Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and senior associate Betty Luu with their analysis of settlement approval issues in class action litigation addressed by courts over the past year.
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Episode Transcript
Jerry Maatman: Thank you so much for being here again, loyal blog readers and listeners, for the next episode of our weekly podcast entitled the Class Action Weekly Wire. I’m Jerry Maatman, a partner at Duane Morris, and joining me today is my colleague Betty Luu of our Los Angeles office. Thanks so much for being on today’s podcast.
Betty Luu: Great to be here, Jerry. Thanks for having me.
Jerry: Today, we’re going to discuss settlement issues in class action litigation over the last 12 months. As I assume everyone knows, you can’t settle a class action unless a court approves it as fair and reasonable. So, Betty, how often does this sort of issue percolate in the federal courts?
Betty: Well, class actions typically are dismissed, settled, or tried to verdict. Trials are rare as a financial exposure in most class action cases is vast, and the possibility of an adverse verdict may present unacceptable risk. Most potential class actions are resolved before or on the heels of a class certification order. Rule 23 not only provides a process for certification of a class action, but also a procedure for settlement of such claims. Rule 23(e) lays out a three-part settlement approval process. It includes a preliminary approval described as approval to provide notice to the class, notice to class members, and final settlement approval.
Jerry: Betty, what are the pros and cons in terms of settling or not settling a class action that a company is facing?
Betty: Well, Jerry, there are benefits on both sides. Early settlements offer individual plaintiffs relatively quick payments. They allow defendants the opportunity to end cases early without the need to pay the high costs, including often burdensome discovery related costs. Early settlements benefit the court system, too, by avoiding needless litigation that can clog the court’s dockets. When permitted by law, parties frequently choose to settle on a confidential basis, thereby avoiding a risk of adverse publicity which is a dynamic that benefits both defendants and plaintiffs.
Jerry: I know there’s always kind of a debate in the mind of general counsel: “Should I settle this on an individual basis, where I can do so confidentially, or should I get a settlement bar through a class action settlement?” What are some of the obstacles that general counsel should be aware of in this process?
Betty: Well, in order to secure the court’s approval to send notice to the class, the parties must provide sufficient information for the court to determine whether it will likely be able to approve the settlement and certify the class for purposes of entry of a judgment. Rule 23(e) Includes a detailed list of factors for consideration before final approval of a class settlement, including the quality of class representation, whether the negotiation took place at arm’s length, the adequacy of class relief, and equitable treatment of class members. Class notice is also governed by the rule and outlines the proper process for providing notice to class members.
Jerry: Thanks for that overview, Betty. I’ve often heard that sometimes settlement approvals are rubber stamped, but in my experience, especially in the last decade, it’s anything but a rubber-stamping process. Courts depend on the presentation of facts, case law, argument of counsel, and judges don’t always apply those standards equally from state to state or federal court to federal court. And some jurisdictions hardly deal with settlement issues, whereas in other jurisdictions, it’s a daily occurrence in the courthouse. I would say, for preliminary approval, where notice is to be sent to class members, there is a less rigorous standard for certification, and this is evident with respect to the Rule 23(b)(3) requirement for predominance. In terms of practice pointers, what does this mean for defense counsel? What does it mean for companies when they approach the settlement drafting process to anticipate these issues and the sorts of questions that judges will ask in terms of either preliminary approval or final settlement approval?
Betty: Well, settlement on a class-wide basis often poses strategic dilemmas for plaintiffs and defendants alike. Issues include how much can the defendant concede without compromising its ability to defend the case if the settlement falls through and is not approved? Can a settlement-only class be too cheap, and therefore deemed inadequate or unfair when reviewed by the court? And how extensive and broad can a release be in covering the settling parties and class members?
Jerry: In my experience, that release and its parameters are a very, very set of important data points for a judge, and the notion that you can’t settle a class action with a release that’s broader than the claims actually alleged. In terms of the spectrum of issues that courts ruled upon in the settlement approval process over the last 12 months, to your mind, what are some of the key rulings in 2024 that would give guidance to general counsel?
Betty: Well, class-wide settlements often require that plaintiffs show that all applicable requirements of Rule 23 are met. Courts will deny approval to proposed class-wide settlement where the Rule 23 requirements are not established. As an example, in Galvan, et al. v. First Student Management, LLC, the plaintiffs filed a class action alleging various wage and hour violations. The parties ultimately settled the matter, and the plaintiffs filed a motion seeking preliminary approval for a class action settlement. The court denied that motion. The proposed settlement divided a $3.5 million fund into two sub-classes, including a “Driver Class” and a “Non-Driver Class” with specific periods and conditions for each. The court found that the plaintiffs’ proposed settlement agreement failed to address issues with predominance of common questions required for class certification. The court also stated that the plaintiffs failed to adequately estimate the defendants’ maximum potential exposure, making it difficult to assess the fairness of the settlement. Additionally, the court determined that the proposed settlement distribution formula might unfairly treat class different class members, particularly those who are current employees versus those who have left the company. For these reasons, the court determined that the plaintiffs’ counsel failed to meet the adequacy requirement, the class failed to meet the predominance requirement, the parties failed to provide evidence that the settlement was fair and adequate, and the plaintiffs’ lawyers did not establish that class members would be treated equitably by the settlement terms.
Jerry: In my experience over the last decade, another development in this space is the rise of objectors. Sometimes professional objectors, or sometimes members of the class who actually object to the court granting preliminary or final approval to the settlement. How often in your experience does that happen, and what are some of the key rulings over the last year with respect to objectors?
Betty: Well, there are objections all the time to class action settlements, and objectors are sometimes successful in overturning the settlement or getting it vacated on appeal. An interesting example from last year was in the case of In Re Roundup Products Liability Litigation. The parties reached a nationwide class settlement agreement, resolving the plaintiffs’ claims that Monsanto omitted information on the labeling of its roundup products. Two class members objected, alleging that the settlement process involved collusion, and that the settlement would extinguish higher value claims in their class action in Missouri. The district court rejected the Objectors’ concern and granted the plaintiffs’ motion for final approval and for certification of the nationwide class for purposes of settlement. On the Objectors’ appeal, the Ninth Circuit affirmed the district court’s ruling. The Objectors contended that the district court abused its discretion in approving the class action settlement given the warning signs of collusion and because the settlement extinguished higher value claims in the Objectors’ Missouri action and erred by relying on the parties’ use of a mediator. The Ninth Circuit determined that the district court made reasonable factual findings, including that the settlement amount and compensation rates appeared fair and adequate and that there was no evidence of collusion or inadequate representation. The Ninth Circuit also ruled that the district court did not abuse its discretion by rejecting the Objectors’ argument that the nationwide class action settlement would extinguish higher value claims in the Objectors’ Missouri class action. Finally, the Ninth Circuit found that the district court’s decision to approve the settlement did not rely on the parties’ use of a mediator, and there were no signs of collusion during the mediation itself.
Jerry: I think that Ninth Circuit decision is a great example of the sort of range of fairness considerations where an appellate court thinks that district court should focus on when they pass on objections, or with respect to the propriety of whether or not to approve a class action settlement.
Thanks so much, Betty. I think we’re out of time. Thanks so much for lending your thought leadership and expertise with respect to explaining these considerations to our audience today, and thank you everyone for tuning in. Please be reading the Duane Morris Class Action Defense Blog for further updates with respect to settlement considerations and class action litigation.
Betty: Thanks, Jerry, happy to be here.
Jerry: Thanks so much, everyone.