It is important to understand that, in practice, rules relating to class-action settlements will most often be litigated in ex parte circumstances where settling parties will seek interpretations favorable to themselves at the expense of absent class members. If rules do not explicitly bind settling parties, courts will tend to adopt interpretations and create precedents permitting abuse. The Proposed Amendments to Rule 23(e)(2) therefore do not adequately protect the class from self- dealing settlements where class counsel is the primary beneficiary. Settlements will continue to be approved where attorneys’ fees are disproportionate to the relief actually received by the class. The Advisory Committee tried to fix this problem in 2003 when Rule 23(h) was created, but Rule 23(h) failed to explicitly require courts to determine whether class counsel’s fee request was proportionate to relief actually received and the Advisory Committee’s intent went ignored. Now courts are split as to whether fees may be awarded based on actual relief and the Rules risk undoing the precedent that requires courts to determine whether fees are proportionate. To end the circuit split and avoid repeating the deficiency of the 2003 Amendments, the Rules should explicitly require that district courts consider the proportion of fees to relief actually received by class members, and explicitly reject the line of precedent that permits parties to value settlements based on the fiction of maximum possible relief, when in practice parties can predict with actuarial certainty the claims rate of a settlement structure. Indeed, the Rules should provide additional protections by requiring district courts to consider whether class counsel negotiated clear sailing, reversion, or cy pres awards that prioritize relief to third parties when assessing adequacy of class counsel.
The Proposed Amendments to Rule 23(e)(5) should be deleted. Proposed Paragraph (A) requiring specificity for objections is unnecessary because district courts and parties can already effectively manage non-specific objections and will instead create collateral litigation. Paragraph (A) will only serve as a mechanism for class counsel to eliminate objections that may derail their self- dealing settlements.
Proposed Paragraphs (B) and (C)—requiring court approval for settlement of objections— will, as conferences discussing the amendments have shown, be ineffective in ending objector blackmail (extortionate payments to objectors in exchange for dismissal of their appeals) because the Rules fail to adopt a standard that objectors must satisfy for approval of their settlement with class counsel. The Proposed Amendments do nothing to address the real problem: objectors are more motivated to bring bad-faith objections than good-faith objections because there is a greater chance of payment in objector blackmail than in successfully litigating an objection. The Rules need to eliminate the incentive for objector blackmail by eliminating the possibility of receiving consideration for dismissal of appeal and instead, create incentives for good faith objections by explicitly recognizing that objectors who realize a benefit for the class are entitled to attorneys’ fees. Under current law, only non-profit organizations have the ability to consistently see through meritorious objections.
- Proposed Amendments to the Federal Rules of Appellate, Bankruptcy, Civil, and Criminal Procedure (“Proposed Amendments”), available at http://www.uscourts.gov/sites/default/files/2016- 08preliminary_draft_of_rules_forms_published_for_public_comment_0.pdf.
- On October 1, 2015, the Center merged with the non-profit Competitive Enterprise Institute.