Civil Rule 23 -- To Amend or Not to Amend?

The Advisory Committee on the Federal Rules of Civil Procedure is taking up Rule 23—the class action rule.  The Advisory Committee has created a subcommittee with a rather broad statement of purpose.  The subcommittee has offered that it is open to any ideas for improving Rule 23, but it is not promising to propose specific amendments, or any amendments for that matter.  Not surprisingly, a number of constituencies are interested in this open agenda.  The subcommittee members have embarked on something of a listening tour.  They have attended or plan to attend over a dozen conferences.  (I am particularly pleased that they are coming to the First Annual Civil Procedure Workshop, an event that I am co-planning.)

While the Rule 23 agenda is not set, the subcommittee has put forth a set of proposed “conceptual sketches.”  The sketches include some proposed rule language, but the focus of the subcommittee at this point seems to be on gathering reactions to various areas of class action reform.  In this post and a consecutive post, I attempt to summarize these conceptual sketches.  While it is impossible to do justice to the subcommittee’s agenda in a short blog post, my hope is that this piques the interest of the academic community.  As we have learned from past rounds of Civil Rule amendments, the sooner the academic community weighs in on these issues, the more likely our voices are to be heard. 

Below I summarize three of the seven “conceptual sketches” the subcommittee is currently considering.  I will cover the others in a later post.  (The full subcommittee report can be found at pp. 243-297 of the Civil Rules Committee’s April 2015 Agenda Book.  In addition, Professor Rick Marcus has an article summarizing the subcommittee’s work in the current issue of Judicature.)  Here are the first three sketches: 

Settlement Approval Criteria.  Rule 23(e) provides that the court must approve a class action settlement, compromise, or voluntary dismissal.  The rule does not provide much, if any, guidance as to what inquiry the court should make before this approval.  Thus, courts have diverged on what they look at when assessing settlement.  There is some overlap in criteria, but there is no consensus.  The ALI Aggregate Litigation Principles propose that a common set of factors be adopted, and the subcommittee is considering this idea.  The current conceptual draft requires that a settlement meet the following factors:  (i) the class representatives and counsel remain adequate representatives for the class; (ii) the relief is “fair, reasonable, and adequate;” (iii) the class is treated equitably; and (iv) the negotiation was not the result of collusion.   These factors, if adopted, would supersede other factors that circuits have followed.  However, the proposed conceptual sketch also includes a provision that would allow courts to disapprove of the settlement by considering “any other matter pertinent to approval of the proposal.”  In other words, the proposal would include a list of required criteria, but it would also leave room for courts to consider other factors unique to each settlement.   

Settlement Class Certification.  Under Amchem Products, Inc. v. Windsor, the Court reasoned that when courts are certifying a case for settlement it is proper to weigh the fact that the case will not be litigated.  Yet, the Court also stated that even when a Rule 23(b)(3) class action is being certified for settlement, it must meet the predominance requirement.  Under Rule 23(b)(3), plaintiffs attempting to certify their class, in addition to meeting the requirements of Rule 23(a), must also demonstrate that common issues predominate and that class adjudication is superior to individual litigation.  The Amchem Court understood that some of the superiority inquiry may not matter as much, at least with respect to how manageable a case is to litigate.  After all, the case would not be litigated, so the difference in managing individual or aggregate cases at trial is of no moment.  However, according to the Amchem majority, predominance was a different story.  Yet, in the context of settlement, many argue that predominance should not matter either.  The case is settling, which means that the question of whether common issues predominate might be of less concern.  In response to this ongoing question, the subcommittee is considering a rule (new Rule 23(b)(4)) that would permit certification for settlement as long as Rule 23(a) is met–although, this requirement is also being debated by the subcommittee—and as long as the “proposed settlement is superior to other available methods for fairly and efficiently adjudicating the controversy.”   Of course, the settlement must also meet the Rule 23(e) settlement requirements, as potentially revised.   This change would mean that Rule 23(b)(3) class actions—the most common class action—could be certified for settlement without having to meet the predominance requirements, a requirement that can otherwise prove quite difficult to satisfy. 

Cy Pres Treatment.  It is often impossible to distribute the entirety of a class action settlement to each individual class member.  Indeed, class settlement agreements contemplate this challenge and set up what is called a cy pres award.  (Cy pres is short for the French term “cy pres comme possible” which essentially means “as close as possible.”)  The cy pres award attempts to get the remaining funds to recipients who are “close enough” to the class members.  Recently, cy pres awards have garnered some negative attention, most notably from Chief Justice John Roberts who indicated when denying certiorari in Marek v. Lane that he would like the Court to “clarify the limits on the use of such remedies.”  In Marek, a class of Facebook users whose privacy had allegedly been violated by the company settled for roughly $10 million, but the money did not go to individual users.  Arguing that payments to the individual class members would be too small, the settlement provided that Facebook would pay over $6 million to a charity that would promote online privacy.  This case was very controversial, as indicated by the Chief Justice’s comments, and it has led to a call for better monitoring of cy pres awards.  The subcommittee is considering a proposal to do just that.  The proposal (a new part of Rule 23(e) on settlements) would require that when reviewing a cy pres award, the court should follow certain criteria.  The first is that settlement awards, to the extent possible, should be distributed to the individual class members.  If any money remains after those awards, the rule would require that the remaining money go to individual class members unless the amount is too small.  If individual distributions are not viable, the court can then approve a cy pres award that would directly benefit a recipient “whose interests reasonably approximate those being pursued by the class.”  Failing that, the award should go a recipient that would benefit the public interest.