In the United States, the class action is “an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only” (Wal-Mart Stores, Inc. v Dukes, 564 U.S. 338, 348 (2011)). Class or collective actions originally developed as procedural devices used to vindicate substantive rights established elsewhere in the law. The US Supreme Court has recognised forms of collective action for well over 150 years. Smith v Swormstedt, 57 U.S. 288, 302 (1853) stated that “where the parties interested are numerous, and the suit is for an object common to them all, some of the body may maintain a bill on behalf of themselves and of the others; and a bill may also be maintained against a portion of a numerous body of defendants, representing a common interest.”
Procedurally, variations of collective or representative actions were recognised in the federal equity rules 175 years ago (Federal Equity Rule 48, 42 U.S. lvi (1842)) and reiterated at the turn of the twentieth century (Federal Equity Rule 38, 333 S.Ct. xxix (1912)), although they did not make clear under what circumstances absent class members (those whose interests were being represented) would be bound by a judgment (Supreme Tribe of Ben Hur v Cauble, 255 U.S. 356 (1921).
First adopted in 1937, the Federal Rules of Civil Procedure eliminated the distinction between actions in equity from actions at law, creating one form of proceeding called a “civil action” (Fed. R. Civ. P. 2). That original version of the Federal Rules of Civil Procedure included Rule 23, which adopted some of former Equity Rule 38 and made the class action a procedural device available in all civil action pending in federal court. The 1966 amendments to Rule 23, however, created the basic framework for the bulk of today’s federal class action practice. (See 2.1 Collective Redress and Class Action Legislation). Since 1966, Rule 23 has been amended six times. Some amendments were intended to address technical or stylistic concerns while others have made more substantive changes.
Various states have also adopted class actions rules, generally modelled on the analogous federal rule. In addition, some federal statutes have their own collective action regimes which fall outside the scope of Rule 23. As discussed below, the enactment of the Class Action Fairness Act of 2005, Public Law 109-2, 119 Stat. 4 (2005), made changes to the procedures that apply to consideration of interstate class actions, resulting in the majority of such claims proceeding in federal court under Rule 23. As a result, this article focuses on US federal class and collective actions.
One original basis for allowing representative actions, at least in courts of equity, was a recognition that when the number of interested parties made joinder of them impracticable, the suit could not proceed at all regardless of the merits of the claim. In those instances, “[f]or convenience, therefore, and to prevent a failure of justice, a court of equity permits a portion of the parties in interest to represent the entire body, and the decree binds all of them the same as if all were before the court” (Swormstedt, 57 U.S. at 302). With respect to suits seeking monetary relief, “[t]he policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor” (Amchem Prod., Inc. v Windsor, 521 U.S. 591, 617 (1997) (quoting Mace v Van Ru Credit Corp., 109 F.3d 338, 344 (1997))).
In addition, class actions have historically been used in civil rights and employment litigation seeking to vindicate important rights in ways that individual litigation could not readily achieve. The 1966 amendments to Rule 23 were intended in part to help facilitate civil rights actions (Arthur R. Miller, Simplified Pleading, Meaningful Days in Court, and Trials on the Merits: Reflections on the Deformation of Federal Procedure, 88 N.Y.U. L. Rev. 286, 315 (2013)). Class actions also arguably fill a void in government enforcement, particularly in cases of governmental limited resources (Judith Resnik, Money Matters: Judicial Market Interventions Creating Subsidies and Awarding Fees and Costs in Individual and Aggregate Litigation, 148 U.Pa. L.Rev. 2119, 2144-47 (2000)). As Professor Miller stated, “[w]hen private class actions supplement or substitute for official regulation – as often occurs in the antitrust, consumer, and securities fields, for example – the effect can be to overcome the inefficiency and limitations inherent in governmental enforcement. In combination, the private attorney general concept and the class action serve to subsidise the much-needed private enforcement of public policies as well as to provide access and legal services to those whose economics or claim size deny them any possibility of legal recourse.” (Simplified Pleading,88 N.Y.U. L. Rev. at 316).
