In August 2016, the US Judicial Conference’s Committee on Rules of Practice and Procedure (“Committee”) published proposed amendments to Federal Rule of Civil Procedure 23 governing class actions. The proposed amendments were available for public comment from August 12, 2016 through February 15, 2017. The Committee held several public hearings to discuss the proposed amendment in late 2016 and early 2017. The proposed changes were submitted to the Supreme Court on October 4, 2017. If the Supreme Court accepts the Committee’s proposal, the changes will become effective on December 1, 2018.
Proposed changes and practical implications
The proposed amendments are intended to modernize the notice process, to allow for notice to class members via electronic communications; impose affirmative obligations on a court to consider specific factors relevant to the fairness, reasonableness, and adequacy of a proposed settlement; to curb abuses from “bad faith” objectors; and clarify that certain orders granting “preliminary approval” of class certification may not be appealed.. Each is summarized briefly below.
I. Electronic notice to (b)(3) classes
Under the current wording of Rule 23(c)(2)(b), courts must “direct to [(b)(3)] class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” Typically, this provision has been construed to require providing notice by first-class mail or publication. The proposed change allows courts to provide notice by “by United States mail,” as well as “electronic means, or other appropriate means,” thereby allowing courts and practitioners to utilize email, text messaging, and/or other forms of social media to disseminate notice to class members electronically in appropriate circumstances. This amendment is intended to decrease the cost of providing notice – which can be expensive in large classes – because issuing electronic notice is typically far less expensive than using first-class mail. This amendment would be particularly advantageous in app-based and technology-based class action litigation where class members are significantly more likely to receive in-app notice than notice by US mail. The Committee Note to this proposed change emphasizes that courts retain ultimate discretion to determine the most appropriate form of notice, because it has been recognized that some class members may have “limited or no access to email or the Internet” in certain cases.
II. Grounds for a decision to give notice of a proposed settlement
Rule 23(e) governs a court’s decision to give notice of a proposed settlement. The proposed changes to this section would first require parties to provide the court with “information sufficient to enable [the court] to determine whether to give notice of the [settlement] proposal to the class.” Secondly, 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 a showing that the court will likely be able to 1) “approve the proposal under Rule 23(e)(2),” and 2) “certify the class for purposes of judgment.” Previously, courts were required to direct notice to all class members in a reasonable manner, without considering whether notice was justified by a strong likelihood of approval of the proposed settlement and class certification for the purpose of judgment. This amendment will require parties to provide sufficient supporting information before requesting a court to order notice. This procedure, already widely followed in practice, ideally will protect the integrity of proposed settlement agreement notices, as notice may only be given after consideration of the likelihood of final approval.
III. Standards for settlement approval
Rule 23(e)(2) currently requires settlements to be “fair, reasonable, and adequate,” without articulating standards for evaluating fairness, reasonableness, or adequacy. The proposed amendment to this subsection would require a court to consider several factors relevant to fairness, reasonableness, and adequacy including: 1) the adequacy of class counsel and class representatives; 2) whether the proposed settlement was negotiated at arms’ length; 3) the adequacy of the relief provided (considering the costs, risks, and delay of trial and/or appeal; the effectiveness of the proposed method of distributing relief, the terms of any proposed award of attorneys’ fees, and any agreement required to be identified under Rule 23(e)(3)); and 4) whether class members are treated equitably relative to each other. Though many courts already consider these factors when deciding to approve a proposed settlement agreement, this amendment imposes an affirmative obligation on every federal court to conduct such an analysis before approval.
IV. Curbing “bad faith” objections
Proposed amendments to Rule 23(e)(5) seek to discourage class members from making bad-faith objections to proposed settlements. While the current rule allows any class member to enter a general objection to a proposed settlement agreement, the proposed amendment requires objectors to state his or her objection “with specificity,” identifying whether the objection applies to the entire class, a specific subset of the class, or only to the objector. Additionally, the objector’s counsel must obtain court approval to receive payment or other consideration in connection with forgoing or withdrawing an objection, or forgoing, dismissing, or abandoning an appeal from a judgment approving a proposed settlement. This proposed amendment, if adopted, will likely curb abuses by “professional” objectors, who are often accused of exploiting the settlement objection process for personal gain by making groundless objections.
Proposed amendments to Rule 23(f) clarify that a party may appeal an order granting or denying class certification, but not an order to give notice under Rule 23(e)(1). Such orders are sometimes characterized as “preliminary approvals” of proposed class certifications. However, the Committee Note makes clear that because an order to give notice does not grant or deny class certification, review under Rule 23(f) is inappropriate.
If approved by the Supreme Court, these amendments will take effect on December 1, 2018.