On a question of first impression in the Fourth Circuit, McAdams v. Robinson, 2022 WL 401806 (4th Cir. Feb. 10, 2022) concluded that absent class members[1] objecting to a magistrate judge’s jurisdiction over settlement are not “parties” under 28 U.S.C. § 636(c).  So a magistrate judge does not need the consent of an absent class member to rule on settlement.

After six years of contentious litigation, the parties reached a $3 million dollar settlement.  For attorneys’ fees, the parties signed a “clear sailing” provision.  This provision provided that Defendant would not object to fees, as long as the fees did not exceed $1.3 million.  But an absent class member, McAdams, objected that the: (1) class notice was inadequate without attorneys’ fees, estimated individual recovery, and the distribution method; (2) settlement terms were unfair, unreasonable, and inadequate because the magistrate judge did not consider the estimated recovery at trial; (3) release was unconstitutionally overbroad; and (4) attorneys’ fee award was improper.  The magistrate judge overruled McAdams’ objections.

On appeal, McAdams raised the same challenges and claimed that the magistrate judge did not have jurisdiction over settlement approval.  Specifically, McAdams claimed that absent class members are “parties” under 28 U.S.C. § 636(c).  This section allows a magistrate judge to exercise settlement jurisdiction only “upon the consent of the ‘parties.’”

The Court analyzed the legislative history and common meaning of “party,” and determined that absent class members are not “parties” under § 636(c).  The common meaning of “party” is someone designated as a plaintiff or defendant who can control the proceedings.  Absent class members are not named parties and are not required to do anything.  Therefore, the magistrate judge did not need McAdams’ consent.

The Fourth Circuit affirmed the adequacy of the class notice.  McAdams asserted that the notice was inadequate because it did not include attorneys’ fees, estimated individual recovery, or the distribution method.  The three forms of notice, however, worked in tandem.  The email and postcard listed the amount, how to submit a claim or withdraw, and where to find the longform notice.  The longform notice went into more detail, including the attorneys’ fees and the distribution method.  Thus, the information McAdams complained was missing, was not.

The magistrate judge was not required to estimate the average recovery when evaluating whether the settlement was “fair, reasonable, and adequate.”  No such requirement exists under Rule 23(e)(2).

Neither the Fourth Circuit nor a magistrate judge can decide the outer limit of the release’s scope—to do so would be advisory.  Whether the release covers claims not alleged in a class action complaint is for the court enforcing the release to decide.  Thus, the magistrate judge did not abuse his discretion in approving the release.

The approval of $1.3 million in attorneys’ fees was not an abuse of discretion.  Using the lodestar method, counsel showed costs and fees of $1.4 million; yet only requested $1.3 million.  The Fourth Circuit presumed the figure’s reasonableness because it was less than the lodestar amount.  Moreover, although clear sailing agreements are “troubling,” they are not per se unreasonable.  Courts, however, must give extra scrutiny to such agreements.  Here, the parties negotiated “at arm’s length in the midst of contentious litigation” and class counsel “supported their request with billing records and other competent evidence.”  Thus, the clear sailing provision was not per se unreasonable.

[1] An “absent class member” is one who isn’t named in the complaint.