The original rules for class actions in courts of equity were drawn from English common law and the 1937 original version of Rule 23 was based to some extent on Federal Equity Rule 38 (1912). As noted at 1.1 History and Policy Drivers of the Legislative Regime, however, Rule 23 as significantly amended in 1966 based on 30 years of experience with the original equity-based version and the refinements since then have been driven largely in response to issues specific to the US experience.
There is no applicable information in this jurisdiction.
Most federal class actions are governed by Rule 23. Although Congress has passed legislative overlays to particular types of class actions (securities litigation, for example, and suits not implicating national interests) and to the relief available (coupon settlements, for example), the bulk of class actions in federal court proceed under Rule 23. Federal law also recognises another type of collective action for certain employment claims.
Rule 23-Based Class Actions
Rule 23(a) requires a party seeking to sue in a representative capacity to establish four initial requirements:
The inability to meet any one of these is alone fatal to a class claim.
When Rule 23(a) is satisfied, Rule 23(b) recognises three distinct situations where a class claim may be maintained.
As a practical matter, suits seeking primarily monetary relief fall under Rule 23(b)(3) with its “predominance” and “superiority” requirements.
Certain types of Rule 23 class actions have legislative overlays as well. For example, Congress has passed two major statutes directed specifically to securities class action litigation: the Private Securities Litigation Reform Act, 109 Stat. 737 (1995) (“PSLRA”) and the Securities Litigation Uniform Standards Act, 112 Stat. 3227 (“SLUSA”). More broadly, it has passed legislation dealing with class action litigation generally such as the Class Action Fairness Act, 119 Stat. 4 (2005) (“CAFA”), which attempted to ensure that class actions of national significance were heard in federal court rather than state court.
Collective Actions under the Fair Labor Standards Act
In the context of certain employment claims, however, the Fair Labor Standards Act, 29 U.S.C. § 201et seq(1938, as amended) (“FLSA”) allows for a form of collective action that permits employees to pursue claims for violation of that statute on their own behalf as well as on behalf of others “similarly situated” (29 U.S.C. § 216(b). The US Supreme Court has held that “Rule 23 actions are fundamentally different from collective actions under the FLSA […]” (Genesis Healthcare Corp. v Symczyk, 569 U.S. 66, 74 (2013)), and different procedural rules apply to those claims. Likewise, actions under the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq (“ADEA”) and the Equal Pay Act, 29 U.S.C. § 206(d)(1) (“EPA”), proceed under the same sort of collective action regime recognised in FLSA claims. Most courts have held that such claims may be combined with Rule 23 class actions seeking relief under other statutes.
Rule 23 is a rule of procedure – it was not intended to create substantive rights or obligations independent of the class context. As a result, most claims which otherwise meet that Rule’s requirements may be maintained as a class action. And because the Federal Rules of Civil Procedure governs all civil actions pending in federal courts, Rule 23 generally applies to most class actions whether based on state or federal law (with limited exceptions such as FLSA claims). This may be true even when the underlying state law precludes class or collective actions.
For example, New York law prohibits class actions in suit seeking penalties or statutory minimum damages, N.Y. Civ. Prac. Law Ann. § 901 (West 2006). In Shady Grove Orthopedic Assocs., P.A. v Allstate Ins. Co., 559 U.S. 393 (2010), plaintiff filed a class action in federal court seeking what amounted to a penalty on its own behalf as well as others. A heavily fractured Supreme Court ultimately concluded that because the case was pending in federal court, Rule 23 controlled rather than the New York statute. Since Shady Grove was decided, however, lower courts have split on whether, for example, class action bars in state consumer protection statutes apply to cases pending in federal court notwithstanding Rule 23. See Reynolds v FCA US LLC, No 19-11745, 2021 WL 2682794, at *14 (E.D. Mich. 30 June 2021) for a discussion of the different approaches courts have taken.
To be sure, many claims for monetary damages do not well lend themselves to class treatment such as personal injury claims or claims involving other individualised issues, but that is because they do not meet the requirements of Rule 23. On the other hand, other types of claims are regularly pursued as class litigation including securities claims, antitrust claims, consumer claims, and suits seeking statutory damages or penalties.
