United States: Ten Things Class Action Practitioners Need To Know About Potential Amendments To Federal Rule Of Civil Procedure 23

Last Updated: September 25 2015
Article by Kevin S. Ranlett

Rule 23 may be in for some major changes. The Advisory Committee has commissioned a Rule 23 subcommittee to investigate possible revisions to the class action rules. That subcommittee issued a report (pdf) discussing its progress, and recently has been conducting a "listening tour" of sorts regarding potential rule changes.

Our initial view is that the business community should have serious concerns about the approach that at least some members of the subcommittee appear to be taking, as several proposals are aimed at rolling back judicial decisions—including Supreme Court decisions—that are critical to ensuring that class actions satisfy the requirements of due process.

Here are ten things you need to know from the subcommittee's report.

 1. Nothing is written in stone yet.

The report is avowedly tentative, declaring in boldface that "there is no assurance that the Subcommittee will ultimately recommend any amendments" to Rule 23. The report does identify some potential rule changes. But it describes them as "conceptual sketches of some possible amendments," not "initial drafts of actual rule change proposals." And the fact that a potential rule change isn't listed in the report doesn't mean that it's off the table either. The subcommittee says—again in boldface—that "it has not closed the door on other issues." In other words, the subcommittee's next report, which might follow the subcommittee's next meeting in September 2015, might cover very different content and have very different recommendations than this one.

 2. Any changes wouldn't go into effect for several years.

The report indicates that if the Rule 23 subcommittee decides to propose any rule changes, drafts of those "possible amendments" would be presented to the Advisory Committee no sooner than its Fall 2015 meeting. Those drafts would then be discussed at the January 2016 meeting and given a final review no sooner than the Spring 2016 meeting. Assuming that the drafts are approved, they then would be presented to the standing committee as soon as summer 2016, with publication for public comment as early as August 2016. If the amendments are then formally adopted, the rule changes could go into effect "as soon as December 1, 2018."

 3. The biggest change would be a huge—and worrisome—expansion of issue classes.

One of the most divisive issues in class-action practice today is whether courts may certify so-called "issue classes" under Rule 23(c)(4) to resolve issues on a class-wide basis even when the predominance requirement of Rule 23(b)(3) isn't satisfied for the claim as a whole. The Fifth Circuit largely bars such issue classes. Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996). But the Third Circuit permits them under limited circumstances. Gates v. Rohm & Haas Co., 655 F.3d 255 (3d Cir. 2011). And a few other circuits have suggested that issue classes might be more generally permissible.

The problem with the free-wheeling use of issue classes is that it leads to class certification on demand. If predominance as to the claim as a whole doesn't matter, plaintiffs' counsel can keep severing individualized issues—effectively sweeping them under the rug—until the remaining common issues eventually predominate and the issue class can be certified. Putting aside the claims-splitting and Seventh Amendment problems that this procedure might pose, issue classes might seem more efficient in theory than separate adjudications. But in practice, it's often hard to try common issues effectively when they've been shorn of the individualized issues that put everything into context. And thorny issues about how the common issue "judgment" applies in the individual trials have yet to be solved.

Even worse, opening the door to easily certified issue classes threatens a flood of vexatious class actions. Class certification greatly increases class counsel's settlement leverage, regardless of the merits of the underlying claims. The ability to get an issue class certified almost automatically would exacerbate the problem of "'blackmail settlements'"—the epithet many judges (including Judges Posner and Friendly) have used to describe "'settlements induced by a small probability of an immense judgment in a class action,'" even despite a "demonstrated great likelihood that the plaintiffs' claims * * * lack legal merit." In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1299-1300 (7th Cir. 1995) (quoting HENRY J. FRIENDLY, FEDERAL JURISDICTION: A GENERAL VIEW 120 (1973)). And because class members won't directly get any money from an issue class—that awaits the subsequent trials of the individualized issues—class members' incentive to monitor class counsel is reduced. Class counsel may already be driving the bus in class-action litigation. But now no one would be looking over their shoulder.

Despite these problems, the subcommittee's report suggests a possible amendment to Rule 23(b)(3) to clarify that predominance is not a prerequisite for certifying an issue class under Rule 23(c)(4). That's not good. For more discussion of the problems with issue classes, please see the amicus brief (pdf) that my colleagues recently filed on behalf of the U.S. Chamber of Commerce.

