Civil Rules Committee Takes On Serial Objectors with Proposed Rule 23 Changes

Shabby Greenmail Payments Fall Under Scrutiny

Jocelyn D. Larkin - Executive Director, The Impact Fund

For 18 months, we have been tracking the work of the Advisory Committee on Civil Rules, and specifically its Rule 23 subcommittee, which has been evaluating a range of proposals to amend the federal class action rule.  That work was recently completed and the Committee will soon set a schedule for public comment on a series of draft amendments.

The good news is that the Rule 23 proposals are modest and are not likely to trigger significant opposition like the firestorm that accompanied the discovery rule changes.   Indeed, the Committee chose to take aim at a common enemy of both class action plaintiffs and defendants – the “serial” objector.  Here is a handy summary of these and other proposals. 

Objector Provisions - Recognizing that legitimate objectors play an important role in ensuring that courts have a full picture before approving a proposed class action settlement, the Committee targeted the repeat players who file boilerplate objections and appeals, in the hope of exacting a “greenmail” payment to go away.  So, the proposed amendments would:

·       Require that the objection specify whether it applies only to the objector, to a subset of class members, or to the entire class;

·       Require that the objection state its grounds “with specificity”;

·       Require court approval for any payment to an objector or objector’s counsel for “forgoing or withdrawing” an objection or “forgoing, dismissing or abandoning” an appeal from the judgment;

·       Create a procedure to allow the district court to evaluate any proposed payment to an objector, even though the case is pending on appeal.

Some initial reaction to the greenmail provisions can be found here. 

Changes to the Process Formally Known as “Preliminary Approval” -  The draft amendments would codify the common three-step process for class action settlement approval, in which the court first gives the settlement a “preliminary” review and, if it appears to be in the ballpark, directs notice to the class of the settlement and of the opportunity to object or opt out, culminating with a final fairness hearing.  Here’s what’s new: 

·       The parties must provide “sufficient” information for the court to determine whether notice should be given.

·       The Court will direct notice if it is likely to be able to ultimately approve the settlement and certify the class for purposes of judgment on the proposal. 

The Committee does not want us to call it “preliminary approval” any more. 

Grounds for Final Approval - The rule will now explicitly include the standard for final approval of a class settlement (“fair, reasonable, and adequate”) and proposes to include a familiar list of factors that the court should consider:

·       Whether the class was adequately represented by the class representatives and class counsel;

·       Whether the negotiations were at arm's length;

·       Whether the class relief is adequate in light of:  1) the costs and risks of trial and appeal; 2) the efficacy of the claims process; 3) the attorneys’ fees; and 4) any side agreements;

·       Whether there is equitable treatment among class members. 

That latter factor focuses on whether differences among class members are properly accounted for in terms of relief and the scope of the release. 

Electronic Notice - The rule is updated to clarify that notice may be given by methods other than U.S. mail in appropriate circumstances. 

Interlocutory Appeals -  Since 1998, the courts of appeal have had the discretionary authority to review orders granting or denying class certification on an interlocutory basis.   Two small but important changes to Rule 23(f) are proposed:

·       Appeals are not permitted from an order directing notice to the class of a proposed class settlement, even though a class may be certified as part of the settlement or approval process. 

·       The draconian 14-day deadline to file a Rule 23(f) appeal will not apply to cases in which the United States (or an agent of the U.S.) is a party.  Either party will have 45 days to file a petition for appeal. 

 Notably, the Committee confirmed that it is continuing to monitor the issues of “picking off” named plaintiffs and ascertainability, but is proposing no amendments to address them now.  The Committee earlier abandoned any effort to address cy pres distribution of residual funds. 

Stay tuned for information about the schedule for public comment.