28 U.S.C. § 1332(d)(1)(B) defines a class action to mean “any civil action filed under Rule 23 of the Federal Rules of Civil Procedure or similar state statute or rule of judicial procedure authorising an action to be brought by one or more representative persons as a class action.” Under some circumstances, “mass actions” brought by 100 or more persons seeking monetary relief and whose claims" are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact” are considered class actions for purposes of determining federal court jurisdiction under 28 U.S.C. § 1332(d)(11)(B)(ii)(I). Once in federal court, Rule 23 itself sets forth the criteria as to what constitutes a maintainable class action in federal court. See 2.1 Collective Redress and Class Action Legislation.
Collective actions under the penalty mechanism of the FLSA, 29 U.S.C. § 216(b) are actions brought by an employee on behalf of the employee and other employees “similarly situated.” Most federal appellate courts have held this is a lower standard than required under Rule 23. Congress’s goal in allowing collective actions under § 216(b) was “the advantage of lower individual costs to vindicate rights by the pooling of resources” (Scott v Chipotle Mexican Grill, Inc., 954 F.3d 502, 515–16 (2d Cir. 2020) (quoting Hoffmann-La Roche Inc. v Sperling, 493 U.S. 165, 170 (1989)). This results in the “efficient resolution in one proceeding of common issues of law and fact arising from the same alleged” violation (Id). In practice, the “similarly situated” inquiry is fact-based involving a comparison of the plaintiff’s circumstances with those who would be permitted to join the collective action.
Generally speaking, federal courts have subject-matter jurisdiction over two types of civil actions. First, 28 U.S.C. § 1331 gives federal courts jurisdiction over cases arising under federal law (“federal question” jurisdiction). Second, 28 U.S.C. § 1332 gives federal courts jurisdiction over some civil actions brought under state law (that is laws enacted by state governments creating rights or obligations) when they involve citizens of different states (so-called “diversity” jurisdiction).
State courts may hear claims arising under state law (either their own or of some other state). In addition, the USA is a federal system and because of the relation between the States and the federal government, state courts and federal courts have, with limited exceptions, concurrent jurisdiction over claims based on federal law. As the court stated in Gulf Offshore Co. v Mobil Oil Corp., 453 U.S. 473, 477–78 (1981), “state courts may assume subject-matter jurisdiction over a federal cause of action absent provision by Congress to the contrary or disabling incompatibility between the federal claim and state-court adjudication.” This means that a suit alleging a violation of a federal statute, even one proceeding as a class action, may be brought in a state court, which may have different procedures for such cases than a federal court proceeding under Rule 23.
Class Actions May Be Filed in State or Federal Court
As noted, when the underlying claim is based on federal law, a class action may often be brought in either state or federal court, although some types of class action litigation – such as certain federal securities fraud claims – may only be brought in federal court. When the underlying class claim is based on state substantive law, however, federal court must have “diversity jurisdiction,” which in the case of a class action means that at least one defendant has state citizenship that differs from at least one member of the class and the “amount-in-controversy” exceeds USD5 million, 28 U.S.C. § 1332(d)(2). In that case, the case may generally be brought in either state or federal court unless the claim involves truly local issues.
Some Class Actions Brought in State Court May Be Removed to Federal Court
US law allows for most claims otherwise meeting the requirements for federal question or diversity jurisdiction to be transferred from state court to federal court upon the request of a defendant. This process, called “removal,” applies to the bulk of claims that could have been brought in federal court in the first instance (28 U.S.C. § 1441(a)), although there are some exceptions as noted by the Supreme Court in Breuer v Jim's Concrete of Brevard, Inc., 538 U.S. 691, 696-97 (2003). When the underlying state court suit is a class action, it is also removable under 28 U.S.C. § 1453. A class action defendant seeking to remove a case filed in state court to federal court must comply with the procedures found in 28 U.S.C. § 1446.
A plaintiff can seek to have the case sent back to state court, a process called “remand.” Remand motions can be based on a variety of grounds ranging from failure to comply with the procedural requirements for removal to substantive grounds such as the federal court does not have subject-matter jurisdiction. While orders remanding a case to state court are generally unappealable (28 U.S.C. § 1447(d)), Congress carved out a discretionary exception for class action removals (28 U.S.C. § 1453(c)), which allows but does not require an appellate court to review remand orders.
