On January 18, 2019, in Porath v. Logitech, Case No. 18-CV-3091 (N.D. Cal. Jan. 18, 2019), Judge William Alsup of the U.S. District Court for the Northern District of California rejected, for the second time, Defendant’s attempts to allow pre-certification discussions relating to a class-wide settlement. Specifically, the Court upheld its prior order, prohibiting such discussions and denying the appointment of interim counsel to represent the class. The end result for the parties is that they must spend more time and money litigating this case despite readiness to engage in settlement negotiations. The ruling is an important read for all corporate counsel involved in class action litigation.
In May 2018, Plaintiff filed a putative class action alleging that the Defendant falsely and deceptively advertised its Z200 speakers as containing four speakers when two of the speakers did not independently produce sound. On June 13, 2018, Judge Alsup issued an order entitled “Notice and Order Re Putative Class Actions and Factors To Be Evaluated For Any Proposed Class Settlement”— an order Judge Alsup typically issues at the outset of any proposed class action pending before him. That order prohibits any settlement discussions of any class claims prior to class certification. Alternatively, the order provides that if counsel believe settlement discussion should precede class certification, interim class counsel must first be appointed.
In August 2018, counsel for Plaintiff and Defendant moved to appoint interim class counsel and enumerated four reasons why they believed pre-class certification settlement discussions were appropriate, including: (i) Defendant agreed not to seek a discount based on the risk a class would not be certified, (ii) Defendant had already begun revising the advertising at issue, (iii) Defendant was prepared to make purchasers of the product whole, and (iv) the parties were prepared to engage in reasonable and appropriate discovery necessary to resolve the case.
The Court denied the motion. Judge Alsup took issue not only with the limited discovery conducted to ascertain the viability of class claims at that point, but also with what he termed “the clever wording” of the motion, which “offered little of substance” in regards to remedies that would be on the table for the absent class members in any pre-certification settlement discussions. Id. at 5.
After the Ninth Circuit denied Defendant’s request for review, Defendant moved for reconsideration of the order prohibiting discussion of class-wide settlement issues, as well as the order denying appointment of interim class counsel. Specifically, Defendant asserted that Judge Alsup’s order prohibiting pre-certification class-wide settlement violated the parties’ First Amendment rights.
Judge Alsup denied Defendant’s motion. Specifically, Judge Alsup explained that his prohibition on any class-wide settlement discussions protects absent class members because (i) it prevents the imposition of overbroad releases on claims that cannot meet Rule 23 class certification standards; and (ii) it guards against settlements inappropriately discounted based on the risk that a claim will not be certified for class treatment. Citing scholarly commentaries, Judge Alsup opined that procedural hurdles should not require absent class members to accept a “lowball offer to salvage a class recovery.” Id. at 3.
Turning to Defendant’s free speech argument, Judge Alsup noted that his order was viewpoint neutral and simply regulated the time, place and manner of class-wide settlement discussions. Judge Alsup also emphasized that his order only restrained such discussions until counsel is authorized under Rule 23 to negotiate on behalf of a class; as a result, he explained that no permanent or overly broad ban exists. Additionally, even if a limited restriction existed, Judge Alsup concluded that the interests of the parties are “overwhelmingly outweighed” by the interest of the Court in implementing orderly case management and the interests of absent class members and their rights. Id. at 5-6. As a result, Judge Alsup noted that Defendant had no First Amendment right to obtain a class-wide release from an attorney with no authority to act for the class.
While such limitations on pre-certification settlement discussions are not currently widespread, parties seeking to resolve such disputes without engaging in costly class discovery may find themselves in a difficult situation if other courts adopt Judge Alsup’s approach. Given that the recent proposed amendments to Rule 23 did not adopt proposals to provide a different standard for settlement classes, parties may see vastly different approaches to class action settlements throughout the federal system.