Part 2: Rule 23 and the Class Action – To Amend or Not to Amend?

As I posted last week, the Advisory Committee on the Federal Rules of Civil Procedure is taking up Rule 23—the class action rule.  I summarized three of the class action subcommittee’s conceptual sketches last week.  Today, I will cover the remaining four.  (As a reminder, 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.)   

If the subcommittee decides to put amendments forward, it wants to do so quickly.  The plan is to bring potential amendments to the Civil Rules Committee’s fall 2015 meeting.  This would mean that--assuming the amendments go through the process without a hitch—these proposals could become law as early as December 2018.   Once again, I bring these proposals to your attention because if academics want a voice in this debate, the time to enter the fray is now. 

Here are the remaining conceptual sketches: 

Dealing with Objectors.  Rule 23 allows for objectors to proposed settlements.  That objection, under the current rule, can only be withdrawn with the court’s approval.  Objectors are controversial, yet we have very little empirical data about what they do.  Some critics believe that objectors abuse the system by creating enough trouble for settlement so that they can get some payoff from the settling parties.  Others believe that the current provision requiring court approval for withdrawal keeps the bad actors away and that objectors are good for the system because they help judges see the potential pitfalls of a proposed settlement.  The current proposal does not take a position on the value of objectors, but it attempts to meet some of the criticism.  First, when an objector attempts to withdraw his or her objection, one proposed amendment would require the parties to file a statement with the court identifying any deal struck between the parties and the objector.   Second, another proposal would explicitly provide that the court has the authority to issue Rule 11 (or Rule 11-like) sanctions against objectors that do not make valid objections. 

Rule 68 Offers and Mootness.  In Genesis HealthCare Corp. v. Symczyk, the Court held that once a plaintiff’s Fair Labor Standards Act claim was mooted, she could not represent her co-workers in a collective action.  However, the Court did not directly decide the question of whether a full offer of settlement could indeed moot a case.  In Genesis Healthcare, the defendant made a Rule 68 offer of settlement to the plaintiff that she did not accept and that the district court did not enter.  Yet, the district and circuit courts determined that this offer—one that undisputedly satisfied her entire claim—mooted her case.  The Court explicitly avoided the issue of whether Rule 68 can be used this way.  Thus, the case had caused concern that defendants will simply “pick-off” representative plaintiffs by offering to settle their claims in full.  Genesis Healthcare was not a class action case, but the comparisons are inevitable.  And while previous Supreme Court precedent (United States Parole Commission v. Geraghty) holds that a class action representative cannot be similarly “picked off” after the class has been certified, the question of what happens before the class is certified remains open.  The subcommittee has a few proposals that would attempt to address this issue.  One is to amend Rule 23 to only allow a “tender of relief” to a class representative to terminate the case when (i) the court has denied class certification and (ii) the tender gives the representative complete relief such that the claim should be dismissed.  The second approach is to amend Rule 68 to state that it does not apply to class and derivative actions at all.  A final approach would amend Rule 23(e) to require that the proposed class representative and defendant file a statement identifying the terms of their settlement if that settlement is reached before a class certification decision.  As posted here earlier this week, the Supreme Court just granted cert on a case that seems to squarely present the issue addressed in these conceptual sketches (Campbell-Ewald C. v. Gomez (No. 14-857)).  Given that, these proposals may become a lower priority for the subcommittee. 

Issue Classes.  Civil Rule 23(c)(4) provides that “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.”  This provision has caused some confusion among circuit courts because it is not clear whether, in the context of a 23(b)(3) class action, these 23(c)(4) issue class actions can be used when the whole case does not otherwise meet 23(b)(3)’s predominance requirement.  Given this confusion, the subcommittee is considering an amendment to Rule 23(b)(3) that would clarify that predominance is not a prerequisite to certification of issues under Rule 23(c)(4).  If this change is made, the subcommittee is also considering language that would allow for some form of interlocutory review of a decision to certify an issue under Rule 23(c)(4).

Notice.  In Rule 23(b)(3) class actions, notice giving each class member the right to opt out of the class is required.  Under existing case law, that notice must meet Mullane standards.  The question the subcommittee is exploring is whether or not the rule should clarify that methods of notice other than written notice through the US mail might be sufficient.  A proposal suggests allowing notice “by electronic or other means.”  In addition to this change the subcommittee is considering whether to require reasonable notice (not individual notice) in Rule 23(b)(1) and 23(b)(2) class actions.   When those class actions settle, Rule 23(e) requires notice, but if a case is fully litigated, no notice is required.  This proposal has been rejected in the past because it arguably increases the cost of class actions, something that might discourage lawyers from taking these types of cases in the first place.