In the United States federal courts, class actions are governed by Federal Rule of Civil Procedure 23 (“Rule 23”). In April of this year, the Judicial Conference’s Advisory Committee on Civil Rules (“Advisory Committee”) unanimously voted to forward proposed amendments to Rule 23 to the Standing Committee on Rule of Practice and Procedure (“Standing Committee”) with a recommendation that the proposed amendments be published for public comment.
After making some modifications, the Standing Committee approved proposed amendments to Rule 23 and publication of such proposed amendments from August 12, 2016 through February 15, 2017 (“August 2016 Amended Rule”). See Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, Preliminary Draft of Proposed Amendments to the Federal Rules of Appellate, Bankruptcy, Civil, and Criminal Procedure – Request for Comment (2016) (“Committee Report”). The Advisory Committee will hold hearings on the proposed amendment in Washington, D.C. on November 3, 2016, in Phoenix, Arizona on January 4, 2017 and in Dallas, Texas on February 16, 2017.
To date, the August 2016 Amended Rule has not generated extensive media coverage or significant controversy. The bulk of the proposed amendments focus on the provisions of Rule 23 that govern class action settlements, including but not limited to (1) the form of notice to be given to a class; (2) the presentation of a settlement to a court for approval of notice distribution to the class; and (3) rules governing objections to a class settlement. A summary of the more significant changes set forth in the August 2016 Amended Rule are outlined below.
- Rule 23(c)(2)(B) currently addresses notice for a class certified under Rule 23(b)(3) but the proposed amendment adds that the notice provision also applies “upon ordering notice under Rule 23(e)(1) to a class proposed to be certified for purposes of settlement under Rule 23(b)(3).” August 2016 Amended Rule 23(c). The proposed amendment provides that the court must “direct notice to the class regarding a proposed class action settlement only after determining that the prospect of class certification and approval of the proposed settlement justifies notice.” Committee Report at 218. As it is common practice to send notice to a class simultaneously under both Rule 23(e(1) and Rule 23(c)(2)(B), the proposed amendment recognizes the propriety of this notice practice and notes that multiple notices to the class can be wasteful, confusing and costly. Id.
- The proposed amendments expressly allow for notice to be sent by certain means, including “United States mail, electronic means, or other appropriate means.” August 2016 Amended Rule 23(c)(2)(B). The Committee Notes explain that the rule was amended “to recognize contemporary methods of giving notice to class members” and to clarify that US mail is not required in every case. Committee Report at 218-219. Because courts have “begun to employ new technology to make notice more effective, and sometimes less costly,” the Committee Notes indicate that additional technological changes are anticipated and that courts giving notice under Rule 23 “should considering current technology, including class members’ likely access to such technology, when selecting a method of giving notice.” Id. at 219. The proposed amendment does not specify any particular means as preferred but rather the court and counsel are encouraged to focus on “the means most likely to be effective in the case before the court.” Id.
- The preamble of Rule 23(e) currently addresses settlement of claims, issues or defenses of a certified class. The proposed amendments of Rule 23(e) expressly expand the scope to also include settlement of “a class proposed to be certified for purposes of settlement.” August 2016 Amended Rule 23(e). The language is amended to reflect that Rule 23(e)’s “procedural requirements apply when the court has not certified a class at the time that a proposed settlement is presented to the court.” Committee Report at 220-221.
- Rule 23(e) and its notice requirements would be supplemented with additional subsections under the proposed changes. The proposed amendments impose additional obligations on the parties to provide the court with a clear record before notifications are sent out. The parties are required to “provide the court with information sufficient to enable it to determine whether to give notice of the proposal to the class.” August 2016 Amended Rule 23(e)(1)(A). The proposed amendments also put the onus on the parties to show notice is justified based on the parties’ showing that “the court will likely be able to: (i) approve the proposal under Rule 23(e)(2); and (ii) certify the class for purposes of judgment on the proposal.” August 2016 Amended Rule 23(e)(1)(B). The amendments require the parties to identify additional, specific information when seeking notice to the class. The Committee Notes explain that the court’s decision regarding notice of a proposed settlement “should be based on a solid record supporting the conclusion that the proposed settlement will likely earn final approval after notice and an opportunity to object.”Committee Report at 221. Identifying the need for a “suitable basis” to determine the prospects for certification, the court’s “basic focus is the extent and type of benefits that the settlement will confer on the members of the class.” Id. at 222.
- Before approving a settlement proposal that would bind class members under Rule 23(c)(3), the proposed amendments emphasize that a court may only approve the proposal after a hearing and “only” upon a finding that the proposal is fair, reasonable and adequate. August 2016 Amended Rule 23(e)(2). The proposed amendment expressly outlines the various, specific factors the court must consider in deciding whether to approve a settlement proposal, including whether the class representatives and class counsel have adequately represented the class, the proposal was negotiated at arm’s length, the relief provided for the class is adequate, class members are treated equitably relative to each other. Id. The Committee Notes acknowledge that the different circuits have developed their own factors for consideration of proposed settlements and that the proposed amended rule does not “displace any of these factors.” Committee Report at 224. Instead, the proposed amendment is geared towards focusing the court and the counsel on “the core concerns of procedure and substance that should guide the decision whether to approve the proposal” and “directs the parties to present the settlement to the court in terms of a shorter list of core concerns.” Id. at 224-225.
- Proposed amendments to Rule 23(e)(5) remove the requirement for court approval for every withdrawal of an objection and provide additional requirements for class member objections. The objection “must state whether it applies only to the objector, to a specific subset of the class, or to the entire class, and also state with specificity the grounds for the objection.” August 2016 Amended Rule 23(e)(5)(A). Failure of an objector to provide the requisite specificity “may be a basis for rejecting an objection.” Committee Report at 229. Although objectors are free to withdraw an objection that is not justified, the proposed amendments provide that any payment to an objector or an objector’s counsel relating to foregoing objections or appeals must be approved by the court after a hearing. August 2016 Amended Rule 23(e)(5)(B);Committee Report at 228.
After the hearings and public comment period, the Advisory Committee will reconsider the August 2016 Amended Rule in light of the comments and testimony and then decide whether to submit the August 2016 Amended Rule to the Standing Committee. If approved, the proposed amendments to Rule 23 would become effective December 1, 2018.