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Class Action Countermeasures Discussions of the Strategic Considerations Involved In Class Action Defense

The Class Settlement Checklist

Posted in Settlement

I don’t usually say whether I think a class-action opinion is good or not.  For one thing, this blog has been about strategy rather than policy.  For another, I’m a practicing attorney, and I’d rather not try to second-guess judges who have to sort through layers of contentious briefing in order to decide issues in class actions.

But I’m going to make an exception for an opinion I just ran across by Judge Alsup of the Northern District of California.  This is a good settlement opinion; moreso for the fact that it has been issued before the parties have made a settlement proposal.  To highlight just three of the areas Judge Alsup warns both parties about before they’ve entered negotiations:

On adequacy of representation:

Is the plaintiff an adequate representative with standing? Is plaintiff motivated to and qualified to act on behalf of those he or she seeks to represent? Are there shortcomings in the plaintiff that would be advanced to defeat a class certification motion? What is the litigation history, criminal history, and relationship to plaintiff’s counsel? In an employment case, how long did the plaintiff work for the employer? The opinion of the lead plaintiff as to the fairness of the settlement to absent class members must be provided to the Court, along with an opinion by counsel. Adequacy of counsel is not a substitute for adequacy of the representative.

On expansion of the class:

Typically, defendants vigorously oppose class certification and/or argue for a narrow class. In settling, however, defendants often seek to expand the class, either geographically (i.e., nationwide) or claim-wise (including claims not in the complaint) or person-wise (e.g., multiple new categories). Such expansions will be viewed with suspicion. If an expansion is to occur it must come with an adequate plaintiff and one with standing to represent the add-on scope and with an amended complaint, not to mention due diligence as to the expanded scope. The settlement dollars must be sufficient to cover the old scope plus the new scope. Personal and subject-matter jurisdiction over the new individuals to be compromised by the class judgment must be shown.

On incentive payments to class members:

If the proposed settlement by itself is not good enough for the named plaintiff, why should it be good enough for absent class members similarly situated? Class litigation proceeded well for many decades before the advent of requests for "incentive payments," which too often are simply ways to make a collusive or poor settlement palatable to the named plaintiff. A request for an incentive payment is a red flag.

What makes this such a good opinion?  It’s clearly written, and provides real guidance on thorny issues that actually come up in settlement negotiations.  But most importantly, it shows that Judge Alsup thinks hard and clearly about the strategic incentives both plaintiffs and defendants face when settling a class action.  For all of the appellate opinions out there discussing the various factors that can spring from Rule 23(e)’s requirement that settlements be "fair, reasonable, and adequate," this may be the single best opinion I have read on classwide settlement.   I usually hope my clients don’t have to end up in court litigating a class action, but if they do, they could do a lot worse than Judge Alsup.