The United States District Court for the District of Columbia recently held that a modification to a settlement agreement was not subject to the procedural protections of Federal Rule of Civil Procedure 23(e) because it would not “materially hinder” the legal rights of class members. The settlement agreement at issue, entered into between Native American ranchers and farmers and the United States Department of Agriculture, required that the money remaining after the distribution of funds to class members would benefit organizations providing assistance to Native Americans pursuant to a cy pres remedy. After the completion of the distribution to class members, class counsel moved to modify the cy pres remedy in order to more efficiently handle disbursement of the $380 million in settlement funds remaining, as some of the conditions for distribution had become impractical. Various others involved in the settlement sought different relief, including distribution of the remaining funds to class members.
In advance of a hearing on class counsels’ motion, the court addressed the application of Rule 23(e), which governs the settlement of class actions, to the modification of a settlement. Rule 23(e) requires a court to provide notice to class members who would be bound by a proposed settlement, compromise, or voluntary dismissal and to conduct a fairness hearing before approving the proposal. The court held, however, that these requirements did not apply to the modification to a settlement unless it would adversely affect class members’ rights. Thus, although a modification that extinguished opt-out rights or provided lesser recovery to class members would be subject to Rule 23(e), amendments that provided additional benefits or made only minor modifications might not.
Here, because the class members’ legal claims had already been extinguished by the settlement agreement and class members do not have a property interest in unclaimed funds, a modification of the cy pres remedy would not alter class members’ rights. Thus, Rule 23(e) did not apply to the modification. The court found, however, that it otherwise had the authority to require notice to the class pursuant to the settlement agreement, which provided for such notice by court order, and under Rule 23(d)(1)(B), which permits a court to give notice to class members at any point in the action. The court also noted that, although it could not hold a Rule 23(e) fairness hearing, it had the authority to receive comments from class members. Thus, the court determined that it would allow individuals to provide written comments or speak at the hearing on the motion in order to fairly conduct the proceeding and inform the court’s ultimate decision.