Rule 23 may be in for some major changes. The Advisory Committee has commissioned a Rule 23 subcommittee to investigate possible revisions to the class action rules. That subcommittee issued a report (pdf) discussing its progress, and recently has been conducting a “listening tour” of sorts regarding potential rule changes.

Our initial view is that the business community should have serious concerns about the approach that at least some members of the subcommittee appear to be taking, as several proposals are aimed at rolling back judicial decisions—including Supreme Court decisions—that are critical to ensuring that class actions satisfy the requirements of due process.

Here are ten things you need to know from the subcommittee’s report.

 1. Nothing is written in stone yet.

The report is avowedly tentative, declaring in boldface that “there is no assurance that the Subcommittee will ultimately recommend any amendments” to Rule 23. The report does identify some potential rule changes. But it describes them as “conceptual sketches of some possible amendments,” not “initial drafts of actual rule change proposals.” And the fact that a potential rule change isn’t listed in the report doesn’t mean that it’s off the table either. The subcommittee says—again in boldface—that “it has not closed the door on other issues.” In other words, the subcommittee’s next report, which might follow the subcommittee’s next meeting in September 2015, might cover very different content and have very different recommendations than this one.

 2. Any changes wouldn’t go into effect for several years.

The report indicates that if the Rule 23 subcommittee decides to propose any rule changes, drafts of those “possible amendments” would be presented to the Advisory Committee no sooner than its Fall 2015 meeting. Those drafts would then be discussed at the January 2016 meeting and given a final review no sooner than the Spring 2016 meeting. Assuming that the drafts are approved, they then would be presented to the standing committee as soon as summer 2016, with publication for public comment as early as August 2016. If the amendments are then formally adopted, the rule changes could go into effect “as soon as December 1, 2018.”

 3. The biggest change would be a huge—and worrisome—expansion of issue classes.

One of the most divisive issues in class-action practice today is whether courts may certify so-called “issue classes” under Rule 23(c)(4) to resolve issues on a class-wide basis even when the predominance requirement of Rule 23(b)(3) isn’t satisfied for the claim as a whole. The Fifth Circuit largely bars such issue classes. Castano v. Am. Tobacco Co., 84 F.3d 734 (5th Cir. 1996). But the Third Circuit permits them under limited circumstances. Gates v. Rohm & Haas Co., 655 F.3d 255 (3d Cir. 2011). And a few other circuits have suggested that issue classes might be more generally permissible.

The problem with the free-wheeling use of issue classes is that it leads to class certification on demand. If predominance as to the claim as a whole doesn’t matter, plaintiffs’ counsel can keep severing individualized issues—effectively sweeping them under the rug—until the remaining common issues eventually predominate and the issue class can be certified. Putting aside the claims-splitting and Seventh Amendment problems that this procedure might pose, issue classes might seem more efficient in theory than separate adjudications. But in practice, it’s often hard to try common issues effectively when they’ve been shorn of the individualized issues that put everything into context. And thorny issues about how the common issue “judgment” applies in the individual trials have yet to be solved.

Even worse, opening the door to easily certified issue classes threatens a flood of vexatious class actions. Class certification greatly increases class counsel’s settlement leverage, regardless of the merits of the underlying claims. The ability to get an issue class certified almost automatically would exacerbate the problem of “‘blackmail settlements’”—the epithet many judges (including Judges Posner and Friendly) have used to describe “‘settlements induced by a small probability of an immense judgment in a class action,’” even despite a “demonstrated great likelihood that the plaintiffs’ claims * * * lack legal merit.” In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1299-1300 (7th Cir. 1995) (quoting HENRY J. FRIENDLY, FEDERAL JURISDICTION: A GENERAL VIEW 120 (1973)). And because class members won’t directly get any money from an issue class—that awaits the subsequent trials of the individualized issues—class members’ incentive to monitor class counsel is reduced. Class counsel may already be driving the bus in class-action litigation. But now no one would be looking over their shoulder.

