Article by Lyle Washowich, Esq. and Courtney Brennan
Amendments to Federal Rule of Civil Procedure Rule 23, governing class actions, will become effective December 1, 2018. Among other things, the new requirements aim to improve the process and procedure for giving notice to a class and for obtaining class settlement approval.
Class Action Notice
The amendments modernize the manner and method for providing class action notice. In today’s world, in many circumstances, notifying potential class members solely through a mailed notice may not be a realistic or efficient way to proceed. Accordingly, an amendment to Rule 23(c)(2)(B) provides that when directing “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort,” notice may be sent through “one or more of the following: United States mail, electronic means, or other appropriate means.” Without compromising the use of traditional mail, the amendment appreciates the evolution and effectiveness of technology in today’s society.
Notice and media experts can improve the efficiency of class action notice through targeting the habits and activities of potential class members by, for example, directing potential claimants to an informational website (to file a claim form, if applicable). By taking a tactical approach to developing notice methods, counsel can make use of digital advertisements and social media notifications to reach more class members through each individual source. [1] In addition, by exploring non-traditional methods of electronic notice, counsel can essentially provide supplemental notice for unknown class members.
Refining Preliminary Approval of Class Settlement
Under the existing Rule 23 preliminary approval standard, courts have tended to focus on class size, contents of the draft notice, and distribution of funds. The changes to Rule 23(e) place additional requirements on parties – to demonstrate that their proposed class settlement will likely be approved and that their proposed class likely will be certified. The proposed amendments might not come as much of an adjustment for experienced class counsel, as federal courts were reluctant to grant preliminary approval without at least basic information regarding the proposed class. See In re Celera Corp. Sec. Litig., 2015 WL 7351449 (N.D. Cal. Nov. 20, 2015).
Nevertheless, the language added to Rule 23(e)(1)(A) expressly requires litigants to provide more information regarding proposed settlements before notice of the proposed class is approved – to ensure the court fairly evaluates the proposed class settlement.Parties seeking preliminary approval must now demonstrate that the proposed settlement is likely to achieve final approval and that class certification for settlement purposes is justified. This essentially raises the burden on parties to engage in “more extensive class discovery” so that a court will “likely approve the proposal.” [2] Pursuant to the new Rule 23(e)(2), in order for a court to determine whether the proposed settlement is “fair, reasonable, and adequate,” courts must consider 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 any of the proposed methods 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) the proposal treats class members equitably relative to each other.
Paragraphs (A) and (B) focus on the adequacy of the class representation and procedural concerns that arise with negotiations leading up to the proposed settlement. Paragraphs (C) and (D) consider more substantive issues like the range of recovery and apportionment of the relief among the class. These factors, collectively, direct counsel to focus their efforts in obtaining preliminary approval.
The Comments to the amendments list examples of what type of information is appropriate for submission at the preliminary approval stage: for example, the extent and type of benefits that the settlement will confer to class members; details of the contemplated claims process and anticipated rate of claims by class members; planned distribution of funds; and identification of any agreement made in connection with the proposal. [3] The new amendments make these factors a mandatory part of the court’s evaluation. The committee notes, that in some instances, it will be important to relate the amount of attorney’s fees to the expected benefits to the class.
Parties that try to submit less information will only hinder their approval chances when the court must evaluate the recovery sought. The risk of not providing enough information is that counsel increases the likelihood that its proposal will be subject to objections, and the potential to re-notice the class, adding additional expense and delay. [4] In the long run, the “front-loading” of information reduces the risk that a more significant amount of time and money will be required for the final approval process.
Class-Member Objections
Good faith objections play a valuable role in the new amendments’ aim for fairness. The changes to 23(e)(5) revise what must be included in a legitimate objection. [5] “Professional objectors” have muddied the process over the years by filing frivolous objections and appeals in pursuit of obtaining payment for withdrawing their objections.
The proposed amendments aim to discourage bad-faith objections in two ways. The revised rule requires that an objector “state with specificity the basis for any objection and whether the objection is being made only by the objector, by a subset of the class or by the entire class.” This adjustment seeks to eliminate boilerplate objections filed for negotiating leverage. One court noted, “The vast majority [of objections] have nothing to do with the merits of the actual settlement but are motivated by attorneys attempting to extort a payment from class counsel.” Omnibus Order Granting Approval of Class Action Settlement, (D.E. 407), Bowe v. Public Storage, No. 14-CV-21559 at *2 (S.D. Fla. 2015).
Second, the new amendments require court approval before any payment is made to an objector or objector’s counsel – specifically, as that payment pertains to the withdrawal of an objection or abandonment of an appeal. By requiring objectors to seek court approval, it presumably will help deter counsel from raising meritless objections and eliminate attempts at closed door negotiating.
To put it simply, the proposed amendments seek to avoid collusion among counsel who have exploited the process for financial reward. Objections to class actions should be fair, reasonable and adequate because they are meant to protect the interests of class members.
Appeals
Clarification to Rule 23(f) addresses when it is appropriate to seek interlocutory appeal. The Advisory Committee makes clear that an appeal under this rule is permissible only after the district court decides whether to certify a class. The explanation demonstrates that an order granting notice of a proposed settlement is not appealable. The amendment also extends the timing requirement to 45 days for a party to file a petition for review of the class action certification whenever a party is the United States or one of its agencies or officers.
Conclusion
The approval of the new Rule 23 amendments demonstrate a commitment to promote consistency and efficiency in the class action approval process from the early stages of the process through appeals. In the long-run, uniformity among the circuits will promote confidence in the legitimacy of the notice process and settlement review.