Like many things these days, the legal landscape is changing. One target is class action litigation. Some important new proposals have the potential to dramatically alter class actions in the near future. In particular, these changes would impact class certification and the settlement process.
Rule 23 Amendments
First, a spate of amendments may bring changes to Federal Rule of Civil Procedure 23. The comment period on the amendments closed on February 15th and the changes are expected to be adopted, with an effective date of December 1, 2018. Specifically, the amendments include a variety of changes regarding class settlement and notice. The new proposal’s greatest impact would be on class settlement objectors, governed by Rule 23(e)(5). The proposed amendment seeks to prevent bad faith objections by requiring objectors to state the grounds for their objection with specificity. Objectors would also be required to state whether the objection applies only to themselves, to the whole class, or to a portion of the class. The amendment deletes the rule’s current language requiring court approval for the withdrawal of an objection. Instead, the new rule would require approval for payment to an objector or his counsel in connection with either the withdrawal of an objection or the abandonment of an appeal of a judgment approving a settlement. These changes seek to prevent objectors from interfering with settlements merely to obtain a payoff.
Under the new proposal, Rule 23(c)(2)(B), which governs notice for 23(b)(3) classes, would allow for notice to be given not only via mail, but also electronic or other appropriate means. The new rule would also clarify that Rule 23(e)(1) notice to a proposed settlement class would trigger the opt-out period, in conformance with common practice. Additionally, Rule 23(e)(1) would be amended to require parties to give the court sufficient information to determine whether to order notice, and an amendment to Rule 23(f) would clarify that an order to send notice to the class is not appealable. The new amendments would also alter Rule 23(e)(2), which requires a court to determine whether a settlement is “fair, reasonable and adequate” before approval. The new rule would list factors for the court to consider in making this determination, including the adequacy of representation and relief, whether all class members are treated equitably, and if the settlement was the product of arm’s length negotiations. Although meant to provide guidance to courts, the list would not eliminate the various approval factors courts have already developed for this purpose.
Fairness in Class Action Litigation Act
Meanwhile, a bill pending before Congress could result in even more sweeping reforms. The Fairness in Class Action Litigation Act (“FICALA”), H.R. 985, proposed by Rep. Bob Goodlatte (R-Va), seeks to “assure fair and prompt recoveries for class members and multidistrict litigation plaintiffs with legitimate claims” while also “diminish[ing] abuses in class action and mass tort litigation.” To that end, the bill sets stricter requirements for class certification. For example, it requires a party seeking to certify a class for monetary relief to affirmatively demonstrate that each putative class member suffered the same type and scope of injury as the named plaintiff. It also restricts who can serve as class representatives, prohibiting such individuals from having familial, employment, or contractual relationships with class counsel and compelling disclosures about potential conflicts of interest in that regard. It also creates a heightened ascertainability standard by requiring that a class be defined with reference to objective criteria, and that the party seeking certification demonstrate that a reliable and feasible method exists both to identify class members and to distribute any monetary relief.
Additionally, FICALA places restrictions on the certification of issue classes and requires a mandatory stay of discovery pending motions to dismiss, transfer, or strike class allegations, unless “necessary to preserve evidence or to prevent undue prejudice.” The bill also requires disclosure of third-party litigation funding agreements, and, importantly, gives parties a mandatory right to appeal class certification orders.
Like the Rule 23 changes, the bill also affects class settlements. In particular, it seeks to provide class members a meaningful amount of any judgment or settlement by limiting attorney’s fees to a reasonable percentage of payments distributed to class members, not to exceed the total amount distributed to the class, as well as preventing attorneys from receiving fees before class members are paid. Under FICALA, information about the distribution of settlement funds must also be reported to the Federal Judicial Center and Director of the Administrative Office of the U.S. Courts. Finally, the bill incorporates various changes to the multidistrict litigation process.
Unsurprisingly, reaction to the bill has been mixed; though some, like the American Association for Justice, have claimed the bill rolls back consumer protection and civil rights, others such as the U.S. Chamber of Commerce have praised FICALA for its ability to protect both businesses and consumers from abusive lawsuits that result in increased prices and fewer jobs. Although the House passed the bill on March 9th, its fate in the Senate is uncertain. Republicans, most of whom support the bill, control the Senate 52-48, but the close split means the vote could swing either way. Indeed, a less expansive proposal by Rep. Goodlatte died in the Senate last year. If adopted as drafted, FICALA would usher in a wave of changes that could have a significant impact on class actions in the future.