The US Court of Appeals for the Ninth Circuit recently held that, under the circumstances before it, a putative class representative could appeal a denial of his motion to certify a class action for settlement purposes even though the plaintiff had voluntarily dismissed his personal claims against the defendant pursuant to a separate settlement agreement. Narouz v. Charter Commcn’s, LLC, No. 07-56005 (9th Cir. Jan. 15, 2010). The decision is significant because, at least in certain situations, it may allow lead plaintiffs to resurrect a putative class-action lawsuit that the defendant believed had been definitively concluded.
In Narouz, the plaintiff filed an individual wrongful-termination claim against defendant Charter Communications, along with a number of labor-law claims asserted on behalf of a putative class of Charter employees. After mediation proceedings, Narouz and Charter reached a proposed class settlement providing that Charter would pay the putative class $267,500, including attorneys’ fees.
The parties concluded a separate agreement under which Charter would pay Narouz $60,000 for release of his wrongful termination and related claims, “aside from those related to [his] class allegation[s].” That agreement provided for an additional payment to Narouz of $20,000 if the district court approved the proposed class settlement. Ultimately, the district court refused to certify the class for settlement purposes, concluding that the proposed class was not ascertainable under Rule 23.
Narouz filed a stipulation to dismiss his personal claims pursuant to his settlement agreement, and the district court terminated the case. Narouz then appealed the denial of class certification, and Charter argued that the voluntarily dismissal of all of Narouz’s own claims against the company rendered the issue of class certification moot.
A divided panel of the Ninth Circuit held that Narouz retained standing to pursue the appeal. The court noted that both the US Supreme Court and the Ninth Circuit had explicitly left this question open, but that the Supreme Court had previously held that a plaintiff whose live personal claim is involuntarily dismissed may nonetheless, under certain circumstances, “retain a ‘personal stake’ in obtaining class certification sufficient” to support standing.” U.S. Parole Comm’n v. Geraghty, 445 U.S. 388, 404 (1980).
The Ninth Circuit found that Narouz had not completely released all of his interests in the putative class action, and that he retained a sufficient “personal stake” for three reasons. First, the private settlement agreement, by its terms, contemplated payment in consideration for dismissal of Narouz’s claims “aside from those related to [his] class allegations.” Second, the private settlement agreement left Narouz with an interest in the $20,000 he was to receive if the class settlement was approved. Third, Narouz retained an interest in the disposition of attorneys’ fees in the proposed class settlement. Accordingly, the Ninth Circuit held that the question of class certification was not moot and, after finding that the district court erred by denying class certification without providing an adequate analysis of the Rule 23 factors, remanded for reconsideration.
In dissent, Judge Rymer proposed that a class representative who voluntarily dismisses his substantive claims should be deemed to have insufficient personal stake in a denial of class certification to appeal it, unless the settlement agreement expressly reserved some such right, or recognized an explicit interest in shifting litigation costs to the members of the putative class. In Judge Rymer’s view, the private settlement agreement between Narouz and Charter amounted to a comprehensive release, and did not discuss cost-spreading. Accordingly, and in light of the fact that no other member of the putative class had “stepped up to the plate” to maintain the action, Judge Rymer would have held the appeal moot for lack of controversy.
Narouz suggests a number of factors for a defendant to consider when contemplating or drafting a settlement agreement with a lead plaintiff in a putative class action (at least one pending within the Ninth Circuit) to ensure that the settlement achieves the finality sought by the parties.