Despite these problems, the subcommittee’s report suggests a possible amendment to Rule 23(b)(3) to clarify that predominance is not a prerequisite for certifying an issue class under Rule 23(c)(4). That’s not good. For more discussion of the problems with issue classes, please see the amicus brief (pdf) that my colleagues recently filed on behalf of the U.S. Chamber of Commerce.

 4. The subcommittee is debating sharp limits—or a ban—on Rule 68 offers of judgment in class actions.

The subcommittee’s report identifies three proposals for barring defendants from trying to moot the class action by providing the named plaintiff with an offer of judgment that satisfies his or her individual claims. (We frequently blog about this and related issues.)

The first proposal is to amend Rule 68 to specify that it doesn’t apply to class or derivative actions. That idea, however, seems hopelessly misguided. Regardless of one’s view of whether it’s a good thing that defendants can moot class actions by tendering make-whole relief, saying that Rule 68 doesn’t apply at all to such actions is a bad idea. To begin with, a formal offer of judgment under Rule 68 isn’t needed to moot a claim; any ordinary offer to settle on terms that provide the plaintiff with the full measure of relief sought in the action would be sufficient to moot the lawsuit. And eliminating Rule 68 overlooks the other unquestionably valid uses of offers of judgment, such as cost shifting—or even the possibility of class-wide offers of judgment.

The second proposal is to permit settlement offers to moot a class action only if class certification has been denied—and even then, the named plaintiff would be given permission to appeal the denial of class certification. This approach suffers from some of the same problems as the last one—but also raises new ones. For example, if the mootness of the named plaintiffs’ claims deprives them of Article III standing to appeal, why would a change in the wording of Rule 23 change anything? The federal rules can’t trump constitutional principles of standing. And we imagine that the Supreme Court will have a lot to say on this subject when it decides Campbell-Ewald Co. v. Gomez, No. 14-857. (Please see ourreport on Campbell-Ewald.)

The third proposal is to require the court’s permission before the named plaintiff can settle his or her individual claims. This proposal, too, seems problematic. It’s not clear that this change would stop defendants from resolving the claims of named plaintiffs, unless it’s assumed that judges will refuse to approve settlements that by definition are fair to the named plaintiff. Moreover, this proposal would have collateral consequences that led to the rejection of a similar proposal to change the rules in 2003. If judges are rejecting pre-certification settlements, it hardly seems fair to force a plaintiff who wants to settle to continue to serve as a class representative—such a plaintiff seems by definition to be inadequate to protect the interests of the absent class member.

And, of course, each of these proposals rests on a mistaken assumption that it is a bad thing to allow defendants to seek to moot class actions by tendering full relief to any plaintiff who comes forward. Why should a class action continue if no one before the court has an interest in proceeding? If the underlying claims have merit, additional plaintiffs could file similar suits, and businesses would face the risk of paying multiple individual offers of judgment if they do not alter their practices. This approach is superior to class actions because the expense of attorneys’ fees is reduced, and the claimants would get 100 cents on the dollar instead of the pennies on the dollar often received as a result of class actions. Of course, a defendant who believes that the claims are meritless might conclude that it can no longer pay full offers of judgment and instead will have to fight the class action in court.

 5. Electronic class notice may finally get the stamp of approval.

Four decades have passed since the Supreme Court held that, when feasible, individual class members should be provided with notice of proposed class settlements by first class mail. Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974). The time is long overdue for courts to take advantage of the huge cost savings afforded by electronic communications. Some courts have already taken baby steps towards allowing electronic notice. The proposal in the subcommittee’s report to amend Rule 23(c)(2) to authorize electronic notice expressly is a no-brainer—although it’ll take some work by counsel to figure out what to do about spam filters.

As an add on, the report goes on to observe that the cost savings of electronic class notice may allow the subcommittee to rethink the long-held assumption that it wasn’t worthwhile to require individual notice to members in mandatory classes certified under Rule 23(b)(1) or Rule 23(b)(2). That may be true with respect to snail mail, which is expensive to print and send. But even with that form of notice, some courts have concluded that principles of fairness and due process weigh in favor of requiring notice to members of mandatory classes. In the age of email and social media, it is ever easier to provide notice.

