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Class Action Rule Changes Are (Likely) Coming to Federal Courts

In August of this year, the Judicial Conference Advisory Committee on Rules of Civil Procedure released a preliminary draft of proposed amendments to the Federal Rules of Civil Procedure. Perhaps the most notable of the proposed amendments are those relating to Rule 23, which governs class actions. Rule 23 has been substantively amended four times since its adoption in 1937, and most recently in 2003. The proposed amendments affect the following aspects of Rule 23: method of notice to class members, settlement approval, objections of class members to settlement and appeals.

Notice

The proposal includes an amendment to Rule 23(c)(2)(b) to clarify the proper methods of notice to class members of a class certified under Rule 23(b)(3) (common questions of law or fact predominate over those pertinent to only individual class members and the class action is superior to other forms of action). Currently, Rule 23(c)(2)(b) requires notice by “the best notice that is practicable under the circumstances,” which could plausibly be read to permit notice through electronic or other means. But many courts have stated that this subsection of the rule requires notice by first class mail. The proposed amendment would clear up this confusion by allowing notice to be perfected “by United States mail, electronic means, or other appropriate means.” This proposed amendment is meant to clarify that modern methods of communication, such as email and social media, are permissible means of providing notice to class members. The proposed amendment reflects the reality that many people do not check their U.S. mail as regularly as they used to before the advent of electronic mail.

The proposed amendment does not require any one form of notice over another, but merely provides courts and litigants with the ability to weigh various options that may be more effective, efficient, and that promote cost savings. Which method of notice to use under the proposed amended rule will be a fact-specific inquiry for courts to answer while balancing considerations such as potential costs of notice, access of class members to various technologies and forms of communications, and the level of attention class members are likely pay to the notice in any given form of transmittal.

Settlement Approval

The proposed amendment makes changes to the settlement procedures contained in Rule 23(e) and provides guidance for courts in determining whether to approve settlement. First, the proposed amendment would clarify that the settlement procedures currently contained in Rule 23(e) apply not only to certified classes, but also to classes proposed to be certified for purposes of settlement.

Next, the proposed amendment would require that, before notice of a potential settlement is sent to class members pursuant to Rule 23(e)(1), the parties must provide the court with information sufficient to determine that it is likely the class will be certified for settlement purposes, and that the settlement will be approved as fair and reasonable following a settlement hearing under Rule 23(e)(2). The Advisory Committee has noted that some of the information that may be relevant for the parties to provide the court to aid in the determination of whether settlement notice is warranted includes the extent and type of benefits to be conferred upon class members, the anticipated rate of claims, potential outcomes and risks of litigation, the extent of discovery completed, and the proposed handling of attorney’s fees. Courts are encouraged to direct parties to submit additional information if it will aid in the court’s preliminary determination of whether the settlement is likely to be approved upon a final hearing and thus notice of the potential settlement is warranted.

Additionally, the proposed amendment provides factors for courts to consider in evaluating a proposed settlement. Rule 23 requires a court to hold a hearing to determine if a proposed settlement is “fair, reasonable, and adequate,” but provides no further guidance in making this determination. As a result, courts have developed their own set of factors to determine the fairness and adequacy of a proposed settlement. The Advisory Committee, noting that parties often feel the need exhaustively to address a court’s stated factors even where not all factors are pertinent to the case in question, has proposed a list of factors for courts to consider in an effort to address these concerns, and to narrow the focus of the parties and courts to the factors most central to a determination under Rule 23(e)(2).

The proposed amendment contains the following factors for a court to consider: whether the class representatives and counsel have adequately represented the class; whether the proposed settlement was negotiated at arm’s length; the adequacy of the relief to be provided to the class members, taking into account the costs and risks of trial, the effectiveness of the proposed method of distributing relief to class members, the proposed attorney’s fee, and any side agreements that have been made in connection with the settlement; and whether the class members will be treated equitably relative to each other.

Objections of Class Members

The current Rule 23(e)(5) allows any class member to object to a proposed settlement. The proposed amendment seeks several changes to the rule. First, the proposed amendment removes the requirement that an objecting class member obtain court approval to withdraw an objection. This amendment reflects the Advisory Committee’s view that an objector ought to be free to withdraw his objection should he conclude that it was not justified. The proposal, however, would require court approval if payment is to be made to an objector or his counsel in consideration for withdrawing an objection or dismissing an appeal of an approved settlement. This requirement is meant to address concerns that class members make objections merely for personal gain, and often at the expense of the other parties, while recognizing that objections can often prove beneficial to a class or the court, and thus payment to the objector or counsel may be warranted.

In an effort to deter baseless objections, the proposed amendment further requires objectors to state whether their objection applies only to the objector, to a specific subset of the class, or to the entire class. The objection must also state with specificity the grounds for the objection so as to better enable the parties and the court to evaluate the objection. Failure of an objector to state the grounds of the objection with specificity may be cause for the objection to be rejected; but the Advisory Committee cautions courts to provide leeway to class members (particularly where they are pro se) who may not be aware of technical legal standards.

Appeals

Finally, the proposed amendment seeks to clarify Rule 23(f) to provide that no appeal can be taken from an order under Rule 23(e)(1) preliminarily approving a settlement and ordering notice to class members.

While the proposal maintains the existing 14-day window for a party to file a petition for permission to appeal, it extends the time frame to 45 days if any party is the United States, a U.S. agency, or a U.S. officer or employee sued for acts or omissions performed on the United States’ behalf. The extension of time applies to all parties, not just the United States, and is meant to reflect the considerations of Rules 4(i) and 12(a), as well as Federal Rules of Appellate Procedure 4(a)(1)(B) and 40(a)(1), which recognize a special need on the part of the United States for additional time to act.

Conclusion

The proposed amendments to Rule 23 provide for a number of changes to the rule. Some of the changes, particularly the adoption of guidelines for determining if a settlement is “fair, reasonable, and adequate,” merely adopt practices that have been developed by courts over the years. Others, such as clarification that notice to class members need not always be provided by first class mail but can also be provided by other means such as e-mail or social media, are meant to reflect evolving technologies and communication standards. Other changes, such as those relating to standards for objecting to a proposed settlement, reflect a sharp change in the Rule, which will likely have lasting effects.

The Advisory Committee is accepting public comments through Feb. 15, 2017, on the proposed amendments. The committee will then decide whether to approve a final form of the proposed amendments, which would then be submitted to the Judicial Conference’s Committee on Rules of Practice and Procedure, otherwise known as the Standing Committee. If approved by the Standing Committee, the proposed amendments will be sent to the Judicial Conference who will decide whether to send the proposed changes to the U.S. Supreme Court for adoption, subject to congressional action rejecting or modifying the amendments. If approved, the proposed amendments would become effective on Dec. 1, 2018. •


By Edward T. Kang

Reprinted with permission from the November 10 edition of The Legal Intelligencer”© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or reprints@alm.com

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