Unveiling the New Class Action Rules
November 2018 - Gary E. Mason and Jennifer S. Goldstein
Credit: DEYANGEORGIEV / Thinkstock
After several years of public debate, deliberation, and refinement, proposed amendments to Federal Rule of Civil Procedure 23 will go into effect next month. Here’s what you need to know about the changes.
Amendments to Federal Rule of Civil Procedure 23, which governs class actions, will take effect Dec.1.1 The amendments focus on four issues: class notice in Rule 23(c)(2) (particularly, electronic notice); uniform standards for obtaining approval of a class action settlement in Rule 23(e); objections in Rule 23(e)(5) (specifically, requirements concerning the content and resolution of objections); and modification of the standards and timing for appeals in Rule 23(f).
For the most part, these amendments reflect current practice and will likely accelerate current trends rather than create any unusual disruptions. With respect to objections, however, the amendments initiate new and unproven procedures intended to deter frivolous claims.
The process of developing the proposed amendments was more noteworthy than the proposed amendments themselves because several potentially controversial topics were discussed, involving, among other things, the certification of settlement classes, issue certification, and the use of cy pres to distribute unclaimed settlement funds.2 These issues continue to divide courts and may warrant future modifications of Rule 23, so class action lawyers should continue to pay close attention to the rulemaking process.
For decades, the class action mechanism has provided crucial recourse for untold numbers of harmed consumers, yet it has long been subject to attack by corporations that find themselves defendants in these cases. Indeed, in both 1995 and 2005, legislative changes to Rule 23 profoundly changed how class actions are litigated.3
Amendments made through the Advisory Committee on Civil Rules also could result in changes that would undermine class actions and make it harder for consumers to access the courts. Fortunately, with the most recent round of amendments, Rule 23 has emerged almost entirely unscathed.
Electronic Notice: Rule 23(c)(2)
Rule 23(c)(2) governs notice to class members.4 For (b)(3) classes (ones that seek monetary damages), the “court must direct to class members the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.”5 For decades, courts and practitioners have understood this language to require, whenever possible, direct mail notice to reasonably identifiable class members, supplemented by “publication” notice, such as newspaper and magazine advertising of suitable frequency and reach.6
The presumption in favor of direct mail over publication notice dates back to the early days of Rule 23, when the U.S. Supreme Court held that the appropriate means of individual notice was by U.S. mail, especially when the names and addresses of class members are known or are easily ascertainable.7 Decades of experience with direct mail notice generally supports the view that this method generated some of the highest levels of class member response.8 But in recent years the proliferation of “junk” mail, as well as the ever-increasing number of class notices, has forced notice providers to search for alternative ways to reach class members.
While initially skeptical of electronic notice, courts can no longer disregard the option given the increasing sophistication and entrenchment of internet advertising through means such as banner ads, targeted ads on social media, emails, and texts—as well as its cost effectiveness. The proposed amendments to Rule 23’s notice provision reflect this trend, providing that “the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort,” may be “by one or more of the following: United States mail, electronic means, or other appropriate means.”9
The terms “electronic” and “other appropriate means” include the banner ads, email, and even text messaging already used in many notice plans. This broad and unlimited language also can embrace electronic communication methods not yet imagined, allowing notice plans to keep pace with technology. While direct mail is likely to remain a powerful method of reaching class members, email, banner ads, and texts are likely to become more prominent.
(c) Certification Order; Notice to Class Members; Judgment; Issues Classes; Subclasses.
* * * * *
* * * * *
(B) For (b)(3) Classes. For any class certified under Rule 23(b)(3)—or upon ordering notice under Rule 23(e)(1) to a class proposed to be certified for purposes of settlement under Rule 23(b)(3)—the court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice may be by one or more of the following: United States mail, electronic means, or other appropriate means. The notice must clearly and concisely state in plain, easily understood language:
* * * * *
The text in bold indicates the rule's new text.
