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By Perry Cooper
March 3 — Possible upcoming changes to the federal rule governing class actions could help increase the availability of data about class settlements, a move for transparency that a handful of professors and others have been advocating for decades.
A growing number of judges have expressed concerns recently that some settlements may not be that good of a deal for absent class members and, instead, may be driven more by fees for class counsel.
Consequently, some judges have already started asking for data on how many class members actually file claims to receive financial and other benefits from the settlements before they grant final approval .
A group of professors and others who specialize in class actions is now trying to make this reporting of “take-up rates” standard practice.
They are urging the committee considering revisions to the rule governing class actions, Fed. R. Civ. P. 23, to require that parties file a report at the end of each case laying out the details of the settlement.
A leader in that effort, Brian Wolfman of Stanford Law School in Stanford, Calif., told Bloomberg BNA that the push is part of an effort he started back in the early 1990s to increase regulation of class action settlements.
“It's all part of holding the lawyers' feet to the fire,” he said. Wolfman spent nearly 20 years litigating on behalf of consumers with the public-interest firm Public Citizen.
One way to make sure all the settlement information in a given case is made available to both judges and to the public is to ensure that, once a deal is approved, data is reported and the lawyers don't just move onto another case, he said.
Even if the professors' proposal doesn't make it into the revised Rule 23 as a mandatory requirement, professor Alexandra D. Lahav said, just telling judges they can and should ask for the data could make such requests standard procedure.
Lahav, a civil procedure professor at the University of Connecticut School of Law in Hartford, Conn., also signed the letter to the Rule 23 subcommittee.
Class settlements are the most public form of settlement in our legal system, according to social scientist Nicholas M. Pace with the RAND Corp., a nonpartisan research organization based in Santa Monica, Calif.
“Unless you are talking about where the plaintiff is a minor or incompetent, this is the only time judges get involved in settlements,” Pace, who has studied class settlements extensively and also signed the letter, said recently. “We need to make this process as open and transparent as possible.”
Even class members don't get access to the settlement information, Lahav told Bloomberg BNA.
“We don't even know how many class actions there are,” she said.
The Federal Judicial Center, the research and education agency of the federal judicial system, has tried to estimate but it's a hard number to pin down.
The final numbers generated by a class settlement—such as total actual payout, how many members file claims and how much is paid in attorneys' fees—are important in an individual case because they can signal the need for further efforts to distribute left over funds to class members, Wolfman said.
But if it's not possible to collect that data in time to help the individuals in a particular case because the settlement has already won final approval, “you want to get the data just for the future for researchers, for politicians, for people who are interested in the process and want to improve it,” he said.
Plaintiffs' attorneys could use that information to tell them what kind of features—such as monetary damages, injunctive relief and payments to related charities—to ask for in settlement negotiations, he said.
“Even the very best plaintiffs’ lawyers are really operating in the dark in terms of what is it they can do that will maximize the plaintiffs’ recovery,” he said.
The Center for Civil Justice at the New York University School of Law in New York, under the guidance of Peter Zimroth, is in the early stages of building a prototype of a database to help fill the data gap.
The goal is to “allow judges to quickly and easily analyze claims data to help them with their increasing responsibility to oversee the quality and function of aggregate claims programs,” research director Linda Tvrdy told Bloomberg BNA.
Tvrdy didn't elaborate on when the database would be up and running or where the data will come from.
Wolfman said he realized after working on the plaintiffs' side of several class actions that this push for transparency “has to be institutionalized.”
In 2004, he wrote a model disclosure statute. He said he shopped it around Congress but quickly learned it wouldn't get much traction from legislators who were busy limiting class actions with the Class Action Fairness Act.
Enacted in 2006, CAFA allows defendants to remove more big-dollar class actions from state to federal court.
But when the rules committee announced in 2014 that it would consider revisions to Rule 23, Lahav had a similar idea to include a disclosure requirement in the rule.
The two joined forces to produce a seemingly straightforward proposal. It would require parties to file a public report with the court within two years of the resolution of a settlement.
The report would include, among other data points: the total monetary value of the settlement, the number of class members, how many sought relief, the amount each received and the amount distributed in attorneys' fees.
Requiring this kind of report isn't unheard of—CAFA already requires something similar for coupon settlements before attorneys' fees are paid out, Lahav said.
“So there's a precedent for doing something like this,” she said, referring to 28 U.S.C. § 1712(a).
It also isn't an onerous burden on the parties, Pace said.
“We’re not even telling them to say the judge will scuttle the settlement because they only came back with a 3 percent distribution rate,” he said. “We're just saying report it.”
Lahav says she hasn't received any signals from the Rule 23 subcommittee that the professors' proposed data rule change is getting any traction.
But a close reading of the notes accompanying the subcommittee's latest report from a January meeting suggests that the subcommittee may be giving some kind of proposal along these lines serious consideration.
The subcommittee, the notes say, is considering a proposal to require parties to “front-load” settlements by giving judges as much information as possible early in the approval process.
In the notes to this proposal, the subcommittee says, “The possibility that the parties will report back to the court on the take-up rate after notice to the class is completed is also often important.”
The notes also suggest deferring some or all of the attorneys' fee award determination for class counsel until after the court is advised of the actual take-up rate and results.
Although this proposal wouldn't mandate that parties report settlement data to the courts at the conclusion of every case, this suggestion may be enough to start a “movement to increase our knowledge of what is happening,” Lahav said.
If it becomes standard practice for judges to ask for the data, there won't be a need to enshrine the requirement in a rule, she said.
The rules committee's latest memo says it's on track to make recommendations on rule amendments to the full committee in June. That could lead to changes becoming effective by the end of 2018.
Wolfman, who's playing the long-game with his suggested rule change, as he has all along when it comes to his big data push, said, “2018—that's not that far away!”
But Pace cautioned that a federal rule will only address part of the problem. Even in the CAFA era, many smaller class actions remain in state court, he said.
States may follow the lead of the federal rules committee and adopt similar reporting requirements, but there's no way to force them to do so. Except maybe “transparency shaming” them into following suit, he joked.
In the end, transparency should improve the reputation of the class device, the advocates for more data said.
It's important to compensate class members to show that the class action mechanism actually works, Wolfman said. “That's part of the public relations/legal battle we're waging here.”
He argues that preventing abuse by shedding light on where exactly class settlement money goes strengthens and upholds the class action device.
“I’m not interested in harming the class action,” he said. “But even if it’s not abused terribly often, those examples are used by defendants, politicians and others to undermine the class action.”
Judges may not see themselves as information gatherers, but it's an important function of their jobs, Lahav said. “The public’s faith in the legitimacy of the courts depends on remedies not being hidden.”
Pace said it's a mistake that the focus of the class action system hasn't always been on ensuring that money gets into the hands of consumers.
“It has tainted the value of class actions, at least in the minds of many.”
“If increasing transparency pushes too many people’s angry hot buttons, then I wonder exactly what they are afraid of,” Pace said.
To contact the reporter on this story: Perry Cooper in Washington at firstname.lastname@example.org
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