Are Significant Changes To Class Actions On The Horizon? (Part Two)

Earlier this month insideARM published Part One of this 2-part series on class action litigation. 

This article, Part Two, discusses the proposed revisions to Federal Rule of Civil Procedure 23 and the impact these changes may have on future class action settlements.  

The Proposed Amendments to Federal Rule Of Civil Procedure 23

In 2016, the Judicial Conference Advisory Committee proposed changes to Federal Rule of Civil Procedure 23 (the “Proposed Amendments”).[i]  The Proposed Amendments focus largely on the sections of Rule 23 governing class action settlements.   Specifically, the Proposed Amendments modify the class settlement process in the following ways:

1. Requires the frontloading of class settlement information - The Proposed Amendments authorize class notice only after the Court determines that the prospects of class certification and final approval justifies giving notice to the class.  The changes to Rule 23(e)(1)(A) now require parties to provide the court with sufficient information to “enable it to determine whether to give notice of the proposal to the class.”  The revisions to Rule 23(e)(1)(B) further provide that class notice will be given if “justified by the parties showing that the court will likely be able to approve” the settlement proposal and “certify the class for purposes of judgment.” 
2. Provides a list of articulated factors in determining whether a proposed settlement is fair, reasonable, and adequate - The Proposed Amendments provide a list of articulated factors to be used in determining whether the proposed settlement is fair, reasonable and adequate.  These factors include considerations of whether (i) the class representatives and counsel adequately represented the class; (ii) the settlement was negotiated at arms-length; (iii) the class members were treated equitably relative to each other; and (iv) the class relief was adequate considering four sub-factors: (a) the costs, risks, and delay of trial/appeal; (b) the effectiveness of the proposed method of class settlement distributions; (c) the terms and timing of proposed attorneys’ fees; and (d) identification of any side agreements.   The list of articulated factors is intended to focus the court and lawyers on areas of core concerns. 
3. Changes to 23(b)(3) class notice - The Proposed Amendments revise Rule 23(c)(2)(B) to permit class notice to be given by mail, electronic, “or other appropriate means.”  Courts will use their discretion to determine “the best notice that is practicable under the circumstances” of a particular case.  The Proposed Amendments clarify that electronic notice, or other appropriate means, may be used in place of traditional notice methods. 
4. Revisions to rules governing class objectors - The Proposed Amendments also seek to revise the rules addressing class member objections.  In an attempt to address baseless class objections, the Proposed Amendments will require an objector to state “with specificity the grounds for the objection.”  They also require an objector to state whether the objection applies only to the objector, a subset of the class, or the entire class.  The Proposed Amendments will also require court approval for payment to an objector or objector’s counsel in connection with “forgoing or withdrawing an objection” or “forgoing, dismissing, or abandoning an appeal from a judgment approving the proposal.”

The Current Status and the Potential Impact Of The Proposed Rule Changes

The public comment period closed on the Proposed Amendments, and the Standing Committee meets in June 2017 on the proposed revisions.  In September 2017, the Judicial Conference meets and the Proposed Amendments may become effective, in whole or in part, in December 2018.

Class action practitioners should continue to follow these important developments as they may have a substantial impact on class action settlements in the future.  The most significant will likely be the frontloading of class settlement information before class notice is provided.  Parties will need to provide sufficient information at the class notice stage that the settlement is fair and reasonable, and address the newly articulated factors set forth in the Proposed Amendments.   The failure to do so will likely lead to delays and additional fees and expenses associated with any re-filing.  In light of the foregoing, the Proposed Amendments certainly bear monitoring in the coming year.           

[i] Proposed Amendments to Fed. R. Civ. P. 23 (2016), http://www.uscourts.gov/rules-policies/proposed-amendments-published-public-comment.