 4. The subcommittee is debating sharp limits—or a ban—on Rule 68 offers of judgment in class actions.

The subcommittee's report identifies three proposals for barring defendants from trying to moot the class action by providing the named plaintiff with an offer of judgment that satisfies his or her individual claims. (We frequently blog about this and related issues.)

The first proposal is to amend Rule 68 to specify that it doesn't apply to class or derivative actions. That idea, however, seems hopelessly misguided. Regardless of one's view of whether it's a good thing that defendants can moot class actions by tendering make-whole relief, saying that Rule 68 doesn't apply at all to such actions is a bad idea. To begin with, a formal offer of judgment under Rule 68 isn't needed to moot a claim; any ordinary offer to settle on terms that provide the plaintiff with the full measure of relief sought in the action would be sufficient to moot the lawsuit. And eliminating Rule 68 overlooks the other unquestionably valid uses of offers of judgment, such as cost shifting—or even the possibility of class-wide offers of judgment.

The second proposal is to permit settlement offers to moot a class action only if class certification has been denied—and even then, the named plaintiff would be given permission to appeal the denial of class certification. This approach suffers from some of the same problems as the last one—but also raises new ones. For example, if the mootness of the named plaintiffs' claims deprives them of Article III standing to appeal, why would a change in the wording of Rule 23 change anything? The federal rules can't trump constitutional principles of standing. And we imagine that the Supreme Court will have a lot to say on this subject when it decides Campbell-Ewald Co. v. Gomez, No. 14-857. (Please see our report on Campbell-Ewald.)

The third proposal is to require the court's permission before the named plaintiff can settle his or her individual claims. This proposal, too, seems problematic. It's not clear that this change would stop defendants from resolving the claims of named plaintiffs, unless it's assumed that judges will refuse to approve settlements that by definition are fair to the named plaintiff. Moreover, this proposal would have collateral consequences that led to the rejection of a similar proposal to change the rules in 2003. If judges are rejecting pre-certification settlements, it hardly seems fair to force a plaintiff who wants to settle to continue to serve as a class representative—such a plaintiff seems by definition to be inadequate to protect the interests of the absent class member.

And, of course, each of these proposals rests on a mistaken assumption that it is a bad thing to allow defendants to seek to moot class actions by tendering full relief to any plaintiff who comes forward. Why should a class action continue if no one before the court has an interest in proceeding? If the underlying claims have merit, additional plaintiffs could file similar suits, and businesses would face the risk of paying multiple individual offers of judgment if they do not alter their practices. This approach is superior to class actions because the expense of attorneys' fees is reduced, and the claimants would get 100 cents on the dollar instead of the pennies on the dollar often received as a result of class actions. Of course, a defendant who believes that the claims are meritless might conclude that it can no longer pay full offers of judgment and instead will have to fight the class action in court.

 5. Electronic class notice may finally get the stamp of approval.

Four decades have passed since the Supreme Court held that, when feasible, individual class members should be provided with notice of proposed class settlements by first class mail. Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974). The time is long overdue for courts to take advantage of the huge cost savings afforded by electronic communications. Some courts have already taken baby steps towards allowing electronic notice. The proposal in the subcommittee's report to amend Rule 23(c)(2) to authorize electronic notice expressly is a no-brainer—although it'll take some work by counsel to figure out what to do about spam filters.

As an add on, the report goes on to observe that the cost savings of electronic class notice may allow the subcommittee to rethink the long-held assumption that it wasn't worthwhile to require individual notice to members in mandatory classes certified under Rule 23(b)(1) or Rule 23(b)(2). That may be true with respect to snail mail, which is expensive to print and send. But even with that form of notice, some courts have concluded that principles of fairness and due process weigh in favor of requiring notice to members of mandatory classes. In the age of email and social media, it is ever easier to provide notice.

 6. Cy pres to be restricted, but not discouraged.

One of the most common criticisms levied at some types of class settlements is that the money frequently isn't even given to the ostensibly injured class members, but instead is pocketed by class counsel and—on the theory that it's too hard to find the class members—donated to charities picked by the lawyers and the judge. We frequently blog about issues raised by so-called cy pres class settlements. And Chief Justice Roberts has stated that the Supreme Court "may need to clarify the limits on the use of such remedies." Marek v. Lane, 134 S. Ct. 8 (2013) (Roberts., C.J., statement respecting denial of certiorari). (See our blog post about Marek.)

