A class action may well strike fear into the heart of a corporate defendant. Instead of one lawsuit, the class action may encompass hundreds, thousands, or even hundreds of thousands of persons making a claim. Lawyers on both sides of a class action also know that the stakes are high and that they must be at the top of their game. That's why both lawyers and potential class action parties need to be aware of class action rule amendments that went into effect December 1, 2018.
Exactly what is a class action? It is a procedural device, governed by Federal Rule of Civil Procedure 23 (FRCP 23) and similar rules in state courts, that allows one person to bring a lawsuit representing himself or herself along with a group of persons, or class, who are similarly situated and have similar claims. Special rules govern various aspects of these actions, like these:
- When a class may be certified by the court;
- When class members may "opt out" or decide not to participate; and
- How procedural issues-such as notices to class members, settlements, and expenses and attorney's fees-may be handled.
Because class action rules and procedures are complex and differ from those in ordinary lawsuits, lawyers and litigants should take notice of the current class action rule amendments.
Class Action Rule Amendments Affect Notices, Settlements
Two main procedures are affected by the FRCP 23 amendments: the giving of notice to the class, and class-wide settlements. The amendments-for the most part-incorporate practices that courts and parties already use, but which are now required to be followed by the Rule.
Class Action Rule Amendments: Notice to Class Members
Both classes certified under FRCP 23(b)(3) (which involve common questions) and classes certified for settlement purposes are now governed by amended FRCP 23 on class action, which provides that "the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice may be by one or more of the following: United States mail, electronic means, or other appropriate means."
By allowing "other appropriate means" of notice, FRCP 23 now allows parties and the court to bypass cumbersome mailings and ineffective magazine and newspaper advertisements, which have been used historically. Notice may be given through social media, such as Twitter and Facebook, or by email, if available.
Parties should be cognizant of the likelihood of class members in their particular case having access to the Internet, and the form of notice proposed. In cases with large numbers of unknown potential claimants, professional class action claims administrators are usually the ones tasked with designing and executing notices intended to collect as many class members as possible, and the use of such administrators is explicitly mentioned in the advisory committee notes to the Rule. One administrator discovered a potential downside to tweeted information: the ease of making fraudulent claims. According to a news report, following a class action settlement, an administrator published notice of the settlement on Twitter and received 46,000 claims; however, the administrator was able to identify 6,000 of the claims as fraudulent.
Class-Wide Settlements When There Is No Certified Class
The amendment to FRCP 23(e)(1), governing settlements, adds language extending all the safeguards, notices, evaluations, and approvals regarding settlements made by a certified class to a class that has not passed the certification hurdle. Now, proposed settlements by classes, that have not been certified, must give the court sufficient details regarding the settlement, as well as details as to any other agreements among the parties. The parties' showing to the court must demonstrate both that the settlement is fair, adequate, and reasonable and that the class should be certified. The standards for class certification are different when a proposed settlement is contemplated.
The Effect of Class Action Rule Amendments on Settlement
Many federal circuits and their district courts have developed specific factors to consider in evaluating whether a class action settlement is fair, adequate, and reasonable as required under FRCP 23. To promote uniformity, the Rule list four factors that a court must consider before approval of class action settlements.
These factors are set forth in FRCP 23(e)(2)(A)-(D) and include an evaluation of whether the class representatives and class counsel have adequately represented the class and whether the settlement proposal was negotiated at arm's length. The court must also consider the following:
- Whether the relief provided for the class is adequate, taking into account the costs, risks, and delay of continued litigation;
- The proposed method of processing claims and distributing relief;
- The timing and amount of attorney's fee payments;
- Any agreement (formerly a "side" agreement) between any parties relating to the proposal; and
- Whether the proposed settlement treats class members equitably relative to each other.
The advisory committee suggests that the court may also consider the following: the benefits that the settlement will confer on the members of the class, the contemplated claims process and anticipated rate of claims, the plan for distribution of unclaimed proceeds, the likely risks and outcomes if the case were to be fully litigated, the extent to which discovery has been completed, other pending or anticipated related litigation affected by the proposal, and anticipated attorney's fees.
Under FRCP 23(f) as amended, a district court's decision to provide notice to the class of a proposed settlement may not be appealed.
Objections to Proposed Class Action Settlements: Handling Hostage-Takers
FRCP 23(e)(5) provides that any class member may object to a proposed class action settlement. In theory and in practice, the provision for objections allows for class members to weigh in on the fairness of the settlement and to point out inadequacies, injustices, or omissions. However, class action litigants and lawyers have learned that this subsection also provided a method for "bad objectors" to interfere with the settlement process or hold it hostage in the hopes (usually successful) of being paid off by the plaintiffs' attorneys to go away. The amendments to FRCP 23 attempt to rein in such hostage-takers.
A class member's objection must now state whether it applies only to the objector, to a specific subset of the class, or to the entire class. The class member must also "state with specificity the grounds for the objection."
Moreover, court approval is now required for any pay-offs made to objecting class members. Under FRCP 23(e)(5)(B), no payment to an objector for withdrawing an objection may be made without a court hearing and court approval. Similarly, no such payment may be made to a class member for abandoning or withdrawing an appeal from a settlement without court approval.
Businesses who find themselves defending class actions in federal court will likely notice the effects of the recent amendments to Rule 23:
- Broader mechanisms may be used to provide notice to potential class members, including email and social media;
- Specific findings in court orders relating to approval of class action settlements, including the terms and conditions of payment; and
- Increased documentation relating to "bad objectors."
Class action litigation can devastate a business. Such litigation should be handled by experienced attorneys versed in all the applicable procedures, including the latest class action rule amendments. If you are a litigant facing a potential class action, consult with a professional litigator at Jenkins Fenstermaker PLLC by calling toll-free at (866) 617-4736 or using our website contact form. We represent businesses across the tristate region of West Virginia (WV), Kentucky (KY), and Ohio (OH) in federal and state courts.