 6. Cy pres to be restricted, but not discouraged.

One of the most common criticisms levied at some types of class settlements is that the money frequently isn’t even given to the ostensibly injured class members, but instead is pocketed by class counsel and—on the theory that it’s too hard to find the class members—donated to charities picked by the lawyers and the judge. We frequently blog about issues raised by so-called cy pres class settlements. And Chief Justice Roberts has stated that the Supreme Court “may need to clarify the limits on the use of such remedies.” Marek v. Lane, 134 S. Ct. 8 (2013) (Roberts., C.J., statement respecting denial of certiorari). (See our blog post about Marek.)

The subcommittee’s report discusses potential amendments to Rule 23(e) to authorize courts to approve settlements with a cy pres component only if two requirements are met. First, it must not be feasible to make individual distributions to class members (with one proposal saying expressly that it’s not feasible to distribute sums less than $100). Second, the “interests” of the cy pres recipient must “reasonably approximate those being pursued by the class.” (If no such recipient can be found, a variant proposal would allow cy pres awards to go to any recipient “if such payment would serve the public interest.”)

These proposals represent a few small steps towards curbing the misuse of cy pres awards. Nonetheless, in light of the continuing controversy over cy pres, it would seem to be a mistake to engraft it into the federal rules, especially because it would (improperly, in our view) curtail the Supreme Court’s consideration of this issue.

 7. A new type of Rule 23(b) class—the settlement class—to be authorized?

A series of proposed amendments in the report would dispense with the requirement for settlements of Rule 23(b)(3) classes that common issues predominate over individualized ones. Some proposals would add express requirements that the settlement class be ascertainable and/or that the settlement be superior to other means of resolving the dispute. But there are strong reasons to doubt that these proposals would satisfy Amchem and comport with due process.

 8. Professional objectors are facing closer scrutiny.

A fair number of proposals in the subcommittee’s report are aimed at objectors, who have “aroused considerable ire among class-action practitioners,” according to the report. The report notes that the subcommittee is working with the Appellate Rules Committee on a proposal to bar objectors from withdrawing an appeal of a class settlement without court approval. The point of this amendment would be to reduce the incentive to object to settlements in the hope of obtaining a payoff to drop the ensuing appeal.

Another proposal—which would be baked into Rule 23(e)—would require objectors to disclose any agreement to withdraw or settle an objection. A variant would require court approval of such side deals.

A related set of proposals would either permit or mandate the imposition of sanctions on objectors who make frivolous objections. The subcommittee’s report notes that it’s not clear whether these proposals are needed to supplement Rule 11. And it’s possible, the report observes, that these proposals might chill valid objections or be used to bully objectors.

 9. Courts might be given a list of factors to consider when evaluating proposed class settlements.

Rule 23(e) currently charges the district court with deciding whether a proposed class settlement is “fair, reasonable, and adequate.” Over the years, the courts have identified numerous factors that can be relevant to that determination. The subcommittee’s report indicates that it might be time to harmonize those cases by putting a consensus list of those factors into the rule. This proposal is all well and good, but may fail to take into account the continuing (and recent) evolution of the law in this area; moreover, the Manual of Complex Litigation and any number of treatises compile these factors already.

 10. Our bottom line: the subcommittee’s approach to revising Rule 23 is misguided.

As you can tell, we’re disappointed in a fair number of the proposals that the subcommittee has raised. Many appear aimed at massively expanding the scope of class-action litigation. And some appear intended to usurp the role of the Supreme Court in deciding important contested issues regarding the interplay between the federal rules and principles of due process. In fact, to some observers—at least those with a jaundiced eye—it seems as though the subcommittee has been hijacked in order to rewrite Rule 23 to make it easier for the plaintiffs’ bar to bring and settle class actions. Especially given the Supreme Court’s recent and active role in analyzing the requirements of Rule 23 as it currently is written, it seems especially inappropriate for the subcommittee to jump in and attempt to rewrite that rule.