How much effort must parties to a class action settlement expend in order to ensure that all class members have notice of the settlement and an opportunity to object? Rule 23(c)(2)(B) requires "reasonable effort," but when does ensuring individual notice become "unreasonable"?
A recent Third Circuit opinion underscores that compliance with Rule 23(c)(2)(B) is not to be taken lightly. In Larson v. AT&T Mobility, LLC, the Third Circuit reversed a district court's determination that notice by publication would be sufficient.
The plaintiffs filed suit against cellular phone service providers who included a flat-rate early termination fee (ETF) in their cellular contracts, alleging that the fees were penalties that violated the Federal Communications Act and state consumer protection laws. The plaintiffs then entered into a $17.5 million settlement agreement with Sprint.
After preliminarily approving the settlement, the court held an initial fairness hearing and ruled that the parties' initial notice plan did not comply with Rule 23(c)(2). The court determined that while it would be unreasonable to require Sprint to compile a full list of class members over the 10-year class period because it would require 6-12 months of work and cost at least $1 million, Sprint's records showed that Sprint could potentially identify subsets of customers who were members of the class.
The parties subsequently filed an amended notice plan, which asserted that it would be unreasonable to search any of Sprint's billing records for class members who were charged a flat-rate ETF. This assertion was supported by a declaration from a Sprint executive, who testified that it would take 1-2 months to capture information for a three-month segment of the class period, at a cost of $20,000, and 4-5 months to capture information for an additional two-year segment, at a cost of $80,000. The court agreed and approved the amended notice plan, ruling that it would be "unreasonable to require Sprint to engage in further efforts to identify class members" beyond the 285,000 individuals who initially received notice of the Settlement Agreement.
Agreeing with the objectors that the district court abused its discretion, the Third Circuit reversed and remanded the matter for further proceedings. The panel characterized the district court's acceptance of the amended notice plan as an "about face," holding that the court "did not provide any support for its new and very different determination that Sprint did not need to conduct a search of its billing records to provide individual notice to a larger group of class members."The Third Circuit looked to the Supreme Court's previous opinion on "reasonable effort" in Eisen v. Carlisle & Jacquelin, a class action involving a prospective class consisting of nearly six million individuals who had engaged in odd-lot stock purchases. In the opinion, the Supreme Court stated that "the names and addresses of 2,250,000 class members [were] easily ascertainable, and there [was] nothing to show that individual notice [could not] be mailed to each." The Court also stated that notice by publication had "long been recognized as a poor substitute for actual notice."
Given Sprint's acknowledgement that a search through billing records could potentially identify millions of class members who were charged a flat-rate ETF, the court determined that while this search "cannot be made with push-button ease," it is clear it would "bring the effort required within the range of reasonableness." While the cost of providing notice is an appropriate factor to be taken into account, the panel noted that if only two million people were identified through the additional search, the search would cost only 5 cents per class member identified—43 cents per class member when the cost of sending notice to each was included. Moreover, the court noted that "[e]ven if the costs had been higher . . . that would not automatically mean they were unreasonable."
The court thus remanded the case for the district court to reassess the amended notice plan "on a more complete record and with a fuller explanation." In particular, the panel noted "the availability of statistical sampling of Sprint's billing records" as one way to provide "a better grounded estimate of the number of class members" who could be identified through a search of those records.
The Third Circuit's view as to the outcome it expects from the district court's reconciliation was abundantly clear, as is the instruction to be drawn from Larson: circumventing actual notice to absent class members will not be condoned absent a showing that the effort required to provide such notice would be extraordinary.
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