David Letterman has his top 10 lists. We have a top 5 list. This is a list of things NOT to do in settling a class action in federal court. Each item is followed by a “moral” (like in Aesop’s fables) and a brief explanation.
1. Once you negotiate a settlement for your class action suit, immediately file your Notice of Voluntary Dismissal and hope that the judge doesn’t ever get wind of the terms of the settlement.
Moral: Do not forget that the court must approve the settlement and its terms.
Explanation: Rule 23(e) requires court approval for settlement of all certified class actions and settlement of even uncertified class actions if the parties intend to settle on a classwide basis. While the court is not permitted, under the law, to modify the terms of a proposed settlement, it certainly may reject a settlement that is not fair or reasonable to the class.
2. Don’t worry about certification if you are going to settle a claim prior to trial because who cares whether it meets the class requirements once it is settled and gone?
Moral: Do not forget that, except for the (b)(3) manageability component of the superiority requirement, the requirements of Rule 23 to certify a class must be satisfied in the settlement context just as they would be in the litigated class context.
Explanation: The Supreme Court declared in Amchem that the requirements of Rule 23 must be satisfied for class action settlements, although the superiority requirement can be examined through the lens of the settlement (so that "manageability" at trial is not a factor as it would be in a litigated class action context). This has practical ramifications to a defendant if the class certification question has not been adjudicated. It means that a defendant must effectively concede that the Rule 23(a) and (b)(3) predominance requirements are satisfied in order to obtain a class settlement -- even at the risk that the court will not approve the settlement and place the parties back in a contested litigation posture. Stating in the settlement agreement that the defendant's agreement that the Rule 23 factors are satisfied is only for "settlement purposes" likely will not ameliorate the risk of this concession. The moral: Make sure the settlement is on terms that are likely to be approved.
3. Settle your case with a valueless coupon
Moral: Do not ignore the terms of the Class Action Fairness Act.
Explanation: Assuming it applies, CAFA contains specific cautions and requirements.
a. The cautions are that coupon settlements will be closely scrutinized by the court. This is not to say that all coupon settlements are automatically prohibited, but it does mean they will need to be justified, perhaps by expert testimony.
b. The requirements relate to notice; the statute requires that settling defendants give notice to certain government authorities. Failure to comply will cause the settlement not to be binding on affected class members. See CAFA for details.
4. Go ahead and agree to pay the opposing counsel’s excessive attorney’s fees as part of the settlement. It is a drop in the bucket of the whole class settlement and opposing counsel has suggested that he will treat you to a dinner at Bern’s a few months down the road.
Moral: Do not overreach in attempting to "buy peace."
Explanation: The court will conduct its own analysis of the fairness of the settlement. Overreaching -- by either party, including agreeing to pay or accept excessive attorneys fees -- may result in challenges to the settlement from absent class members or sua sponte scrutiny by the court. As noted, the denial of court approval could place the parties back in an undesirable litigation posture.
5. When settling, be sure to have plaintiff’s counsel agree not to take any similar cases against your client.
Moral: Do not attempt to get plaintiffs' counsel to agree not to take similar cases against your client.
Explanation: The Florida Bar ethics rules prohibit this practice. It is appropriate, however, for defendant's counsel to obtain a statement from plaintiff's counsel that he or she has no current additional cases against your client. Under CAFA, however, this side letter must be disclosed in the notice.