Coming to terms on a nationwide class action settlement in federal court is not easy. First, unlike typical settlement agreements, a class settlement requires a multifaceted agreement, with provisions covering a wide array of issues—the scope of the class, the settlement fund, notice and claims provisions, safe harbor, release, and the list goes on and on. Second, it is axiomatic that any class settlement must be free of collusion—the result of extensive arm’s-length negotiations conducted by experienced counsel. Thereafter, the federal rules mandate a judge’s preliminary approval, a fairness hearing, and the judge’s final approval after hearing from and addressing concerns raised by any settlement objectors. Under the Class Action Fairness Act, 28 U.S.C. § 1715, notice of the proposed class settlement must also be provided to the U.S. Department of Justice, state attorneys general, and in some instances, state and federal regulators at least 90 days before the final approval hearing. In other words, the nationwide class action settlement must navigate through many checkpoints before crossing the ultimate finish line. Although most of these steps are well known, less attention has been paid to how to protect that hard-won settlement from challenges—especially in the context of a federal court’s continuing jurisdiction to enforce a nationwide class settlement.
Just as the process of finalizing a nationwide settlement presents added challenges, so too does the process of protecting that settlement from breach and infringement once it is finalized. That process is important. Because class action settlements can bind hundreds, thousands, or even millions of persons to the agreement, there is a greater risk that one of those parties will fail to comply with the terms of the agreement; thus, there is a greater need for class counsel, defense attorneys, and courts to remain vigilant to protect against breaches. Fortunately, when that happens, counsel and courts have several options at their disposal.
Preventing Infringement of Class Settlements by Class Members Within Competing Class Actions
It is not uncommon for multiple class action complaints to be filed at the same time, in multiple jurisdictions, that all relate to the same alleged violation of the law. Named plaintiffs in cases filed across the country will fight for the opportunity to represent the interests of an entire class, which, at the outset, can lead to overlapping putative classes filed in federal and state courts alike.
When this occurs, there is often a first-mover advantage for plaintiffs. Even before a class is certified or final approval is given to a class action settlement, federal and state courts will often stay class proceedings in deference to the first-filed case. See, e.g., Gill v. Convergent Outsourcing, Inc., No. 2:16-cv-01035, 2017 U.S. Dist. LEXIS 92286 (S.D. Ohio June 15, 2017) (staying putative federal class action pending approval of separate and overlapping federal class action settlement because “judicial efficiency and economy are not served by duplicated classes”); Asher v. Abbott Labs., 307 A.D.2d 211 (N.Y. App. Div. 2003) (staying putative state court class action pending resolution of first-filed overlapping federal class, noting that “a stay may be warranted when there is substantial identity between state and federal actions”). And often, there is an advantage to defendants to settle these claims early and to draft a broad settlement agreement that covers as many potential claims as possible. This provides some degree of finality and certainty, and it prevents the defendants from having to litigate the same claims over and over again in different forums.
In theory, once the first nationwide class is certified and class notices are sent out, overlapping class members will be faced with three main options. They can accept the terms of the class settlement (which should include a release provision preventing the class members from pursuing related claims in other forums), meaning that the separately filed action must be dismissed. They can object to the proposed class settlement and even seek to intervene prior to the final approval hearing to protect their alleged interests. Or they can opt out of the class, generally requiring them to proceed on an individual basis. But in practice, things do not always work out that way. For example, a class member who does not opt out of the class settlement and agrees to release his or her claims may still attempt to pursue related claims in another forum, including a state court, after the settlement is approved and final judgment is entered by the settlement court.
When it is a class member who defies the terms of the settlement, the remedy is often simple. A well-drafted settlement agreement should include language that grants the federal district court continuing jurisdiction over the parties to enforce and administer the terms of the agreement. When a class member acts in a manner inconsistent with the terms of the settlement—whether by filing new claims that have previously been released or by taking action that the settlement agreement expressly enjoins—the defendant can seek relief from the district court that entered the settlement agreement.