Please note that the Supreme Court in Home Depot U.S.A., Inc. v Jackson, 139 S.Ct. 1743 (2019), held that a party sued by way of a counterclaim or third-party claim (that is, a claim for relief asserted by the original defendant against the original plaintiff or against a new party which arises out of the same transaction or occurrence giving rise to the suit in the first place), could not remove an action which could have been removed if the claim was brought in an independent action (ie, where the original defendant files a separate case against the original plaintiff). This situation arises, for example, when a corporation institutes a low-dollar collection action against an individual defendant. That individual, alleging that the plaintiff-corporation engaged in widespread violations of state law, counterclaims and seeks relief not only individually but on behalf of a class. These types of cases will proceed in state court and subject to that state’s class action laws.
Rule 23 Class Actions
A putative class action begins with the filing of a complaint seeking relief on behalf of the named plaintiff and a proposed class. Whether such a case is initially filed in federal court or removed from state court to federal court, it will proceed subject to the requirements of Rule 23. The critical decision in Rule 23 class action litigation is the certification decision where the court determines whether those requirements are satisfied. The stages prior to the certification decision can vary significantly, but the certification decision is typically prompted by a motion filed by the named plaintiff(s) asking the court to find that those requirements have been met and, when a certification is sought under Rule 23(b)(3), that the court direct that notice issue in order to allow absent class members the opportunity to opt out (see 4.3 Standing and 4.4 Class Members, Size and Mechanism (Opt In/Out)).
In deciding that motion, the court will, as it deems necessary, hold a hearing and decide any contested factual issues (although the certification hearing is not a “minitrial on the merits of the class or individual claims.” David F. Herr, Manual for Complex Litigation (4th) (2005) § 21.21 at 302. The court will then enter an order granting or denying the motion. When a class is certified, the court’s order will define the class and the class claims, appoint one or more class representatives, appoint class counsel, and direct the form of notice which should be issued to class members (seeRule 23(c)(1)). In the case of Rule 23(b)(3) classes, the “court must direct to class members the best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort" (seeRule 23(c)(2)).
The certification decision is widely recognised as perhaps the single most important decision in class actions. A certified class often subjects the defendant to overwhelming pressure to settle while a decision not to certify often ends the case. Despite this, that interlocutory decision is not subject to automatic appellate review. Instead, Rule 23(f) provides for a discretionary appellate process, stating that a “court of appeals may permit an appeal from an order granting or denying class certification under this rule.” A non-governmental party seeking an appeal from a class certification decision must file a petition for permission to appeal within 14 days after the certification order is entered. The appellate court need not grant permission, in which case the only appellate challenge to an order granting certification would come after final judgment is entered, a risky proposition for any defendant.
Collection Actions under the FLSA
While a collective action under the FLSA begins when an employee files a complaint on behalf of the employee and other similarly situated employees (29 U.S.C. 216(b)), it does not “commence” for statute of limitations purposes until the named plaintiff consents in writing to become a party plaintiff (29 U.S.C. § 256).
Although there is some dispute as to the proper procedure to follow in such actions, typically the court will determine whether the named plaintiff has sufficiently shown that other employees are similarly situated. Upon that determination, the court will “conditionally certify” a class, even though (i) that process is not mentioned anywhere in the statute, and (ii) most do not use the rubric of Rule 23 since collective actions under § 216(b) are not Rule 23 class actions. After this conditional certification, notice is sent to the similarly situated employees who can then file written consents to become party plaintiffs in the action. Once the deadline for joinder passes, the case will proceed with all employees who joined as plaintiffs.
Standing in federal court is constrained by Article III of the US Constitution which limits federal jurisdiction to “cases” or “controversies.” Broadly speaking, that means a plaintiff in federal court must show that he or she is “under threat of suffering ‘injury in fact’ that is concrete and particularised; the threat must be actual and imminent, not conjectural or hypothetical; it must be fairly traceable to the challenged action of the defendant; and it must be likely that a favorable judicial decision will prevent or redress the injury" (Friends of Earth, Inc. v Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 180–81 (2000)). Even where a defendant engages in conduct that violates a statutory provision providing for a penalty, a plaintiff seeking monetary relief for that violation must meet the “injury-in-fact” requirement (Spokeo, Inc. v Robins, 578 U.S. 330, 136 S.Ct. 1540, 1547–48 (2016)). A “plaintiff ’s standing to seek injunctive relief does not necessarily mean that the plaintiff has standing to seek retrospective damages” (TransUnion LLC v Ramirez, 141 S. Ct. 2190, 2210 (2021)). Every class member must individually have Article III standing to seek monetary relief in federal court (Id at 2208). The Supreme Court has not decided at what point in a class proceeding individual standing of absent class members must be shown.
