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As of December 1, New Rules Alter Class Action Notices, Settlements, and Objections

As of December 1, 2018, significant amendments go into effect for Federal Rule of Civil Procedure 23, changing a number of areas of class action practice. As described below, the affected areas include class notices, class settlements, and objections to class settlements. For more detail, see the just-updated digital version of NCLC’s Consumer Class Actions. The amended rule and its accompanying 2018 Advisory Committee Note are reprinted at that treatise’s Appendix A.

Green Light for Electronic Class Notices

For the first time, Rule 23(c)(2)(B) is amended to specifically mention electronic notice. The old rule requires “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” The new rule adds the following: “The notice may be by one or more of the following: United States mail, electronic means, or other appropriate means.” The amended rule does not mandate the use of any one means of notice, but relies on courts and counsel to focus on the mean or combination of means most likely to be effective in the case before the court. Courts should exercise their discretion to select appropriate means of giving notice and should consider the capacity and limits of current technology, including a class member’s likely access to such technology. The Advisory Committee Note specifies “simply assuming that the ‘traditional’ methods are best may disregard contemporary communication realities” and miss “other means of communication that may sometimes provide a reliable additional or alternative method for giving notice.” For example, electronic notice might be the most appropriate for those who already have requested paperless billing or notices from the defendant. On the other hand, the Advisory Committee Note recognizes that “[a]lthough it may sometimes be true that electronic methods of notice, for example email, are the most promising, it is important to keep in mind that a significant portion of class members in certain cases may have limited or no access to email or the Internet.” Practitioners should thus in appropriate cases consider electronic notice either supplementing or replacing U.S. mail notice when it is practicable and useful. Possibilities include social media, email, and online advertising like websites, as well as banner and keyword searches. If using electronic notice, class counsel should be familiar with the many social media platforms (Facebook, Twitter, YouTube) and ensure the notice will work across different devices—for example, problems can arise where due to the small size and limited function of smartphones, recipients may be quicker to dismiss notices received on smartphones as opposed to their laptops. Class counsel should also become familiar with online metrics (for example, read rate, open rate, ignore rate), so as to accomplish the most efficient and effective notice plan. And class counsel should be prepared to defend their methodology. Ultimately the goal of giving notice is to enable class members to make informed decisions about whether to opt out, or—in instances where a proposed settlement is involved—to offer an objection or to make claims. Rule 23(c)(2)(B) directs that the notice be “in plain, easily understood language.” Means, format, and content should be appropriate for class members in the case. The Advisory Committee Note suggests that it may be wise to retain a class-notice expert competent in statistical analysis, to design and justify the most appropriate form of notice. The Advisory Committee Note also recommends that attention should focus on the method for opting out provided in the notice. The proposed method should be as convenient as possible, while protecting against unauthorized opt-out notices. In addition, a new amendment to Rule 23(f) makes it explicit that a court’s approval of notice to the class of a proposed settlement under Rule 23(e)(1) is not immediately appealable under Rule 23(f). New Rule 23(c)(2)(B) is discussed at NCLC’s Consumer Class Actions § 13.1.2. Electronic notice is examined in more detail at § 13.6. For either mail or electronic notice, content requirements are detailed at § 13.3, and form and style requirements are considered at § 13.4.

Details of Proposed Settlement Now Required Prior to Class Notice Approval

The prevailing best practice has been to give a court as much information as possible about a proposed settlement before spending time and resources on notifying the class of a settlement that the court may only later reject. However, some class counsel are reluctant to disclose too much information about the proposed settlement at the preliminary stages of a settlement for fear of alerting potential professional objectors. The amended rule now makes it clear that courts should require detailed information about a proposed class settlement prior to approving the issuance of notice to the class. New changes to Rule 23(e)(1)(A) codify the best practice. “The parties must provide the court with information sufficient to enable it to determine whether to give notice of the proposal to the class.” The amended rule also specifies the standard a court should use in deciding whether to send the notice—that it have information such that it is likely the court will be able both to approve the settlement proposal under Rule 23(e)(2) and, if it has not previously certified the class, to certify the class for purposes of judgment on the proposal. The Advisory Committee Note suggests the type of information that might be appropriate to provide to the court when seeking permission to issue a class settlement notice including:
  • The extent and type of benefits that the settlement will confer on the class including, if appropriate given the nature of the proposed relief, a showing as to the contemplated claims process and the anticipated rate of claims by the class.
  • The disposition of any unclaimed funds.
  • The likely range of litigated outcomes, and the risks that may attend full litigation.
  • The extent of discovery in the action or parallel actions.
  • Other pending or anticipated litigation on behalf of the same class members involving claims that would be released under the settlement proposal.
  • The proposed handling of attorney fees, whether as a specified amount or as an amount that will be deferred until the claims rate and results are determined.
  • Any agreement made in connection with the proposed settlement.
For more discussion about filing a proposed settlement with the court and seeking approval of a class notice, see NCLC’s Consumer Class Actions § 15.1. For standards for approval of class action settlements, see § 15.2.

