Potential Changes to FRCP 23 | Practical Law

Potential Changes to FRCP 23 | Practical Law

In April 2015, the Rule 23 Subcommittee to the Federal Rules Advisory Committee issued a report outlining and explaining potential revisions to Federal Rule of Civil Procedure 23 governing class actions. This Legal Update summarizes some of the proposals including those addressing class action settlements, clarifying issue classes and allowing for notice by electronic means.

Potential Changes to FRCP 23

Practical Law Legal Update 3-609-9932 (Approx. 5 pages)

Potential Changes to FRCP 23

by Practical Law Litigation
Published on 28 Apr 2015 • USA (National/Federal)
In April 2015, the Rule 23 Subcommittee to the Federal Rules Advisory Committee issued a report outlining and explaining potential revisions to Federal Rule of Civil Procedure 23 governing class actions. This Legal Update summarizes some of the proposals including those addressing class action settlements, clarifying issue classes and allowing for notice by electronic means.
In April 2015, the Rule 23 Subcommittee to the Federal Rules Advisory Committee issued a report outlining and explaining potential revisions to Federal Rule of Civil Procedure (FRCP) 23 governing class actions (see Advisory Committee on Civil Rules, Rule 23 Subcommittee Report (Report), at 243-327). While the Subcommittee offered no assurances that it will ultimately recommend any amendments, it identified issues that warrant "serious examination." The Subcommittee intends to present possible draft amendments, if any, to the full Committee at its fall 2015 meeting. This Legal Update summarizes a few of the possible changes to FRCP 23 aimed at:
  • Settling class actions, including:
    • specifying settlement approval criteria to address the diverging factors circuit courts currently employ;
    • adopting an entirely new rule to clarify and ease the path to certification for settlement purposes;
    • providing criteria by which a court may approve a settlement that includes a cy pres provision; and
    • reining in objectors.
  • Issue classes, including:
    • resolving a circuit split related to issue classes and predominance; and
    • allowing for immediate appeal of issue class rulings.
  • Notifying class members of certification, including:
    • allowing for notice by electronic and other means; and
    • requiring reasonable notice in FRCP 23(b)(1) and (2) class actions.

Settlements

The potential rule revisions relate to several aspects of class action settlements. For more information about settling class actions under the current rules, see Practice Note, Settling Class Actions: Process and Procedure.

Settlement Approval Criteria

The Subcommittee addressed the somewhat diverging criteria that courts apply when determining whether to approve a class action settlement under FRCP 23(e). The proposal includes a list of factors that would be incorporated into the rule and supersede the list adopted by various circuits. These criteria include whether:
  • The class representatives and class counsel adequately represent the class.
  • The relief awarded to the class (taking into account any ancillary agreements) is fair, reasonable and adequate given the costs, risks, probability of success and delays of trial and appeal.
  • Class members are treated equitably (relative to each other) based on their facts and circumstances and are not disadvantaged by the settlement considered as a whole.
  • The settlement was negotiated at arm's length and was not the product of collusion.
The proposal also would allow courts to consider any other matter pertinent to approving the settlement and to refuse to approve it on that ground. (See Report at 246-52.)

Certification of Settlement Classes

The Subcommittee explored the possibility of adopting an entirely new rule, FRCP 23(b)(4), to address certifying a class for settlement purposes only, even if the same class would not necessarily be certified for ongoing litigation.
The Subcommittee proposed two "conceptual drafts" of language aimed at placing primary reliance on superiority, assuring fairness and removing emphasis on predominance of common questions when considering settlement certification. The underlying concept also is meant to address concerns that it is currently too difficult to obtain certification solely for purposes of settlement. The Report notes that this approach would modify the US Supreme Court's decision in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997). (See Report at 253-62.)

Cy Pres

Cy pres provisions in class action settlement agreements generally allow for leftover funds to be directed to charitable organizations. The Subcommittee noted that concern has been expressed "in several quarters" about the questionable use of cy pres provisions and the courts' role in approving these arrangements. As a result, a proposed revision to FRCP 23(e) would allow courts to approve settlements including a cy pres remedy by applying certain criteria to determine whether the remedy is appropriate, including:
  • Requiring settlement proceeds to be distributed directly to individual class members where they can be identified through reasonable effort and the distributions are sufficiently large to make individual distributions economically viable.
  • If individual distributions are not viable, a cy pres approach may be used if it directs payment to a recipient whose interests reasonably approximate those being pursued by the class. This subsection may include additional language that:
    • the court may presume that individual distributions are not viable for sums of less than $100; and
    • if no reasonably approximate recipient can be identified, the court may approve payment to another recipient if it would serve the public interest.
(Report at 263-71 (citing ALI Principles of Aggregate Litigation § 3.07); In re BankAmerica Co. Sec. Litig., 775 F.3d 1060 (8th Cir. 2015).)
For more information about cy pres provisions, see Practice Note, Settling Class Actions: Process and Procedure: Cy Pres Provisions in Settlement Agreements and Legal Update, Chief Justice Roberts Speaks to Cy Pres Remedies in a Challenge to Facebook's Class Action Settlement.

Objectors

FRCP 23(e)(5) allows class members to object to a proposed settlement. Although objectors play an important role in the settlement-approval process, the Subcommittee noted that "the behavior of some objectors has aroused considerable ire among class action practitioners." Several possible changes to FRCP 23(e)(5) are aimed at these concerns, including:
  • Revisions addressing the tactic of objecting to settlement approval orders to "extract tribute from the settling parties." These proposals include a reporting obligation requiring a party seeking to withdraw an objection to notify the court of any "side agreements" that influenced the decision to withdraw.
  • Language authorizing sanctions should the court determine that objections were unfounded.
(Report at 272-76.)
For more information about objecting to class action settlements, see Practice Note, Settling Class Actions: Process and Procedure: Objections to Class Action Settlements.

Issue Classes

A court may certify particular issues for class treatment within an action (FRCP 23(c)(4)). Where certification of certain issues is sought in an FRCP 23(b)(3) class action, which requires common questions to predominate, the courts take differing approaches about whether or not common issues must predominate the entire action or only the specific issue classes. As a result, the Subcommittee proposed potentially adding language to FRCP 23(b)(3) clarifying that predominance is not a prerequisite to FRCP 23(c)(4) issue class certification.
Moreover, given the importance of a decision resolving common issues under FRCP(c)(4), the Subcommittee thought it "desirable to offer an avenue of immediate review." A potential amendment to FRCP 23(f) would give courts of appeal immediate discretionary review of a decision regarding common issues, rather than only after final judgment.
(Report at 281-83.)
For more information about issue classes, see Practice Note, Class Actions: Certification: Certification of Specific Issues and Subclasses.

Notice

The Subcommittee also addressed altering FRCP 23(c)(2)'s notice requirement to make it operate more sensibly in light of the "reality of 21st century life." The Report describes the current practice of requiring mailed notice of class certification as "an anachronism." A potential rule amendment would allow for notice of class certification to be provided to class members by electronic or other means.
The Report also includes the "invitation" to further discuss the possibility of requiring reasonable notice in FRCP 23(b)(1) and (b)(2) class actions, for which notice is not currently mandated.
(Report at 284-86.)
For more information about providing notice in class actions, see Practice Note, Class Actions: Certification: Certification Notice.