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Potential Changes to Rule 23 and Class Actions: Settlement Approval and Class Certification


his article is Part I of a three-part series covering six "conceptual sketches" of possible amendments to Federal Rule of Civil Procedure 23, recently offered by the Rule 23 Subcommittee of the Civil Rules Advisory Committee on the Federal Rules of Civil Procedure ("Subcommittee"). According to the Subcommittee, these "conceptual sketches" "are not intended as initial drafts of actual rule change proposals, and should not be taken as such," but yet "[t]he time has come for moving beyond purely topical discussion." The Subcommittee, formed in 2011, announced a mini-conference to be held in September 2015, at which time it hopes to present the language of proposed amendments. Given that changes may be proposed this fall, and may be in effect as early as 2018, now is an important time to understand the changes being proposed and their potential effects. 

The six conceptual sketches can be found here. The sketches cover (1) Settlement Approval Criteria; (2) Settlement Class Certification; (3) Cy Pres Treatment; (4) Dealing with Objectors; (5) Rule 68 Offers and Mootness; (6) Issue Classes; and (7) Notice. This article addresses the first two of the Subcommittee's conceptual sketches. Future articles will address the remaining sketches.

Conceptual Sketch #1: Settlement Approval Criteria

The current version of Rule 23(e) requires a court to determine that a class action settlement is "fair, reasonable, and adequate" before final approval, see Rule 23(e)(2), but does not identify the factors that a court must consider in making that determination. Each circuit has its own list of five to nine different factors, some of which are thirty years old. The Subcommittee expressed the view that some (or perhaps all) of these lists are outdated, include factors that are no longer significant in contemporary class actions, and exclude factors that should matter more in light of developments in the law.

Accordingly, the Subcommittee has provided a "conceptual discussion draft" of amendments to Rule 23(e) that would require a court to consider four factors: (i) whether the class representatives and class counsel are adequate representatives of the class; (ii) whether the relief awarded to the class is fair, reasonable, and adequate given the costs, risk, and probability of success, and delays of trial and appeal; (iii) whether the class members are treated equitably relative to each other; and (iv) whether the settlement was negotiated at arm's length and was not the product of collusion. The "discussion draft" goes on to say that the court may consider "any other matter pertinent to approval of the proposal, and may refuse to approve it on any such ground."

The Subcommittee stated that its intent in identifying the four factors is to provide a "uniform set of core factors" that a court must find satisfied before it may approve a class action settlement, although the court may disapprove the settlement on any other ground. The Subcommittee further notes that "the divergence among the lists adopted in various circuits could sometimes cause difficulties for counsel or courts."

Critics of the proposal say that it provides no real direction to the courts, as all of the Circuits already require consideration of at least these four factors. Moreover, the ability to consider "any other matter" arguably takes the teeth out of any solid direction given previously in the proposed amendment. Additionally, the identified factors still leave significant room for discretion (i.e., What makes class counsel "adequate"? What relief is "fair, adequate, and reasonable"? How is the court to consider the 'probability of success' and does it have to give success a numerical value? What is evidence of collusion? It is unlikely that simply enumerating a list is going to lead to a consistent approach by all circuits (if that is even a desirable result). Finally, as many of the recent decisions disapproving class action settlements are focused on attorneys' fees and whether those fees are proportional to class relief, the list of factors identified by the Subcommittee does not provide guidance where the courts (and parties before them) may need it most.

Conceptual Sketch #2: Settlement Class Certification

Rule 23(e) provides that only "the claims, issues, or defenses of a certified case may be settled . . . ." Thus, when seeking approval of a class action settlement, plaintiffs and defendants typically jointly seek certification of the class for settlement purposes only. In 1997, in Amchem Prods., Inc. v. Windsor, the Supreme Court held that although a court considering settlement should consider the requirements of Rule 23(a) and (b), it need not consider the manageability requirement of Rule 23(b)(3)(D) in the settlement context, as there will be no trial to manage. Thus, even after Amchem, a court still must find that the requirements of Rule 23(a) and (b) are satisfied, including that common issues predominate over individual issues (known as "the predominance requirement").    

The Subcommittee's second conceptual sketch removes the predominance requirement when certification is for settlement purposes only. To that end, the Subcommittee has proposed possible amendments that require satisfaction of (some or all of) Rule 23(a) and only the superiority requirement of Rule 23(b)(3). That is, the Court would not be required to find that common question of law or fact predominate over individual ones. The Subcommittee suggests that eradication of this requirement is a natural corollary to Amchem. The Subcommittee further reasons that the predominance question is not as important once Rule 23(e) is strengthened to provide more guidance for settlement review, so it appears that these first two conceptual sketches may pass or fail together.

This second draft conceptual sketch raises the core issue of whether cases that should not (and perhaps could not) be certified for litigation purposes should still be certified for settlement purposes. The Subcommittee believes the answer to this question to be in the affirmative — its proposed Notes state that the draft amendments are intended to "ease the path to certification for purposes of settlement." On the one hand, "easing the path to settlement" may be a favorable approach for some defendants who, even while believing class certification to be inappropriate, wish to settle to avoid the continued costs, business disruption, and inherent risks of class action litigation. It may also be argued that, because the Rule 23(a) and "superiority" requirements remain, the Rules will still require findings of adequacy, typicality, and commonality to establish that class treatment is appropriate.

On the other hand, critics of the sketch have argued that easing the path to certification for purposes of settlement lowers the cost of admission and will lead to an increase in filing of more meritless class actions in the first place. Critics question the strength of the "superiority" requirement and foresee that any settlement that results in fewer cases on a court's docket will be deemed superior to individual adjudications. Critics further posit that the Rule 23(a) requirements already have little impact and will lose what teeth they do have if there is no predominance requirement. 

In conclusion, one's view on these two conceptual sketches may turn on whether he or she believes that incentivizing settlement also incentivizes the filing of frivolous lawsuits. Perhaps it also depends on one's definition of "frivolous." In any event, the Subcommittee should closely consider whether easing the path to settlement is the proper response to the direction that class actions have taken or whether the better approach is to focus on other parts of Rule 23 to combat the growing number of class actions that seem designed to make lawyers rich rather than protect consumers.

The next article in this series will cover the Subcommittee's conceptual sketch of proposed Rule 23 amendments that would (1) identify factors to determine whether or not a cy pres distribution is appropriate, and (2) require that side agreements made by objectors be disclosed when objectors withdraw.

The views expressed in this article are exclusively those of the authors and do not necessarily reflect those of Sidley Austin LLP and its partners. 


About the Authors

James Gibb is a vice president and assistant general counsel at Owens Corning, a fortune 500 company located in Toledo, Ohio that develops, manufactures and markets insulation, roofing and fiberglass composites. During his 21 years with the company, he has been responsible for handling a wide range of complex litigation matters including the defense of class actions involving D&O, fiduciary and product defect allegations.

Kara L. McCall is a Sidley Austin LLP Chicago partner. She focuses her practice on the defense of companies in class action litigation, product liability and mass torts, and complex commercial litigation matters. Most recently, she has focused on the defense of foods, beverages, nutritional supplements, and construction products in class action litigation arising out of alleged mislabeling or other deceptive trade practices.

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