Seyfarth Synopsis: In complex class actions, courts have looked to Rule 23 to authorize class actions either for trial, or for approval of a previously negotiated settlement. Now as thousands of public entities nationwide pursue financial relief from opiate manufacturers, distributors, and pharmacies, U.S. District Court Judge Daniel A. Polster has ordered into effect a third and “innovative” type of class action. In the litigation entitled In Re National Prescription Opiate Litigation, No. 1:17-MD-2804 (N.D. Ohio Sept. 11, 2019) the Court, over the objections of most of the state attorneys general in the U.S., has granted a “negotiation class certification” order allowing a nationwide class of public entities to negotiate potential settlement of the 2,000 pending lawsuits in this sweeping multidistrict litigation. For obvious reasons, the ruling of Judge Polster is well worth a read for any company involved in class action litigation.

Background

In 2017, federal lawsuits brought by public entities against the opiate industry for reimbursement of public funds used to address the opiate crisis were consolidated for pretrial purposes in a multidistrict litigation in the U.S. District Court for the Northern District of Ohio. In an opinion entered by Judge Daniel A. Polster this week in In Re National Prescription Opiate Litigation, No. 1:17-MD-2804 (N.D. Ohio Sept. 11, 2019), the Court observed that since “ the outset of this MDL, the Court has encouraged the parties to settle the case,” id. at ¶ 2, adding “[h]ere, a settlement is especially important as it would expedite relief to communities so they can better address this devastating national health crisis.” Id.

The stakes for crafting a path toward successful resolution could not be higher in In Re National Prescription Opiate Litigation, where bellwether trials are now scheduled for a sample of over 2,000 lawsuits involving 34,458 counties, cities, and other public entities nationwide on such claims against the opiate industry as violations of the Racketeer Influenced Corrupt Organizations Act and the Controlled Substances Act. Some defendants resisted potential settlements that did not assure them of a “global settlement” of all claims, and the Court and its Special Master, Professor Francis McGovern, recognized that “this situation required creative thinking.” Id.

The Special Master, the parties, and the experts “developed an innovative solution: a new form of class action entitled ‘negotiation class certification.’” Id. On June 14, 2019, some 51 cities and counties filed a motion for certification of a Rule 23(b)(3) negotiation class, drawing objections from State Attorneys General pursuing their own state court claims, and an order from the Court allowing Plaintiffs to re-brief their motion in light of the objections. Id. at 4.

On July 9, 2019, Plaintiffs filed an amended motion seeking certification of a Rule 23 “negotiation” class on behalf of a single nationwide class of all public entities listed on the Opioids Negotiation Class website, opioidsneotiationclass.com. Id. at 1, 16. Over the objection of 37 State Attorneys General and the Attorneys General for the District of Columbia and Guam, the motion was granted in part and the Court certified what it called “a negotiation class.” Id. at 1.

The Decision

Recognizing that since 1966 courts have certified two types of class actions under Rule 23 (class actions for trial on liability or damages and settlement class actions), the Court observed that “the text of Rule 23 does not dictate, nor therefore limit, the use to which the class action mechanism can be applied.” Id. at 8. The Court noted that the development of Rule 23 settlement class actions – where the settlement is reached in advance of certification – itself was not without its own detractors. Id. at 8-9.

Following this line of reasoning, the Court determined that neither Rule 23 nor the Due Process Clause of the U.S. Constitution prohibit a “negotiation class” certification, in which class members decide whether to opt out before knowing the size of the settlement. Id. at 9. This is so because the framework for the class approved by the Court has a multi-step process affording Rule 23 protections to class members and absent class members, including satisfying the requirements of class numerosity, commonality, typicality, adequacy of representation, and a showing of either a risk of multiple, inconsistent adjudications in the absence of a class, the appropriateness of injunctive or declaratory relief, or common questions of law of fact predominate over individual inquiries.

The multi-step process approved by the Court in the new “negotiation class” certification includes: (i) the allocation of a lump sum settlement and a plan for class members to vote on its reasonableness; (ii) a motion for class certification to consider the required showings for all class actions under Rule 23, as well as the proposed allocation and voting plan; (iii) a Court-authorized notice to the class and opt-out period; (iv) the lump sum settlement negotiations once the class size is set; and (v) preliminary judicial approval of the settlement, the filing of objections, the vote on the settlement, and final judicial approval of the plan, notice and settlement as equitable and sufficient. Id. at 5-7; 33-40.

Ostensibly “putting to rest” the concerns and objections of the State Attorneys General, the Court excluded from the negotiation class any negotiations on behalf of city and counties against their state governments. Id. at 40.

Implication For Employers:

This decision boldly goes where no court has ever gone before. If endorsed by other district court judges and appellate courts, the ruling may usher in a new framework for negotiating settlements in complex, multi-defendant class actions. Employers facing regional or nationwide wage and hour litigations in particular, in which joint employer and other multi-defendant claims are made, may add the novel approach of negotiation class certification to their toolkit of dispute resolution strategies. We will keep our readers apprised of developments in the emerging area.