As Justice Thomas noted in his dissent in TransUnion, Article III is a limitation on the power of a federal court, not on state courts, which are free to determine their own standing requirements (Id, 141 S.Ct. at 2224 (Thomas, J. dissenting) (quoting, ASARCO Inc. v Kadish, 490 U.S. 605, 617 (1989)). This means that actions seeking monetary relief for class members who lack Article III standing may be able to proceed in the courts of some states, even when the under rights at issue are based on federal law, as discussed in Thomas Bennett, The Paradox of Exclusive State-Court Jurisdiction Over Federal Claims, 105 Minn. L. Rev. 1211 (2021).
Determining Members of the Class
At the outset, the plaintiff proposes the parametres for inclusion in the class. Typically called the “class definition, it should identify the “persons (1) entitled to relief, (2) bound by a final judgment, and (3) entitled to notice in a Rule 23(b)(3) action. The definition must be precise, objective, and ascertainable” (Barbara J. Rothstein & Thomas E. Willging, Managing Class Action Litigation: A Pocket Guide for Judges (3rd Edition) 9-10, Federal Judicial Center (2010)). The trial judge has the discretion to accept, reject, or modify the class definition and the class as defined must meet all the requirements of Rule 23(a) as well as one of the requirements of Rule 23(b).
Limits on Class Size
The numerosity provision of Rule 23(a) simply requires that the number of class members be “so numerous that joinder of all members is impracticable.” There is no fixed upper bound and instead the court will evaluate the suitability of the class action device based the other considerations of Rule 23. Likewise, the rule also does not set a minimum number making the touchstone the impracticability of joinder of all class members. The Supreme Court in General Telephone Company of the Northwest, Inc. v Equal Opportunity Employment Commission, 446 U.S. 318, 330 (1980), noted a number of cases denying certification of classes with between 18 and 37 members. One leading class action commentator has stated that, “a class that encompasses fewer than 20 members will likely not be certified absent other indications of impracticability of joinder, while a class of 40 or more members raises a presumption of impracticability of joinder based on numbers alone” (William B. Rubenstein, 1 Newberg on Class Actions § 3:12 (5th edition June 2021 Update)).
When monetary damages are sought in a Rule 23 class action, the party seeking class treatment must show that questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy (Fed. R. Civ. P. 23(b)(3)). Class actions proceeding under this provision must provide absent class members the opportunity to opt out. A court in an action seeking relief under Rules 23(b)(1) or 23(b)(2) is not required to provide an “opportunity for (b)(1) or (b)(2) class members to opt out” and those two subdivisions do not “even oblige the District Court to afford them notice of the action” (Wal-Mart Stores, Inc. v Dukes, 564 U.S. 338, 362 (2011)). A collective action under the FLSA, on the other hand, requires an affirmative joinder by putative class members, who then become plaintiffs, as discussed in 4.5 Joinder.
Joining a Rule 23 Class Action as a Named Plaintiff
Because of the requirement that a class representative (ie, the named plaintiff) must fairly and adequately protect the interest of the class (Federal Rule of Civil Procedure 23(a)(4)) and because class counsel is supposed to represent the class itself (Federal Rule of Civil Procedure 23(g)(4)), there should theoretically be little reason for additional plaintiffs to join as parties to an existing class action. Nonetheless, Rules 23(d)(1)(B)(iii) and 23(d)(1)(C) both recognise the possibility of intervenors, and two circumstances typically exist where parties seek to join Rule 23 actions as named plaintiffs.