Uniformity in the Settlement Process: Rule 23(e)
During the course of its information gathering, the Advisory Committee on Civil Rules’ Rule 23 Subcommittee was troubled by the fact that one uniform set of settlement criteria did not exist and that the criteria developed in the circuits often do not include matters “that contemporary experience suggests should matter in assessing settlements,”10 including the anticipated claims rate, the plan for distribution of any unclaimed funds, and the likely range of litigated outcomes.
While largely consistent with existing practice, the Rule 23(e) amendments provide new, express, and uniform instructions on the proper procedures and substantive assessments for courts to implement when considering whether to grant preliminary and final approval of class action settlements.
The new rule requires parties seeking preliminary approval to demonstrate that the proposed settlement likely will be granted final approval and that the court likely will certify the class for purposes of judgment on the settlement proposal.11 The Advisory Committee added these criteria to prevent the parties from spending time and money notifying the class of a settlement that the court ultimately is unlikely to approve.12
As for final approval, amended Rule 23(e) adopts the universally accepted standard that a court may approve a class action settlement only when the court determines that the settlement is “fair, reasonable, and adequate.”13 It then identifies four factors that courts must consider before approving a settlement:
- whether the class representatives and class counsel have adequately represented the class
- whether the proposal was negotiated at arm’s length
- whether the relief provided for the class is adequate after considering factors such as risk of trial, the method of distributing the class member benefits, and the terms of proposed attorney fees
- whether the proposal treats class members equitably relative to each other.14
Under the new rule, courts must assess the adequacy of the relief that the settlement provides by considering the costs, risks, and delay of trial and appeal; the effectiveness of any proposed method of distributing relief to the class, including the method of processing class member claims; the terms of any proposed attorney fees, including timing of payment; and any side agreements required to be identified under Rule 23(e)(3).15 Until recently, courts rarely considered the terms of the attorney fees and the effectiveness of distributing relief in determining the settlement’s adequacy—and even now these factors are not always evaluated. Nonetheless, these factors address courts’ concerns that class action settlements obtain the promised relief for class members and that attorney fees are fair relative to the benefits obtained by the class.
The amended rule essentially requires that the parties detail attorney fees and claims administration methodologies to the court during the preliminary approval stage, which is already happening in many courts. Recent cases demonstrate that courts are “frontloading” scrutiny of settlements and are increasingly reluctant to defer rendering judgment on the settlement’s merits until final approval.16 Expect courts to closely examine proposed settlements at the preliminary approval stage and to apply uniformly the new Rule 23(e) criteria.
(e) Settlement, Voluntary Dismissal, or Compromise.
The claims, issues, or defenses of a certified class—or a class proposed to be certified for purposes of settlement—may be settled, voluntarily dismissed, or compromised only with the court’s approval. The following procedures apply to a proposed settlement, voluntary dismissal, or compromise:
(1) Notice to the Class.
(A) Information That Parties Must Provide to the Court. The parties must provide the court with information sufficient to enable it to determine whether to give notice of the proposal to the class.
(B) Grounds for a Decision to Give Notice. The court must direct notice in a reasonable manner to all class members who would be bound by the proposal if giving notice is justified by the parties’ showing that the court will likely be able to:
(i) approve the proposal under Rule 23(e)(2); and
(ii) certify the class for purposes of judgment on the proposal.
(2) Approval of the Proposal. If the proposal would bind class members, the court may approve it only after a hearing and only on finding that it is fair, reasonable, and adequate after considering whether:
(A) the class representatives and class counsel have adequately represented the class;
(B) the proposal was negotiated at arm’s length;
(C) the relief provided for the class is adequate, taking into account:
(i) the costs, risks, and delay of trial and appeal;
(ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims;
(iii) the terms of any proposed award of attorney’s fees, including timing of payment; and
(iv) any agreement required to be identified under Rule 23(e)(3); and
(D) the proposal treats class members equitably relative to each other.
(3) Identifying Agreements. The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.
(4) New Opportunity to Be Excluded. If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.