So long as the district court has jurisdiction to enforce the terms of its settlement, it can act broadly to prevent a breach or other interference with the agreement. For example, district courts have held breaching parties in contempt, enjoined state court cases in their entirety when the state court case threatened the federal court’s previously entered settlement agreement, and restricted discovery in state court cases even when the state court had previously authorized such discovery. See, e.g., Battle v. Liberty Nat’l Life Ins. Co., 877 F.2d 877, 881 (11th Cir. 1989) (enjoining state court class actions that infringed on previously entered settlement in federal court because “these state court suits, class actions which on their face challenge the propriety of the [federal court] judgment, can only undermine the district court’s continuing jurisdiction over this case”); Prudential Ins. Co. of Am. v. Nelson, 11 F. Supp. 2d 572, 580 (D.N.J. 1998) (“Pursuant to the All-Writs Act, 28 U.S.C. § 1651 and the exceptions to the Anti-Injunction Act, 28 U.S.C. § 2283, this Court may issue orders necessary in aid of its jurisdiction. . . . Additionally, enforcement of an order may require a federal court to enter orders which restrict state court discovery.”).
Preventing Infringement of Class Settlements by Non-Class Members
Settlement agreements, however, can involve more than just a monetary payment in exchange for a release of claims. In the context of consumer statutory enforcement actions, for example, a federal court or agency may agree to settle a case on the condition that the defendant refrain from engaging in the complained-of conduct in the future or on the condition that the defendant fix its internal procedures to comply with the law going forward. See, e.g., Pelzer v. Vassalle, 655 F. App’x 352, 356 (6th Cir. 2016) (settlement agreement requiring debt collector “to create and implement written procedures for the generation and use of affidavits in debt collection lawsuits,” subject to continuing oversight by a court-appointed special master and the federal Consumer Financial Protection Bureau); Grande v. County of Wayne, 205 F. Supp. 2d 776, 777 (E.D. Mich. 2002) (settlement agreement and consent decree subject to continuing court oversight, which “established guidelines for the operation” of a sewer system “and also provided a framework to bring the sewer system into compliance with federal, state and local laws”).
These types of agreements can be interfered with by non-class members after the final approval of the class settlement agreement. In Grande, for example, after the Eastern District of Michigan’s settlement agreement established court-required guidelines for the operation of a sewer system, subsequent lawsuits were filed in state court alleging liability “based directly on the provisions” in the consent decree and class settlement agreement, leaving the defendant in a difficult spot. The defendant could continue to comply with the agreement entered in federal court, exposing itself to potential liability in the state court action. It could stop complying with the agreement in federal court, exposing itself to potential liability in the federal court action.
Better yet, it could rely on the All Writs Act and have the federal court enjoin actions taken by non-class members, either in other federal or state jurisdictions, which interfere with the federal court’s settlement agreement. The All Writs Act provides that federal courts “may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C. § 1651(a). Although first instincts may say that only parties to a settlement agreement may be bound or affected by the terms of that agreement, the Supreme Court has recognized that “the power conferred by the [All Writs] Act extends, under appropriate circumstances, to persons who, though not parties to the original action or engaged in wrongdoing, are in a position to frustrate the implementation of a court order or the proper administration of justice. . . .” United States v. N.Y. Tel. Co., 434 U.S. 159, 173–74 (1977). Federal courts have relied on this broad authority to enjoin third parties from engaging in litigation that threatens the terms of a prior court order or agreement, even when jurisdiction would not otherwise exist to allow the court to do so. Ronnie Van Zant, Inc. v. Pyle, 270 F. Supp. 3d 656, 674 (S.D.N.Y. 2017); Grande, 205 F. Supp. 2d at 779 (“It is immaterial that the [state court] plaintiffs are not signatories” to the federal court agreement.).
The All Writs Act can therefore, “under appropriate circumstances,” be a powerful tool for counsel and the federal court to prevent those who were not parties to the original settlement agreement from threatening the terms of that agreement or forcing defendants to refrain from acting in a manner inconsistent with that agreement.
First, take care in drafting your settlement agreement. Be sure to require class members who agree to the terms of the settlement agreement to also release all claims arising out of or relating to the claims that have been settled. In addition, be sure to grant the federal district court broad and continuing jurisdiction to enforce its agreement and any corresponding injunction, as the Supreme Court has warned that “enforcement of the settlement agreement, whether through award of damages or decree of specific performance, is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis for jurisdiction.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378 (1994).
Second, your role as class or defense counsel is not done as soon as the settlement agreement is finalized and approved and judgment is entered by the court. Set up alerts and continue to monitor the status of similar lawsuits filed against your client that can frustrate the terms of the settlement agreement.
Finally, once you have identified a breach, use all options available to protect the hard-fought settlement agreement. When a party to the settlement agreement acts inconsistently with the terms, move to enforce the settlement agreement with the court that entered the agreement. And when a nonparty to the settlement agreement threatens the enforceability of that agreement in other jurisdictions, look to whether relief may be appropriate under the All Writs Act.
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