The Sixth Circuit recently affirmed approval of a class action settlement agreement, holding that “a post-settlement change in the law does not alter the binding nature of the parties’ settlement agreement, nor does it violate Rule 23 . . .  or the Rules Enabling Act.” The plaintiffs brought a class action against their former employers, alleging violations of the Kentucky Wage and Hour Act (KWHA). After the district court certified a class, the parties reached a class-wide settlement and informed the court that they would be filing formal settlement documents.

Before filing those documents, however, the defendants discovered a recent decision by the Kentucky Court of Appeals, which held that the KWHA could not support class action claims. The defendants moved to decertify the class, arguing that, based on the Kentucky appellate decision: (1) certification violated the terms of Rule 23(a) and (b)(3); (2) certification violated the Rules Enabling Act because it modified the scope of the state substantive right defined by the KWHA; and (3) “approval of the proposed settlement violated Rule 23(e)(2)’s ‘fairness’ requirement because the proposed settlement contravened Kentucky public policy.”  The plaintiffs argued in favor of maintaining certification and for final approval of the settlement. The district court denied the defendants’ motion and granted final approval of the class settlement. The defendants appealed.

The Sixth Circuit affirmed the district court’s decision, finding that the plaintiffs “failed to make any argument explaining why the prohibition against class-action litigation in [the KWHA] disturbs any of the class-certification requirements…” Further, the court determined that certification did not violate the certification terms of Rule 23, which was “designed to ‘focus court attention on whether a proposed class has sufficient unity so that absent members can fairly be bound by decisions of class representatives.’” The court reasoned that because certification was challenged by the defendants, “who were fairly represented throughout the class-action litigation process,” the impetus of Rule 23 was not implicated.

The Sixth Circuit also found that certification did not violate the Rules Enabling Act because “certification of the settlement class [did] not amount to a finding that the plaintiffs [were] actually entitled to relief under substantive state law, [so] it cannot be the case that certification acts to ‘abridge, enlarge, or modify any substantive right created by state law.’”  Addressing the defendants’ 23(e) argument, the court reiterated that Rule 23 was designed to protect unnamed class members, not parties to a settlement, and disregarded the defendants’ attempt to liken settlement agreements to consent decrees. The court explained that settlements are akin to contracts, which are voluntary and binding and will not be revisited merely because “hindsight reveals that [a party’s] decision was, given later changes in the law, probably wrong.”

Whitlock v. FSL Mgmt., LLC, No. 16-5086 (6th Cir. Dec. 14, 2016)

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