2018 Amendments to Rule 23: Five Things You Should Know

by Morgan Lewis
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Amendments to Federal Rule of Civil Procedure 23 take effect December 1. Aimed at creating a more streamlined class action settlement process, the changes will affect federal class action litigation regarding means of notice, class settlement approval, and class member objections, among other provisions.

For the first time in 15 years, Federal Rule of Civil Procedure 23, governing class actions, will be amended effective December 1. The amendments primarily address issues relating to settlement. Although they largely codify existing practice, some of the changes establish new requirements. There are five key changes to Rule 23 that will likely impact future federal class action litigation.

1. Notice to Class Members by Any ‘Appropriate Means’

Rule 23(c)(2), which governs notice to class members, currently requires “the best notice that is practicable under the circumstances,” but does not specify the notice method. Notice has traditionally been provided to class members by US mail or publication, but in conformance with recent trends the amendment specifies that notice may be by mail or electronic means. It also provides discretion for notice by “other appropriate means.”

This reflects the fact that traditional “snail mail” may not always be the best way to provide notice to a class. By allowing for notice by “electronic means, or other appropriate means,” the amended rule opens the door to providing notice by email, text message, or even social media, which could save parties time and money and in some circumstances be more effective.

The Advisory Committee Note to the Amended Rule 23 (Committee Note), however, cautions that electronic methods of notice may not always be appropriate given that class members in certain cases may have limited access to the internet. Thus, the appropriate form of notice will depend on the characteristics of the particular class, and it will be important to evaluate the unique circumstances of each case in choosing the right method—or combination of methods—of notice for the class members at issue. For example, notice by email or text message may be preferable in a class action asserting technology-based claims. Input from an expert or a professional claims administrator can be helpful—and perhaps even necessary—in developing the best notice plan.

2. New Requirements for Notice of Proposed Settlement

With the amendments, parties seeking settlement approval pursuant to Rule 23(e)(1) must provide the court with information “sufficient to enable it to determine whether to give notice of the proposal to the class.” In making this showing, the parties must demonstrate that the court will be able to approve the settlement proposal and, if it has not previously certified a class, “certify the class for purposes of judgment on the [settlement] proposal.” This requirement is new; previously, courts were not required to consider the likelihood of approval of the proposed settlement or class certification prior to directing notice of the proposed settlement.

Importantly, the Committee Note makes clear that “[i]f the settlement is not approved, the parties’ positions regarding certification for settlement should not be considered if certification is later sought for purposes of litigation.” Thus, there should be no prejudice to a defendant if it agrees to certification as part of a settlement proposal that is ultimately not approved.

3. Core Factors for the Court to Consider in Approving Settlements

Rule 23(e)(2), which governs class settlement approval, requires that a court approve a settlement “only after a hearing and on finding that it is fair, reasonable, and adequate.” As amended, the rule specifies the factors courts should consider in making that determination:

  • The adequacy of representation by class representatives and class counsel
  • Whether the settlement was negotiated fairly
  • The adequacy of the relief provided to the class
  • Whether class members were treated equitably relative to each other

The new language in Rule 23(e)(2) establishes core considerations that the court should evaluate in deciding whether to approve a settlement. The Committee Note explains: “[E]ach circuit has developed its own vocabulary for expressing these concerns. . . . The goal of this amendment is not to displace any factor, but rather to focus the court and the lawyers on the core concerns of procedure and substance that should guide the decision whether to approve the proposal.” Thus, establishing a standard set of approval factors to be employed in courts across the nation should simplify and streamline the settlement approval process.

The Committee Note also suggests that the information submitted for the purpose of requesting notice to the class of a proposed settlement under Rule 23(e)(1), discussed above, may be a “useful starting point in assessing these topics.” The Committee Note provides examples of what information the court may consider, including the nature and amount of discovery; pendency of other litigation; how negotiations were conducted, including whether a neutral mediator was used; and how attorney fees were treated.

4. Amendments to Discourage Bad-Faith Objectors

As currently written, Rule 23(e)(5), which governs class member objections, permits any class member to object to a proposed settlement agreement. The amendments clarify the necessary format and substance of such objections. An objection must “state whether it applies only to the objector, to a specific subset of the class, or to the entire class, and also state with specificity the grounds for the objection.”

In addition, any “payment in connection with an objection” must be disclosed and approved by the court. With regard to consideration paid in connection with objections, the rule will be amended to state: “Unless approved by the court after a hearing, no payment or other consideration may be provided in connection with: (i) forgoing or withdrawing an objection, or (ii) forgoing, dismissing, or abandoning an appeal from a judgment approving the proposal.”

The new requirements under Rule 23(e)(5) are intended to facilitate objections by good-faith objectors who are not represented by counsel while discouraging bad-faith or “professional” objectors.

5. No Appeals from Orders on Requests to Direct Notice of a Proposed Settlement

Rule 23(f) addresses appeals from orders granting or denying class certification. The amendment to Rule 23(f) will add language to clarify that, while a court may permit an appeal from an order granting or denying class action certification, it may not permit an appeal from an order on a request to direct notice of a proposed settlement. Rule 23(f) will also be amended to provide the US government additional time to file a petition for permission to appeal, affording the government 45 days to do so (as compared to 14 days for any other party).

Final Thoughts

The 2018 amendments to Rule 23 should lead to a more streamlined, predictable class action settlement process. While the amendments largely incorporate standards that the courts currently employ, they also create new requirements for disclosure and court approval intended to deter bad-faith or “professional” objectors who may have ulterior motives in objecting to a settlement. The amendments also provide that notice to class members may be sent electronically in appropriate circumstances and clarify that orders on requests to direct notice of a proposed settlement may not be appealed. The detailed Committee Note, which provides explanatory commentary for each of the amendments, will be useful in understanding and applying Rule 23 going forward.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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