Here’s an interesting order from the District of Kansas that was published right before the Thanksgiving holiday that demonstrates how a proposed class settlement can get denied not once, but twice, if counsel does not adequately represent all members of the putative absent class.

In Better v. YRC Worldwide, No. 11-2072-KHV, 2013 WL 6060952 (D. Kan. Nov. 18, 2013), the parties were before the court for a second time for preliminary approval of a securities class action settlement. While the court initially denied approval because plaintiffs failed to satisfy the Rule 23 requirements of typicality and adequacy, it appears the parties did not sufficiently address these deficiencies the second time around. Specifically, the court identified three areas where the parties failed to protect the interests of the putative class:

First, approval was denied because the Court found that the proposed settlement failed to provide any benefit to certain class members while requiring them to sign a release of their claims.  While the named plaintiffs asserted that Dura Pharms, Inc. v. Broudo, 544 U.S. 336 (2005) mandated this result because the class members would be unable to demonstrate a causal loss connection, the court was unconvinced.  Second, the court found that the named plaintiffs did not adequately represent the entire putative class as there were several subclasses that were unrepresented by the purported class representatives; unsurprisingly, some of these subclasses were provided less relief (or none at all) than the ones represented by the named plaintiffs. As the court noted “plaintiffs have not shown that [the proposed settlement] is fair, reasonable and adequate” to the unrepresented subgroups.

And as a final matter, the court denied the amended proposed settlement because the parties failed to adequately explain why cy pres distribution was even necessary.  (For more about the controversy over use cy pres class settlements, read this timely post at the Drug & Device Law Blog).  Looking to the American Law Institutes Principles on Aggregate Litigation Section 3.07, the court denied the initial proposed settlement because the parties failed to identify a proposed recipient of any excess funds; this time, the court found fault with the parties’ failure to provide sufficient information why the settlement funds could not be distributed further to class members, or why the named recipient, the FINRA Investor Education Foundation, was an appropriate beneficiary.

While class settlements can often help parties avoid protracted litigation, they do have to provide some tangible benefit to the putative class.  Perhaps the third time will be the charm for the Better class?