On June 11, 2014, the Court of Appeals for the Second Circuit affirmed by summary order a lower court decision not to afford a member of a shareholder class more time to comply with the requirements for opting out of the settlement in a high-profile securities class action lawsuit. See Shumsker v. Citigroup Global Markets, Inc., No. 13-4581-cv, 2014 U.S. App. LEXIS 10806 (2d Cir. June 11, 2014). The class member had filed her opt-out request after the submission deadline and instituted a separate district court action to pursue her individual claims.
As support for her request for more time, the shareholder put forward two justifications. First, she argued that she "failed to understand" that she was required to opt-out of the class action settlement in order to maintain her individual claims. Second, she stated that she and her counsel each "genuinely believed the other was responsible for" sending the opt-out notice. The Second Circuit rejected both of these justifications as "unsatisfactory" and "contradictory." The Second Circuit also took note of the fact that the shareholder's request for more time to file her opt-out had not been made for several months after the opt-out deadline had run. According to the Court, to allow the shareholder more time after such a lengthy delay would prejudice defendants.
Taking all of this into consideration, the Court concluded that the district court's decision both to dismiss the shareholder's individual lawsuit and to deny her request for more time did not constitute an abuse of discretion. While lower courts are given a good deal of discretion in ruling on opt-outs, this decision highlights that courts are not likely to accept any claim that a class member "failed to understand" what he or she had to do in order to opt-out and pursue an individual action.
Joe Crace and Brant Phillips co-authored a piece for the ABA Section of Litigation – Commercial & Business discussing this case, which was published July 10, 2014. To read the full text of the alert, click here.