Class Action Defense Issues: Settlement Procedure and Class Certification for Settlement – Rule 23(e)

Class action lawsuits are often filed for the purpose of bringing sufficient leverage to bear both through the sheer cost of defending against the lawsuit and the risk, however remote, of substantial liability so as to force the defendant to settle. Thus, plaintiffs’ counsel often use class actions as weapons of extortion, seeking to compel a settlement from defendants. If a defendant elects to but its peace, it does not want to settle only with the named plaintiffs because then there is no guarantee that another lawsuit will soon follow. On the contrary, it is likely that rewarding plaintiffs’ counsel with a settlement will invite another lawsuit. The defendant, therefore, demands the broadest release possible, and plaintiffs’ counsel are generally willing to oblige provided that they have been compensated adequately. In such a situation, the Rule 23 elements of class certification are not meaningfully contested; indeed, the parties often stipulate (as part of the proposed settlement) that the class may be certified.

Rule 23(e) addresses the settlement of class actions. It provides, “A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.”

A class action settlement will not bind members of the class unless and until the class is certified. The prerequisites to class certification are set forth in Rule 23 of the Federal Rules of Civil Procedure (discussed in a separate article). It is incumbent on the District Court to analyze the Rule 23 factors carefully. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). The question arises, however, whether the same rules apply when plaintiff(s) and defendant(s) seek class certification solely for purposes of settlement.

Prior to 1997, federal circuit courts of appeal were divided on whether Rule 23 applied strictly where the purpose of the motion for class certification was to effectuate the purposes of a proposed class settlement. The Fifth Circuit, for example, held that the requirements for class certification under Rule 23 need not be examined strictly if the ultimate purpose of the motion is to settle the dispute. See, In re Asbestos Litigation, 90 F.3d 963, 975-976, and n.8 (5th Cir. 1996). The Third Circuit, by contrast, held that while it was appropriate to certify a class solely for the purpose of class-wide settlement, Rule 23’s requirements still must be satisfied to the same extent as if the case were to be litigated. See, In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 799-800, cert. denied, 516 U.S. 824, 116 S.Ct. 88 (1995).

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Class Action Defense Issues: Certification of Class Action Cases Under Rule 23 Part I – A General Overview

Defending Class Actions: Certification Under Rule 23 Part I

General Overview

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Federal law requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented. The plaintiff must also show the risk of inconsistent or prejudicial adjudications if separate actions are tried, and that a class action is the superior method for resolving the dispute. This article identifies the statutory requirements for class certification.

In federal court, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. A prospective class representative must satisfy the prerequisites of Rule 23(a), which provides:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

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Class Action Defense Issues: Certification of Class Actions Numerosity Requirement Under Rule 23(a)(1)

Defending Class Actions: Certification Under Rule 23 – Part II

The Numerosity Requirement of Rule 23(a)(1)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the numerosity requirement of Rule 23(a).

Rule 23(a)(1) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “the class is so numerous that joinder of all members is impracticable.” It has been said that numerosity and commonality “form the core of the class-action concept.” Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, p.316. However, no bright line or threshold exists at which the numerosity requirement is met. Each circumstance must be examined on a case-by-case basis. General Telephone Co. v. E.E.O.C., 446 U.S. 318, 330, 100 S.Ct. 1698 (1980).

There are, of course, the obvious cases. See e.g., Georgine v. Amchem Products, Inc., 83 F.3d 610, 626 n.11 (3rd Cir. 1996), aff’d, Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231 (1997) (“This class, which may stretch into the millions, easily satisfies the numerosity requirement.”); In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 800 (3rd Cir. 1995), cert. denied, General Motors Corp. v. French, 516 U.S. 824, 116 S.Ct. 88 (1995) (“The numerosity requirement of Rule 23(a) is plainly satisfied in this action encompassing nearly six million truck owners.”); Ballard v. Equifax Check Services, Inc., 186 F.R.D. 589, 594 (E.D. Cal.1999) (class of “approximately 1.4 million California residents” satisfied numerosity).

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Class Action Defense Issues: Certification of Class Actions Commonality Requirement Under Rule 23(a)(2)

Defending Class Actions: Certification Under Rule 23 – Part II

The Commonality Requirement of Rule 23(a)(2)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the commonality requirement of Rule 23(a).

Rule 23(a)(2) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “there are questions of law or fact common to the class.” It has been said that numerosity and commonality “form the core of the class-action concept.” Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, p.316. As the Third Circuit noted, “‘commonality’ like ‘numerosity’ evaluates the sufficiency of the class itself, and ‘typicality’ like ‘adequacy of representation’ evaluates the sufficiency of the named plaintiff.” Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3d Cir.1988).