The first is when there are multiple class actions pending in federal court arising out of the same operative set of facts. On occasion, those cases are consolidated for pretrial purposes under 28 U.S.C. § 1407 (the “MDL” statute) such as in In Re Johnson & Johnson Aerosol Sunscreen Marketing, Sales Practices and Products Liability Litigation, MDL No 3015 (October 8, 2021). There, the Judicial Panel on Multidistrict Litigation ("JPML") consolidated eight pending consumer class actions for pretrial purposes. After consolidation, the JPML may continue to transfer other related class actions to the MDL proceeding and it is not unheard of for the various named plaintiffs in those various class actions to join forces to file one consolidated complaint.
In other cases, a person may contend that the named plaintiff cannot adequately represent the proposed intervenor (and often a sub-class of similarly situated people). Standard Fire Ins. Co. v Knowles, 568 U.S. 588, 594, (2013) quoted 5 A. Conte & H. Newberg, Class Actions § 16:7, p. 154 (4th edition 2002) for the proposition that “members of a class have a right to intervene if their interests are not adequately represented by existing parties.” The court will consider a motion to intervene under Rule 24, which sets the standards for intervention in federal court. That rule requires a “timely” motion, which is not defined but generally requires that a party alleging inadequate representation act promptly to address the concerns. Since putative class members will often not learn of the case until notice is sent after certification, the notice can often serve as the trigger to a potential intervenor to investigate the adequacy of the existing representative vis-à-vis the intervenor’s interests.
Joinder in Collective Actions under the FLSA
In collective actions under the penalty mechanism of the FLSA, 29 U.S.C. § 216(b), “[n]o employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.” An employee who does not join the action by filing such a consent is not a party and therefore neither bound by any resulting judgment nor entitled to share in any recovery. Even an employee who initiates an action under that section on behalf of the employee and all other employees similarly situated must separately consent to be a plaintiff in order to stop the running of the statute of limitations on the own claims asserted, even their own (29 U.S.C. § 256(a); Roby v Lincoln Elec. Co., 2021 WL 1406741, at *3 (N.D. Ohio April 14, 2021)).
Regardless of the type of aggregate proceeding, federal courts have wide discretion in managing a case from filing to post-trial determinations. The federal rules recognise the power of the trial court to shape the scope of the proceedings from determining the timetable for the case, the order in which different phases of the case will proceed, the manner in which the certification hearing will be conducted, and the nature of the trial. Rule 23(d)(1) specifically states that the court may issue orders that “determine the course of proceedings or prescribe measures to prevent undue repetition or complication in presenting evidence and argument.”
A court cannot approve the settlement of a proposed or certified class action without holding a hearing and must make specific findings (Rule 23(e)(2)). That hearing may take place only after the court has first determined whether to issue notice of the proposed settlement to the class. That notice must issue in a reasonable manner if the parties show that the court will be able to approve of the settlement at the hearing and certify the class for judgment (Rule 23(e)(1)(A)–(B)).
Under Rule 23(e)(2), approval following the hearing must be based on a finding that the proposed settlement is “fair, reasonable, and adequate,” taking into account:
In addition, the proposed settlement must treat class members equitably relative to each other (Rule 23(2)(D)).
Class members must be allowed to object to any proposed settlement and, in the case of a class proposed to be certified under Rule 23(b)(3), an opportunity to opt out. Even when settlement is proposed for a previously certified class, the court may order that class members be given another opportunity to opt out.
Although the Federal Rules of Civil Procedure set certain deadlines, there is no timetable specific to handling class actions from start to finish and some can take well over a decade. Indeed, the Securities Class Action Clearinghouse at the Stanford Law School maintains a list of the longest-running securities class actions and the longest tops out at over 16 years (https://securities.stanford.edu/top-ten.html) (last visited 15 November 2021). Rule 23(c)(1)(A) simply provides that the court must determine whether to certify a class at “an early practicable time after a person sues or is sued as a class representative.”
Although the Manual for Complex Litigation and other federal publications encourage significant involvement by the court in managing class actions (in light of the responsibility on the court to independently ensure that absent class members are protected), ultimately the rules for scheduling federal class actions are based on the general Federal Rules of Civil Procedure.
Rule 26(d)(2) provides that orders issued under Rule 23(d)(1) (governing the course of proceedings) “may be altered or amended from time to time and may be combined with an order under Rule 16.” Rules 16 and 26(f) outline the parties’ responsibility to meet and attempt to agree on a plan for the case. Their plan must be approved by the court, which ultimately must issue a scheduling order that complies with Rule 16(b)(3). Rule 16(b)(2) sets a deadline for issuance of the scheduling order although that deadline may be extended when the court finds “good cause” for delay. Upon entry, the scheduling order will control the remainder of the case unless amended (Rule 16(d)).