The text in bold indicates the rule's new text.
Curbing Unwarranted Objections: Rule 23(e)(5)
Perhaps the most significant changes to Rule 23 are the amendments to Rule 23(e)(5) on objections to proposed class settlements. The amendment first clarifies what information must be included in an objection, including whether the objection applies to the objector only, to a subset of the class, or to the entire class.17
The current rule only requires a court to approve the withdrawal of any objection; it does not impose any requirements on objectors to explain the nature of the objection or the circumstances precipitating the objection’s withdrawal.18 This low level of judicial involvement, however, has been ineffective in discouraging opportunistic objectors. As a matter of common practice, these “professional” objectors often withdraw their objections in consideration for a payment from class counsel. This is commonly done after notice of an appeal, which divests the lower court of jurisdiction and removes the offending withdrawal from judicial oversight altogether.19
The new rule replaces the bare requirement of court approval for the withdrawal of an objection with a more detailed requirement to disclose any payment or other consideration provided to a withdrawing objector and obtain court approval after a hearing.20 With the new rule, an objector will be free to withdraw an objection without court approval after concluding that an objection is not justified,21 thereby streamlining the settlement approval process.
More important, the requirement of court approval for the withdrawal of an objection on appeal for payment or other consideration may thwart professional objectors from filing appeals with the hope of leveraging a fee from class counsel but without any real intent of pursuing the objection.22 However, it is also possible that this new mechanism will spur professional objectors, eager to “obtain benefits for themselves,”23 to pursue appeals more earnestly through briefing—even as long shots—thereby further prolonging the ultimate resolution of the case. Consequently, it is difficult to predict whether disclosure of payments to objectors will deter frivolous objections or merely prolong the process. Time will tell whether greater transparency surrounding objections and acceptance of payment to withdraw objections will be a deterrent or whether further amendments are necessary to stop this burgeoning practice.
(5) Class-Member Objections.
(A) In General. Any class member may object to the proposal if it requires court approval under this subdivision (e)
(B) Court Approval Required for Payment in Connection with an Objection. Unless approved by the court after a hearing, no payment or other consideration may be provided in connection with:
(i) forgoing or withdrawing an objection, or
(ii) forgoing, dismissing, or abandoning an appeal from a judgment approving the proposal.
(C) Procedure for Approval After an Appeal. If approval under Rule 23(e)(5)(B) has not been obtained before an appeal is docketed in the court of appeals, the procedure of Rule 62.1 applies while the appeal remains pending.
The text in bold indicates the rule's new text.
Appeals: Rule 23(f)
The last main area that the amendments affect are the standards and timing for appeals.
Ending appeals of approval of notice. The new rule expressly forbids an appeal based on Rule 23(e)(1), which outlines the requirements for approval of providing notice of the proposed settlement to the class.24 The Advisory Committee determined that no “sufficient reason” exists to allow even a discretionary appeal of a court’s preliminary approval of notice because the court’s decision does not grant or deny class certification.25 Only when a court decides whether to certify the class is the case ripe for appeal under Rule 23(f).26
Extended time to file. Class action attorneys who litigate against the federal government should also pay attention to amended Rule 23(f), which extends the time to file a petition for review of an order certifying a class action from 14 days to 45 days whenever at least one party is the United States, a U.S. agency, or a U.S. officer or employee sued for an act or omission occurring in connection with duties performed on the United States’ behalf.27 The extension applies regardless of whether the officer or employee is sued in an official or individual capacity and regardless of whether the officer or employee currently works for the government.28 This amendment tracks other extensions of time for cases when the United States is a party and it receives additional time.29
(f) Appeals. A court of appeals may permit an appeal from an order granting or denying class-action certification under this rule
The text in bold indicates the rule's new text.
