October 22, 2019 Practice Points

Under the Magnifying Glass: Class Action Settlements Experiencing Increased Scrutiny Nationwide

And more takeaways from the 23rd Annual National Institute on Class Actions.

By Lindsay Breedlove

According to an esteemed panel that presented at the 23rd National Institute on Class Actions on October 17, 2019, class action settlements are receiving more scrutiny from both state and federal courts nationwide.  California courts, perhaps because of the proliferation of consumer class actions there, are driving the trend and class-heavy jurisdictions, which include the Northern District of Illinois and the Southern District of New York, are following suit.  Importantly, even in jurisdictions without class settlement guidelines as stringent as the Northern District of California’s, courts are refusing to preliminarily approve settlements and authorize notice without additional information, and, sometimes, are requiring substantial changes to settlement terms.

How should counsel approach settlement negotiations in light of the judicial scrutiny that may follow? Here are some key takeaways from the panel:

  • From the defense side, consider the likelihood that the judge will reject the settlement amount, no matter what it is. One panelist suggested that defendants in California are withholding amounts that might otherwise be provided as part of preliminary settlements to leave some room to increase the settlement amount if the judge refuses to approve the original amount. 
  • For plaintiffs, provide information to the court that realistically describes the risks of the case, which will help the court evaluate the reasonableness of the settlement (but use caution in describing potential impediments to class certification, as the class will still need to be certified for settlement purposes). One panelist described a class settlement negotiation in which the parties agreed that the preliminary approval package would include information about how often plaintiffs lose TCPA cases. All agreed that the judge believed the plaintiffs’ counsel would get a windfall if counsel received a typical percentage of the settlement amount. Providing the judge with information about the risks that plaintiffs’ counsel take bringing TCPA cases increased the likelihood that the judge would grant preliminary approval.
  • Be creative about how you might educate the court about the weaknesses of the parties’ positions. For example, the plaintiffs’ might offer to share the results of jury exercises in camera. A defendant might be willing to reveal sensitive financial information suggesting a very limited ability to pay to the court and class representatives, while not wanting to make that information available more widely. One panelist expressed concern that courts would not ultimately be able to keep the information from the public in the face of a request from absent class member or the press. She suggested using that concern to your advantage, asking the judge to trust the parties’ judgment and not requiring them to disclosing sensitive information, even if that information is initially accepted under seal.
  • Consider creating a notice program that is geared not just toward due process but also toward claims stimulation. Courts are often concerned about low class claims rate, which they believe suggest that the settlement benefited the lawyers substantially more than the class and should not be approved. Work proactively to create a notice plan that has a marketing component to overcome this potential downfall.

Lindsay Breedlove is a partner with Pepper Hamilton in Philadelphia, Pennsylvania. She also serves as cochair of the Class Actions & Derivative Suits Committee for the 2019-2020 bar year.


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