Five Tips to Green Light Class Settlements

Bloomberg Law’s combination of innovative analytics, research tools and practical guidance provides you with everything you need to be a successful litigator.

By Perry Cooper

Pending changes to the federal rule governing class actions will ratchet up the scrutiny judges give class settlements during the first round of review.

The changes aren’t likely to go into effect until the end of 2018, but some attorneys say it’s a sound idea to create good habits now. Most of the changes are already the norm in California federal courts.

Looking to those California-based judges for guidance is a good way to better ensure that settlements in any federal court will get early approval, both now and in the future. It will also make everyone’s life easier when the time comes for final approval.

What’s Changing?

The current form of the class action rule, Federal Rule of Civil Procedure 23, doesn’t mention preliminary approval. And though the Manual for Complex Litigation codifies what has been the common early-round settlement approval practice of district courts, it does so, critics say, with overly general language that can sometimes lead to lax and ad hoc judicial scrutiny.

At preliminary approval, courts should ensure that settlements are practical and fair to everyone involved. Traditionally that hasn’t been an arduous standard—just “within the range of reasonableness,” plaintiffs’ attorney Daniel Hutchinson said recently at a webinar hosted by the public interest firm Impact Fund, based in Berkeley, Calif.

Judges were happy to move class actions along to clear their dockets, so they weren’t too hard on settlements at the preliminary stage, he said. Hutchinson is a partner in the San Francisco office of Lieff Cabraser Heimann & Bernstein LLP.

The Judicial Conference Committee on Rules of Practice and Procedure, made up of a wide variety of experienced attorneys, approved proposed changes to Rule 23 Sept. 12 that include, for the first time, criteria for preliminary settlement approval. The changes are on track to become effective Dec. 1, 2018, pending congressional and U.S. Supreme Court approval.

The revised Rule 23 will refer to preliminary approval as the “decision to give notice” of the settlement to all interested parties, Dena Sharp, of plaintiffs’ firm Girard Gibbs LLP in San Francisco, said at the webinar. “That’s calling it what it really is.”

“Good riddance” to the old rule, Sharp said. Its ad hoc nature didn’t provide any uniformity across courts. The new rule puts “more meat on the bone” to guide lawyers on what information to provide the court, she said.

The idea is to front-load the inquiry into a settlement so that judges will give more scrutiny at the start, not at final approval.

Codification of these changes “shouldn’t change much in the minds of conscientious practitioners,” Sharp said.

And defense attorney Kahn Scolnick says the changes will be good for both sides in the long term.

“We tend to begrudge scrutiny, but these concerns are rational from an economic perspective,” he said. Scolnick, a partner in the Los Angeles office of Gibson, Dunn & Crutcher LLP, spoke at a recent settlement webinar hosted by Strafford Publications.

Here are a few tips attorneys can take from these conscientious practitioners.

1. Take a Cue From California Courts

District court judges in California expect parties to follow the new guidelines already, Sharp said.

Hutchinson agreed, and said the U.S. District Court for the Northern District of California is especially ahead of the curve, and its judges have the most robust standards.

Judge William Alsup started, and regularly reinforces, the trend, Hutchinson said. He issues a standard notice at the outset of every class case that lists the factors he considers at preliminary approval.

Fellow N.D. Cal. judges Lucy Haeran Koh, Edward Milton Chen, Vince Girdhari Chhabria, and Phyllis Jean Hamilton are also focused on preliminary approval, he said. Each has issued strong denials of preliminary approval in cases that other courts might consider reasonable.

Chhabria, after first rejecting preliminary approval in a suit over whether Lyft drivers are employees, detailed his thoughts on the need for a more exacting standard in his opinion eventually approving the deal, Hutchinson said.

“The idea that district courts should conduct a more lax inquiry at the preliminary approval stage seems wrong,” Chhabria said. It’s not worth the expense of giving a settlement early approval if it won’t pass muster at final approval, he said.

Chhabria also took issue with the fact that the name implies the review is cursory. “‘Preliminary’ is just a label, not a rationale,” he said.

Defense attorney Alexis Shapiro agreed that the N.D. California rules are a good place to look for guidance. Judges everywhere are “getting a little quirky” in terms of preferred wording and terms, she said.

No matter where the case is pending—California or elsewhere—Shapiro advises attorneys to look at their particular judge’s rules, and other settlements the judge has approved, before drafting settlement documents. Shapiro, a partner in Goodwin Procter LLP’s Boston office, also spoke at the Strafford webinar.

2. Think About Optics

Plaintiffs’ attorney Sharp said sometimes losing on preliminary approval is a surprisingly positive turn of events. It puts the judge in the driver’s seat, and may result in more money for the class.

Hutchinson suggested attorneys think prospectively about how the judge will view the settlement in the end. Will the judge have concerns about expanding the release of claims beyond the original class definition or the amount of recovery?

“Be careful about how you present a case to the court and show how the sausage was made,” he said. It’s best to explain the key components of the deal and come clean about any weaknesses.

If the class wasn’t certified prior to settlement, the judge will use a more exacting standard on certification at preliminary approval, Hutchinson said.

3. Give Good Notice to Class

Attorneys should also look to the N.D. California’s guidance on notice when submitting a settlement for preliminary approval, Shapiro said.

Under those guidelines, notice must include contact information for class counsel, ways to get more information on the settlement, and clear notice of a final hearing date and the right to object.

The Federal Judicial Center provides model notices, she said. Notice must be written in plain English, avoiding lawyer terms. The FJC also provides guidance on methods of reaching class members, Shapiro said.

The new Rule 23 acknowledges for the first time that electronic notice is an option for distributing notice.

4. Match Release to Class Recovery

What releases class members make under the settlement—what the defendant gets out of the deal—are another factor courts scrutinize.

Make sure the class is defined in the complaint in a way that it could be approved at settlement, Hutchinson said.

Any differences in the claims in the complaint and the claims in the settlement could raise red flags for the judge, he said.

If the settlement expands the released claims beyond the claims in the complaint, the judge might wonder if the class had to make concessions to get the defendant to settle, he said.

An overly broad release may give the appearance that class counsel is willing to sell out the class for a larger fee for himself.

5. File Fee Request Early

Practices on when class counsel should file an attorneys’ fee request are evolving, Sharp said. Getting it out earlier in the process is better for all involved.The best practice is to file the fee request before the objection deadline, since fees are often the target of settlement objectors, she said.The only downside to filing a fee request at preliminary approval rather than final approval is “you have to get your act together,” Sharp said.The N.D. California encourages parties to include lodestar information, or how many hours each attorney worked at what rate, at preliminary approval, Hutchinson said.

If the settlement includes injunctive relief, class counsel should detail how the injunction is valued in relation to the fee request, Sharp said. Be prepared to explain the basis for the fee calculation.

And, finally, always be aware of the real risk of having the whole settlement thrown out if class counsel requests too much in fees, defense attorney Scolnick said, pointing to recent Seventh Circuit cases.

To contact the reporter on this story: Perry Cooper in Washington at

To contact the editor responsible for this story: Steven Patrick at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Litigation on Bloomberg Law