Left on the Cutting Room Floor
The Rule 23 Subcommittee considered but ultimately rejected other proposed amendments. For example, the subcommittee considered amendments that would have clarified, and perhaps relaxed, the standards for certification of a settlement class.30 This issue is increasingly troublesome in practice since courts routinely deny certification of class actions that involve multiple states’ laws,31 and even the pro-consumer Ninth Circuit has displayed a reluctance to approve national consumer settlements on this basis.32
The subcommittee also considered issue certification under Rule 23(c)(4) because many practitioners expressed the need for clarification. However, the circuits remain divided about the role of predominance in considering certifying issues—time and again asking whether an issue can predominate only by resolving all elements of a cause of action or whether resolution of an important element of a claim can be sufficient to establish predominance.33 Given the current level of judicial uncertainty, the subcommittee declined to propose any amendments.
A third issue of significance the subcommittee looked at but ultimately left for future consideration was cy pres.34 Here, too, practitioners lack judicial guidance about when cy pres is appropriate, how it should be structured, and whether a settlement that exclusively provides cy pres relief is ever appropriate. The Supreme Court may offer further guidance on the appropriate use of cy pres in its upcoming Term: It has agreed to hear an appeal of a purely cy pres class action settlement the Ninth Circuit approved.35 For now, however, the subcommittee deferred on the issue, finding the law too undeveloped for a proposed rule.36
These issues surely will resurface when the Advisory Committee looks at Rule 23 again. For now, class action lawyers only need to make small adjustments to adapt to the amendments. The amendments will not impair consumers’ ability to use class actions to seek relief in federal court, and Rule 23 will continue to be a powerful tool for individual consumers to band together against corporate wrongdoing.
Gary E. Mason is a founding partner at Whitfield Bryson & Mason in Washington, D.C., and was the chair of AAJ’s Rule 23 amendments working group. Jennifer S. Goldstein is an attorney at the firm. They can be reached at firstname.lastname@example.org and email@example.com.
- See 28 U.S.C. §2074 (West through Pub. L. No. 115-223); John Roberts, Chief Justice of the U.S., Proposed Amendments to the Federal Rules of Civil Procedure (Apr. 26, 2018), www.supremecourt.gov/orders/courtorders/frcv18_5924.pdf.
- See generally Report of Apr. 9–10, 2015 Meeting, Wash., D.C., U.S. Courts Advisory Comm. on Civil Rules, www.uscourts.gov/sites/default/files/fr_import/CV2015-04.pdf.
- See The Private Securities Litigation Reform Act of 1995, 15 U.S.C. §78u-4 (West through Pub. L. No. 115-223); Class Action Fairness Act of 2005, 28 U.S.C. §§1332(d), 1453, 1711–1715.
- Fed. R. Civ. P. 23(c)(2).
- Fed. R. Civ. P. 23(c)(2)(B). Rule 23 also allows for certification of classes seeking non-monetary relief. See Fed. R. Civ. P. 23(b)(1)-(2). These types of classes are mandatory (no opt-outs) and generally do not require notice.
- Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173 (1974) (“Individual notice must be sent to all class members whose names and addresses may be ascertained through reasonable effort.”).
- See generally id.
- Larson v. AT&T Mobility LLC, 687 F.3d 109, 124 (3d Cir. 2012) (notice by publication “had long been recognized as a poor substitute for actual notice”) (citing Eisen, 417 U.S. at 175).
- Fed. R. Civ. P. 23(c)(2)(B), as amended.
- Report of Apr. 9–10, 2015 Meeting, Wash., D.C., supra note 2, at 246.
- Fed. R. Civ. P. 23(e)(1)(B), as amended.
- Report of Apr. 14–15, 2016 Meeting in Palm Beach, Fla., U.S. Courts Advisory Comm. on Civil Rules 105:319–322, www.uscourts.gov/sites/default/files/2016-04-civil-agenda_book_0.pdf (incorporating the committee notes to Fed. R. Civ. P. 23(e)(1), as amended (“The decision to give notice of a proposed settlement to the class is an important event. It should be based on a solid record supporting the conclusion that the proposed settlement will likely earn final approval after notice and an opportunity to object.”)).