The subcommittee's report discusses potential amendments to Rule 23(e) to authorize courts to approve settlements with a cy pres component only if two requirements are met. First, it must not be feasible to make individual distributions to class members (with one proposal saying expressly that it's not feasible to distribute sums less than $100). Second, the "interests" of the cy pres recipient must "reasonably approximate those being pursued by the class." (If no such recipient can be found, a variant proposal would allow cy pres awards to go to any recipient "if such payment would serve the public interest.")

These proposals represent a few small steps towards curbing the misuse of cy pres awards. Nonetheless, in light of the continuing controversy over cy pres, it would seem to be a mistake to engraft it into the federal rules, especially because it would (improperly, in our view) curtail the Supreme Court's consideration of this issue.

 7. A new type of Rule 23(b) class—the settlement class—to be authorized?

A series of proposed amendments in the report would dispense with the requirement for settlements of Rule 23(b)(3) classes that common issues predominate over individualized ones. Some proposals would add express requirements that the settlement class be ascertainable and/or that the settlement be superior to other means of resolving the dispute. But there are strong reasons to doubt that these proposals would satisfy Amchem  and comport with due process.

 8. Professional objectors are facing closer scrutiny.

A fair number of proposals in the subcommittee's report are aimed at objectors, who have "aroused considerable ire among class-action practitioners," according to the report. The report notes that the subcommittee is working with the Appellate Rules Committee on a proposal to bar objectors from withdrawing an appeal of a class settlement without court approval. The point of this amendment would be to reduce the incentive to object to settlements in the hope of obtaining a payoff to drop the ensuing appeal.

Another proposal—which would be baked into Rule 23(e)—would require objectors to disclose any agreement to withdraw or settle an objection. A variant would require court approval of such side deals.

A related set of proposals would either permit or mandate the imposition of sanctions on objectors who make frivolous objections. The subcommittee's report notes that it's not clear whether these proposals are needed to supplement Rule 11. And it's possible, the report observes, that these proposals might chill valid objections or be used to bully objectors.

 9. Courts might be given a list of factors to consider when evaluating proposed class settlements.

Rule 23(e) currently charges the district court with deciding whether a proposed class settlement is "fair, reasonable, and adequate." Over the years, the courts have identified numerous factors that can be relevant to that determination. The subcommittee's report indicates that it might be time to harmonize those cases by putting a consensus list of those factors into the rule. This proposal is all well and good, but may fail to take into account the continuing (and recent) evolution of the law in this area; moreover, the Manual of Complex Litigation and any number of treatises compile these factors already.

 10. Our bottom line: the subcommittee's approach to revising Rule 23 is misguided.

As you can tell, we're disappointed in a fair number of the proposals that the subcommittee has raised. Many appear aimed at massively expanding the scope of class-action litigation. And some appear intended to usurp the role of the Supreme Court in deciding important contested issues regarding the interplay between the federal rules and principles of due process. In fact, to some observers—at least those with a jaundiced eye—it seems as though the subcommittee has been hijacked in order to rewrite Rule 23 to make it easier for the plaintiffs' bar to bring and settle class actions. Especially given the Supreme Court's recent and active role in analyzing the requirements of Rule 23 as it currently is written, it seems especially inappropriate for the subcommittee to jump in and attempt to rewrite that rule.

Tags: Amchem Prods. Inc. v. Windsor, Campbell-Ewald Co. v. Gomez, Castano v. Am. Tobacco Co., class notice, class settlement, cy pres, due process, Eisen v. Carlisle & Jacquelin, Fed. R. Civ. P. 23, Fed. R. Civ. P. 23(b), Fed. R. Civ. P. 23(b)(1), Fed. R. Civ. P. 23(b)(2), Fed. R. Civ. P. 23(b)(3), Fed. R. Civ. P. 23(c)(4), Fed. R. Civ. P. 23(e), Fed. R. Civ. P. 68, Federal Rules Advisory Committee, Fifth Circuit, Gates v. Rohm & Haas Co., In re Rhone-Poulenc Rorer Inc., issue class, Marek v. Lane, mootness, offer of judgment, predominance, Seventh Amendment, Seventh Circuit, standing, Third Circuit

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2015. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.