For the First Time, New Rule 23 Specifies Core Standards for Court Approval of Settlements

Until the new rule changes, each circuit had established its own standards for court approval of a class settlement. For example, the Second and Third Circuits laid out a number of factors to consider, while the First Circuit gave the trial court discretion without a list of mandatory factors. This lack of uniformity led to concerns that decisions on class settlement approvals could lead to inconsistent results depending on the jurisdiction in which the case was pending. Amended Rule 23(e)(2) now requires that a court may approve a proposed class action settlement “only after a hearing and only on finding that it is fair, reasonable, and adequate after considering whether”:
  • 1. The class representatives and class counsel have adequately represented the class;
  • 2. The settlement proposal was negotiated at arm’s length;
  • 3. The class relief is adequate, taking into account:
  • The costs, risks, and delay of trial and appeal;
  • The effectiveness of distributing relief to the class;
  • The terms of any proposed award of attorney fees, including timing of payment;
  • Any agreement made in connection with the proposal which must be identified; and
  • 4. The agreement treats class members equitably relative to each other.
The Advisory Committee Note provides that the amendment’s purpose is not to displace any factor courts currently utilize, but rather to focus on the core concerns that always should guide a decision whether to approve a settlement proposal. Consequently, effective December 1, class counsel, when supporting a proposed settlement, should be sure to address the above listed factors, but may continue to suggest other factors to the court as well when appropriate. The Advisory Committee Note further provides guidance as to the nature of the core factors set out in the new rule. Adequate representation should be based on actual performance of counsel acting on behalf of the class in the case. An assessment of any arm’s length negotiations can be evaluated based on the nature and amount of discovery in the present case or in other cases. The actual outcomes of other cases may also indicate whether negotiating counsel had an adequate information base. The pendency of other similar litigation may be pertinent. The involvement of a neutral mediator or facilitator may bear on the manner of negotiation and whether negotiations were conducted in a manner that would protect class interests. Particular attention might focus on the treatment of any award of attorney fees—both the manner of negotiating the fee award and its terms. The Advisory Committee Note indicates that the relief to be provided to class members is central and may require evaluation of the claims process and provide that the parties report back to the court about actual claims experience. The nature of any side agreement must also be disclosed, particularly where any agreement relates to whether all class members are treated equitably. Another concern should be the cost and risk involved in litigation. A benchmark for these factors can be provided by estimating the range of possible litigated recoveries and the likelihood of success. If a class has not been certified, the chances that the class will not be certified also should be considered. The fairness of the proposed attorney fee award should be evaluated in relationship to the relief actually delivered to the class. The Advisory Committee Note also suggests that the court should evaluate the method of claims processing to ensure that it not only prevents unjustified claims but also that it is not unduly demanding. Equitable treatment of all class members involves apportioning relief among the class so that differences among individuals’ claims are taken into account and consideration is given regarding whether the scope of release affects members in different ways. Existing case law and more detail on factors involved in approving class settlements is found in NCLC’s Consumer Class Actions § 15.2.

Cracking Down on Self-Serving Settlement Objectors

Amended Rule 23(e)(5)(A) places additional burdens on objectors to justify any objection to a class settlement. The rule requires that an objector state whether the objection “applies only to the objector, to a specific subset of the class, or to the entire class, and also state with specificity the grounds for the objection.” The Advisory Committee Note indicates that the objector must provide specifics sufficient to enable the parties to respond to those specifics and also for the court to evaluate those specifics. An objection must specify whether it asserts the interests of only the objector or of some subset of the class or of the whole class. Failure to provide needed specificity may be a basis for rejecting the objection. But the Advisory Committee cautions judges against unduly burdening class members who wish to object and encourages judges to recognize that class members who are not represented by counsel may present objections that do not adhere to technical legal standards. Old Rule 23 also complicated the process of an objector dropping its objection or withdrawing an appeal, by requiring court approval. New Rule 23(e)(5)(B) no longer requires court approval where there is no payment or other consideration provided to withdraw the objection or the appeal. The Advisory Committee was, however, particularly concerned with objectors or their counsel seeking personal gain and using objections to benefit themselves rather than assisting in the settlement-review process. Therefore, the new rule requires court approval for forgoing or withdrawing an objection or forgoing, dismissing or abandoning an appeal from a judgment approving a settlement if there is any consideration provided to the objector for such an action. Consideration can include benefits provided not just to the objector but also to counsel for the objector or to any other party. The Advisory Committee Note also indicates that “consideration” should be broadly interpreted, particularly when withdrawal includes arrangements beneficial to the objector’s counsel. Any payment to the objector’s counsel should be made by motion under Rule 23(h) as an award of fees. If the objector has appealed, until the appeal is docketed by a circuit clerk, the district court is who would approve an appeal’s withdrawal. Thereafter, responsibility is given to the court of appeals. The district court, however, always retains exclusive authority to approve or disapprove any consideration exchanged for forgoing, dismissing, or abandoning the appeal. For more on objections to class settlement, see NCLC’s Consumer Class Actions § 15.5.