- Fed. R. Civ. P. 23(e)(2), as amended.
- Fed. R. Civ. P. 23(e)(2)(A)-(D), as amended.
- Fed. R. Civ. P. 23(e)(2)(C)(i-iv), as amended.
- See, e.g., Order to Show Cause, In re Myford Touch Consumer Litig., No. 13-cv-03072-EMC, Doc. No. 449, at *5 (N.D. Cal. June 14, 2018) (conditionally denying motion to preliminarily certify class).
- Fed. R. Civ. P. 23(e)(5)(A), as amended.
- Fed. R. Civ. P. 23(e)(5).
- If done prior to appeal, the agreement to withdraw would be reviewable by the district court pursuant to Rule 23(e)(5).
- Fed. R. Civ. P. 23(e)(5)(A), (B), as amended.
- Report of Apr. 14–15, 2016 Meeting in Palm Beach, Fla., supra note 12, at 105:319–322, (incorporating the Rule 23 Subcommittee report).
- Fed. R. Civ. P. 23(e)(5)(B)(ii), as amended.
- Rebecca Womeldorf, Rules Comm. Chief Counsel, Transmittal of Proposed Amendments to the Federal Rules to the Supreme Court, Admin. Office of the U.S. Courts 319 (Oct. 4, 2017), https://www.fjc.gov/sites/default/files/2017/Rules-Amendments-2018-Supreme-Court-Transmittal.pdf.
- Fed. R. Civ. P. 23(f), as amended.
- Report of Nov. 3–4, 2016 Meeting in Wash., D.C., Advisory Comm. on Civil Rules 70:666–667, www.uscourts.gov/sites/default/files/2016-11-civil-agenda_book_0.pdf (incorporating the draft minutes of Apr. 14, 2016 meeting in Palm Beach, Fla.).
- Report of Apr. 14–15, 2016 Meeting in Palm Beach, Fla., supra note 12, at 107:399–401 (incorporating committee note to Fed. R. Civ. P. 23(f), as amended).
- Fed. R. Civ. P. 23(f), as amended.
- Report of Apr. 14–15, 2016 Meeting in Palm Beach, Fla., supra note 12, at 107:414–421 (incorporating committee notes to Fed. R. Civ. P. 23(f), as amended).
- Id. at 107:410–413.
- Report of Apr. 9–10, 2015 Meeting, Wash., D.C., supra note 2, at 257–62.
- Grandalski v. Quest Diagnostics Inc., 767 F.3d 175, 184 (3d Cir. 2014).
- See In re Hyundai & Kia Fuel Econ. Litig., 881 F.3d 679, 701–03 (9th Cir. 2018), vacated and reh’g en banc granted, 897 F.3d 1003 (9th Cir. 2018).
- Compare, e.g., Castano v. Am. Tobacco Co., 84 F.3d 734, 744–45 (5th Cir. 1996) (rejecting the use of the Fed. R. Civ. P. 23(c)(4) device on predominance grounds) and Blain v. Smithkline Beecham Corp., 240 F.R.D. 179, 189–91 (E.D. Pa. 2007) (entirety of a cause of action must satisfy predominance before issues can be certified) with In re Nassau Cnty. Strip Search Cases, 461 F.3d 219, 226 (2d Cir. 2006) (a court may certify a class under Rule 23(c)(4) regardless of whether the entire claim satisfies predominance).
- Report of Apr. 9–10, 2015 Meeting, Wash., D.C., supra note 2, at 263–64; Report of Apr. 14–15, 2016 Meeting in Palm Beach, Fla., supra note 12, at 36.
- Frank v. Gaos, 138 S. Ct. 1697 (2018), granting cert., 869 F.3d 737 (9th Cir. 2017). AAJ filed an amicus brief in this case, and oral argument was scheduled for Oct. 31, 2018.
- Report of Apr. 9–10, 2015 Meeting, Wash., D.C., supra note 2, at 36.