“Rule 23 does not require that the representative plaintiff have endured precisely the same injuries that have been sustained by the class members, only that the harm complained of be common to the class, and that the named plaintiff demonstrate a personal interest or ‘threat of injury . . . [that] is “real and immediate,” not “conjectural” or “hypothetical.”’” Hassine, at 177 (quoting O’Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct. 669 (1974). Thus, in Georgine, supra, the Third Circuit held that “commonality” did not exist because “this class is a hodgepodge of factually as well as legally different plaintiffs.” Georgine v. Amchem Products, 83 F.3d at 632.

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Class Action Defense Issues: Certification of Class Actions Typicality Requirement Under Rule 23(a)(3)

Defending Class Actions: Certification Under Rule 23 – Part II

The Typicality Requirement of Rule 23(a)(3)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the typicality requirement of Rule 23(a).

Rule 23(a)(3) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “the claims or defenses of the representative parties are typical of the claims or defenses of the class.” Unlike numerosity and commonality, which focus on the characteristics of the class, typicality and adequacy of representation (discussed separately) focus on the characteristics of the plaintiff representative of the class. Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3rd Cir.1988); Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, pp.316-17 (4th ed. 2002).

“The typicality criterion focuses on whether there exists a relationship between the plaintiff’s claims and the claims alleged on behalf of the class.” Newberg, at 317 (citing General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 102 S.Ct. 2364 (1982)). Newberg also states that “typicality of claims seeks to assure that the interests of the representative are aligned with the common questions affecting the class,” id., at 319 (footnote omitted).

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Class Action Defense Issues: Certification of Class Actions Adequate Representation Requirement Under Rule 23(a)(4)

Defending Class Actions: Certification Under Rule 23 – Part II

The Adequate Representation Requirement of Rule 23(a)(4)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b). The class action requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). This article discusses the adequate representation requirement of Rule 23(a).

Rule 23(a)(4) of the Federal Rules of Civil Procedure provides that a class action may not be maintained unless “the representative parties will fairly and adequately protect the interests of the class.” At the end of this article, we briefly discuss issues of the criminal record and/or credibility of the proposed class representative, and the effect on class certification. In brief, such issues may be relevant because unlike numerosity and commonality, which focus on the characteristics of the class, typicality and adequacy of representation focus on the characteristics of the plaintiff representative of the class. Hassine v. Jeffes, 846 F.2d 169, 176 n.4 (3d Cir.1988); Newberg on Class Actions, “Prerequisites for Maintaining a Class Action,” §3:13, pp.316-17 (4th ed. 2002).

On the other hand, this test focuses generally but not exclusively on the adequacy of counsel for the represented class, rather than the adequacy of the plaintiff representatives. In fact, the Eleventh Circuit recently summarized the four elements required for class certification under Rule 23(a) as “numerosity, commonality, typicality, and adequacy of counsel.” Hines v. Widnall, 334 F.3d 1253. 1255-56 (11th Cir. 2003) (italics added).

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CAFA (Class Action Fairness Act of 2005) and Rule 23 – A General Overview

CAFA (Class Action Fairness Act of 2005) and Rule 23 – A General Overview for the Class Action Defense Lawyer

Class action litigation is rampant, and all too often class action lawsuits cause more injury than the wrong they sought to redress. These actions seem driven by a desire to maximize attorney fees rather than to serve the public. A 1995 House Conference Report, for example, enumerated ways in which abusive class actions have hurt the U. S. economy. See, H.R.Rep. No. 104-369, p. 31 (1995). These concerns led to sweeping reforms in federal securities law class actions through the enactment of SLUSA (Securities Litigation Uniform Standards Act) in 1998. Abuse of class action lawsuits also led to the enactment of CAFA (Class Action Fairness Act of 2005).

Class actions may serve an important function. The preamble to CAFA (Class Action Fairness Act of 2005) states, “Class-action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.”

In federal court, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. The procedure for filing a class action is simple enough; the difficulty arises when one seeks to certify the class.

A lawsuit is filed with one or more plaintiffs purporting to bring the action on behalf of a putative class. (This is not to suggest that the court may only approve a plaintiff-class. On the contrary, it is possible to seek certification of a defendant class. See e.g., ASARCO Inc. v. Kadish, 490 U.S. 605, 610, 109 S.Ct. 2037, 2041 (1989) (noting that trial court certified the case as a defendant class action); Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 n.3, 105 S.Ct. 2965, 2974 (1985) (noting that opinion “is limited to those class actions which seek to bind known plaintiffs concerning claims wholly or predominately for money judgments”and “[does not] address class actions where the jurisdiction is asserted against a defendant class.” It is far more common, however, for a suit to seek certification of a plaintiff class.)

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