A Reminder That Rule 23 Requires Hearings on All Proposed Class Settlements, Even If There Are No Objectors

Lowenstein Sandler LLP

Lowenstein Sandler LLP

Certain class action settlements—like employment and consumer settlements—will very often draw objections from absent class members. But other types of settlements with more sophisticated absent class members—like antitrust and securities—will often draw no objections at all.

Without any objectors, and thus no one contesting approval of the settlement, a district judge with busy docket will sometimes choose to dispense with the formality of a fairness hearing on an uncontested motion for settlement approval.  While more efficient for the court, this approach is problematic under Rule 23(e)(2), which states that “[i]f the proposal would bind class members, the court may approve it only after a hearing . . . .” This requirement originated in the 2003 amendments to Rule 23. The advisory committee note to that amendment explained that the provision “confirms and mandates the already common practice of holding hearings as a part of the process of approving settlement . . . that would bind members of a class.”

To be sure, district courts enjoy “wide latitude” on the scope of a hearing necessary to “reach[] an informed, just and reasoned decision.” UAW v. Gen. Motors Corp., 497 F.3d 615, 635 (6th Cir. 2007) (citation omitted). So if the class notice required written objection as a prerequisite to participation at the fairness hearing, and the court receives no written objections, then a fairness hearing could theoretically be a one-minute exercise in taking appearances, acknowledging the lack of objectors, and accepting the motion for approval for consideration on the papers. As empty as such an exercise may be, Rule 23(e)(2) does appear to require it.

For defense attorneys, a judge’s sua sponte cancellation of a fairness hearing for an uncontested settlement raises practical questions. The trigger for a mandatory fairness hearing is if the settlement “would bind class members.” Could the failure to hold a fairness hearing risk an appeal, a collateral attack on the settlement, or a new action from an absent class member? Or would the failure to object in writing waive such a challenge? And if a failure to object in writing would lead to waiver, then why does Rule 23 require a fairness hearing even when no class members have objected to the proposed settlement?

It does not appear that this issue has ever been litigated. Indeed, it is admittedly improbable that a non-objecting class member would seek to disturb a class settlement post-approval. But defense attorneys seeking to ensure the enforceability of a release may still want to avoid such risk altogether by pushing to ensure that a fairness hearing take place, even if just as a formality. At times, this may include pushing back (or at least making a record) when a judge sua sponte adjourns a fairness hearing over an uncontested application for final approval.

Cross-posted with permission from American Bar Association Class Actions & Derivative Suits Committee Practice Points.

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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