On February 18 2005, Congress enacted the Class Action Fairness Act (CAFA), P.L. No. 109-2 (28 U.S.C. §§ 1332(d), 1453, and 1711 – 1715). In enacting the CAFA, Congress sought to protect consumers and investors from settlements in which plaintiffs’ attorneys received significant fees but class members received little or even less. In one (in)famous case, for example, an unfortunate class member incurred $91.33 in attorneys’ fees to recover $2.19 on the merits. Kamilewicz v. Bank of Boston Corp., 92 F.3d 506 (1996).
Congress tried to address this problem by requiring, among other things, that each defendant participating in a proposed settlement serve notice on the “appropriate state official” of each state in which a class member resides and the appropriate Federal official. 28 U.S.C. § 1715(b). Rather unhelpfully, the CAFA doesn’t say what exactly the appropriate state official is to do with the notice.
In 2007, then Commissioner of Corporations Preston DuFauchard issued Release 18-G to provide guidance with respect to notifying the Department of Corporations. The table below reflects the number of notices served on the Department during the last six years. I can’t say whether defendants are failing to serve the requisite notice, but the numbers seem low when compared to the number of settlements nationwide. For example, according to this study by Ellen M. Ryan and Laura E. Simmons at Cornerstone Research, there were 65 class court-approved securities class action settlements in 2011. However, the Department received only 8 notices.
Congress didn’t grant state officials any expanded authority or responsibilities, including the authority to enforce compliance with the CAFA. 28 U.S.C. § 1715(f). Indeed, it would be an interesting question of federalism if Congress had purported to do so. I’m not aware that the Department has objected to any proposed settlement and it is questionable whether it has the authority under state law to do so even if it were so inclined.
Failure to serve the required notices has at least one consequence. Congress provided that a class member may refuse to comply with, and may choose not to be bound by, a settlement agreement or consent decree in a class action if the class member demonstrates that the required notice was not served. 28 U.S.C. § 1715(e)(1).
Source: California Department of Corporations