real benefit to the class and have searched for ways to discourage such meritless objections. See, e.g., In re Gen. Elec. Co. Sec. Litig., 998 F. Supp. 2d 145, 153 (S.D.N.Y. 2014) (requiring “professional objector” to post a $54,000 appeal bond for administrative expenses incurred during pendency of frivolous appeal of the district court’s denial of settlement objection); In re Merck & Co., Inc. Sec., Derivative & “ERISA” Litig., 2016 WL 4820620, at *2 (D. N.J. Sept. 14, 2016) (same); In re Whirlpool Corp. Front-loading Washer Prods. Liab. Litig., 2016 WL 5338012, at *20–21 (N.D. Ohio Sept. 23, 2016) (approving “quick-pay” provision in class settlement that permitted award of attorney fees upon final settlement approval, and noting that “[q]uick-pay clauses substantially reduce the leverage a professional objector can wield”). Nonetheless, such judicial responses have failed to consistently deter professional objectors from filing frivolous objections in the hopes of a quick payment before formal adjudication of their claims.

Amended Rule 23(e)(5) seeks to address this ongoing concern in class action litigation through a number of provisions. First, under amended Rule 23(e)(5)(A), settlement objections must “state with specificity the grounds for the objection” and specify whether the objection “applies only to the objector, to a specific subset of the class, or to the entire class.” This revision will necessitate more detail on the grounds for a given settlement objection and force objectors to identify whether their objection addresses only their narrow personal interests or the interests of the larger class. The change should help courts evaluate the validity of class settlement objections, and as noted by the advisory committee, “the failure to provide needed specificity may be a basis for rejecting an objection.” See Fed. R. Civ. P. 23(e)(5)(A) advisory committee’s note to proposed 2018 amendment.

Second, amended Rule 23(e)(5)(A) eliminates the requirement that settlement objections can be withdrawn only with the court’s approval. Third, in place of that requirement, amended Rule 23(e)(5)(B) will require court approval for any payment or other consideration given to an objector or objector’s counsel for “(i) forgoing or withdrawing an objection, or (ii) forgoing, dismissing, or abandoning an appeal from a judgment approving” a class settlement. See Proposed Rule 23(e)(5)(B)(i)–(ii). By prohibiting any payment or other consideration to objectors without court approval, this amendment should help to discourage professional objectors from filing baseless objections or appeals without any concern for judicial oversight. The change should also give courts valuable insight into the true motives behind a given objection or appeal. Notably, the amendment may also curtail payments made to objectors who merely threaten an objection or appeal without actually filing one in that the new rule also requires court approval when objectors forgo such steps in exchange for payment or other consideration.

While the forthcoming Rule 23 amendments are relatively modest in scope, they introduce important substantive and procedural changes to the settlement stage of federal class action cases. Practitioners will now need to provide courts with enough detail at the preliminary approval stage to justify certification and final approval, thereby accentuating the importance of preliminary approval submissions in all cases. In addition, the amendments provide more uniform standards for litigants and the courts to apply at both the preliminary and final settlement approval phase of a class action. The revisions should also serve to discourage bad faith objections to class settlements and the destabilizing practices of professional objectors. Of course, the full impact of the Rule 23 amendments will ultimately depend on their judicial application once they are in effect at the end of 2018.


Jonathan H. Beemer is a partner at Entwistle & Cappucci LLP in New York City, New York.

Jonathan H. Beemer – July 17, 2018