A few weeks ago, the Duke Law Center for Judicial Studies held a conference on class action settlements in San Diego, to discuss best practices in the wake of the likely Rule 23 amendments. Like all of its conferences, this one was held under the Chatham House Rule, which dictate that you can repeat the substance of anything said but not the identity of the speakers. The candor these rules foster is extraordinary, and lead to valuable discussions. So, with that in mind, here are the five most important things attendees took away from the conference.
- Plaintiff-oriented amendments. The real action at this conference surrounded the various amendments to Rule 23(e), which governs settlements. With a few exceptions noted by particular defense practitioners, it was generally conceded that negotiating and justifying settlements in accordance with Rule 23(e) is generally an issue for the plaintiffs. Plaintiffs, for example, are the ones who tend to write oppositions to objectors’ briefs. And plaintiffs are the ones who must provide information to the court at the preliminary hearing. This structural bias was reflected in the attendance: there were numerous judges and plaintiffs’ counsel, but comparatively few defense counsel outside of the panelists.
- Fees drive settlement structure. No matter what the structure developed to resolve a proposed class action, the driving force is almost always the attorneys’ fee. More specifically, the driving question is how to maximize the amount of the settlement that can be used to justify a fee award. This is why reverter settlements became unpopular, and it’s also why cy pres relief has been falling out of fashion. At least one remarked that the single most important factor in a settlement is the of the fee to the relief received by class. This is what objectors pay attention to, and this is what the press covers.
- Plaintiffs don’t like their fees to be tied to relief actually received. One might think realism about the fee/relief ratio would therefore dominate the discussion. Instead, while there were a few admirable exceptions (including several counsel who argued passionately that you can always find more ways to spend money on absent class members), most plaintiffs’ counsel argued just as passionately that their fees should be judged by the “opportunity for relief” made available to the class, regardless of how much money the class members actually wind up claiming or receiving. And others worried that increased transparency in settlement procedures would inevitably lead to reduced fees.
- No one likes objectors. Seriously, nobody likes objectors. All present paid the proper lip service to the distinction between “good” (or sometimes just pro se) objectors and “bad” (professional) ones, but the ire was there just the same. It was so great that even though there was a designated panel for the topic, it spilled out into at least one other panel on separate settlement reforms. One prominent plaintiffs’ counsel crystallized the resistance to objectors down to the fact that they wield “outsized leverage” because of the “threat of delay” — a point most counsel appeared to agree with. (It appears “quick pay” provisions have not caught on as widely as predicted.) But at least one plaintiffs’ attorney spoke up to question whether “principled” objectors are really all that good, if what they seek to do is “gum up the works” by objecting to large-fee settlements.
- Watch for deterrence-based arguments in the next few years. Given the difficulties posed by “good” objectors, and the need for settlement value that justifies plaintiffs’ fees, a number of plaintiffs’ counsel talked about how they have been increasingly talking about the “deterrent value” of their settlements. (Several judges also said they sometimes look to the deterrent value of a settlement when awarding fees.) Deterrence is, of course, a particularly squishy concept, with little hard empirical evidence to back it up. But it appears it will assume increasing importance in the next five to ten years as a replacement for reverter settlements, cy pres relief, and possibly prospective injunctive relief, too.
This is a necessary oversimplification of the conference, which covered a wide range of topics, and featured a remarkable diversity of views. But for those interested in actionable intelligence about where class actions are headed, the primary takeaways are clear: the fact that fees drive class settlements is not going away, and the debate over the deterrent value of class actions is only going to intensify.