United States: Eighth Circuit Provides Important Guidance In Class Settlement Approvals

The Eight Circuit provided some useful guidance for district courts and practitioners in obtaining and reviewing final approval of class settlements in its July 5, 2017, decision in Keil v. Lopez. In that case, the court affirmed approval of a consumer class action settlement by Blue Buffalo Co. Ltd. involving ingredients of pet food. Here are the four key takeaways from this decision:

Explain why the settlement is fair, reasonable and adequate.

The Eight Circuit had adopted a four-part test, in Van Horn v. Trickey, 840 F.2d 604, 607 (1988), to determine whether a settlement is fair, reasonable and adequate. The court of appeals found fault with the district court's lack of analysis of this test as "conclusions, not reasons." However, because of the strength of the record, the court found sufficient facts to approve the settlement under the Van Horn test. The court of appeals distinguished review of a class settlement approval from a disputed class certification decision for contested class certification – the latter of which requires a statement of reasons for satisfying Rule 23 to meet the rigorous analysis standard – implying that an inadequate explanation alone may justify remand of a class certification decision.

The Keil court cited approvingly to district court decisions that "tend to list the factors and proceed systematically to analyze each one, devoting at least one paragraph to each factor." Even outside the Eighth Circuit this is good advice. The form of final judgment submitted to the court to approve the settlement, and ultimately the judgment issued by the court, should not only state that relevant factors for final approval have been met, but also sufficiently explain why.

Claims made settlements are not automatically suspect.

Even though the claims participation rate was only 3 percent, the court noted that this "is hardly unusual in consumer class actions and does not suggest unfairness." Critically, the Eight Circuit found that "even if 97 percent of the class did not exercise their right to share in the fund, their opportunity to do so was a benefit to them." And requiring proofs of purchase is a "valid technique for preventing fraudulent claims." Plus, the class benefits from injunctive relief that the settlement also provides, assuming they continue to purchase pet food. These findings are helpful given recent challenges in some quarters to claims made settlements, and affirm that a properly structured claims made deal can be approved.

Fee motions should be filed before the objection deadline.

This settlement, like many others, scheduled the objections deadline before the filing of the class counsel's fee motion. The Eighth Circuit followed the Seventh, Ninth and Third Circuits in finding that this practice is not consistent with Rule 23(h). Simply stating the amount that would be sought in attorneys' fees in notice to class members is not enough without the detailed support for fees sought by class counsel that implicitly should be set forth in a fee motion. Regardless, the court found this error harmless in rejecting objectors' challenges to the attorneys' fee award.

The court refused to decide how much time after a fee motion deadline would provide class members with an adequate opportunity to object. However, a wise practitioner may want to mirror applicable rules on time for responses to motions in structuring a settlement agreement when setting the objection deadline after a fee motion deadline.

Administrative costs are a class benefit in reviewing reasonableness of attorneys' fees.

Departing from the Seventh Circuit, the Keil court reaffirmed that a district court may include administrative costs paid by a defendant within the class benefit when measuring the reasonableness of class counsel attorneys' fees under the percentage-of-the-benefit method. The perceived low claims rate did not prove the absence of a benefit to the class from the cost of notice and other administrative activity. So long as administrative costs are not "unjustifiably high" or "excessive," they should be included in the total class benefit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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