Scheduling orders are not final and can be amended by the judge at any time. With limited exceptions dealing with post-trial motions, Rule 6(b)(1)(A) provides that the court may alter timeframes upon a determination that “good cause” exists and that it may do so prior to the expiration of the applicable deadline(s) “with or without motion or notice if the court acts, of if a request is made […].” Even when a deadline has expired, the court may still extend it upon a find of “excusable neglect” by the party subject to the deadline (Federal Rule of Civil Procedure 6(b)(1)(B)). In addition, Rule 29(b) permits parties to extend some interim discovery deadlines by stipulation unless “it would interfere with the time set for completing discovery, for hearing a motion, or for trial,” in which case court approval is required.
The so-called “American Rule” provides that absent statutory authorisation or other special circumstances, each party bears its own litigation fees and expenses. Generally, class actions are funded by class counsel who bring the case on a contingent fee basis and advance all expenses. Rule 23(g)(1)(A)(iv) specifically directs the court to consider the “resources counsel will commit to representing the class” in determining who to appoint as class counsel. This includes not only the fees and expenses incurred in prosecuting the case, but usually also includes the costs of notice in the case of a certified class. Most courts award fees and expenses based on a “common fund” approach by taking them out of the overall class recovery (whether by settlement or judgment), subject to the requirement that such fees and expenses be “reasonable.” The court must make factual findings and state its legal conclusions for any award (Rule 23(h)(4)).
A relatively recent development is the emergence of third-party litigation funders, who fund the litigation expenses – typically to class counsel – on a non-recourse basis in exchange for a share of any recovery. There is some argument that Rule 23(g)(1)(A)(iv) should require the court to inquire into any financial arrangement with proposed class counsel. New Jersey federal courts have adopted Local Rule 7.1.1 requiring the disclosure of any third-party litigation funders in any type of case. As discussed at 5.2 Legislative Reform, Congress is currently considering whether to enact legislation requiring disclosure of any third-party litigation funding in class actions (H.R. 2025 and S. 840, 117th Congress, 1st Session (2021)).
Discovery – Pre-trial and Trial Disclosures
The Federal Rules of Civil Procedure contain a number of provisions related to pre-trial discovery, along with requiring certain types of pre-trial and trial disclosures. All of these are, of course, subject to modification by the trial court as part of its case management authority. The rules also contain specific provisions regarding discovery of electronically stored information (ESI), and many local rules also have specific ESI provisions.
In a typical case, the plaintiffs will seek information from the defendant and others needed both to establish that all requirements of Rule 23 are met (so that they can get the class certified) and on the merits of the class’s claims. Defendants, on the other hand, will seek evidence showing that Rule 23’s requirements cannot be met (such as a showing that individual issues would predominate over class issues where monetary damages are sought) or that the claims fail on the merits. US discovery includes exchange of written questions and documents, as well as deposition testimony of individuals and corporate representatives. In addition, each side is required to disclose certain information about their experts and to make those experts available for a deposition.
Prior to trial, parties are required to disclose the witnesses they expect to call, as well as identifying the exhibits they expect to introduce into evidence. A case management order may also set other case-specific requirements or procedures.
US privilege law varies among the states and even in federal court, those variations can impact the privilege analysis. Federal Rule of Evidence 501 provides that, “[t]he common law — as interpreted by United States courts in the light of reason and experience — governs a claim of privilege unless any of the following provides otherwise: the United States Constitution; a federal statute; or rules prescribed by the Supreme Court.” It further states that, “in a civil case, state law governs privilege regarding a claim or defense for which state law supplies the rule of decision.” This latter proviso means that when an alleged violation of state law forms the basis for a class action, that state law will control the privilege question. Federal Rule of Evidence 502, however, places limits on when a disclosure operates as a waiver of the attorney-client privilege regardless of contrary state law.
The Federal Rules of Civil Procedure also contain specific provisions regarding privilege including protections for documents prepared in anticipation of litigation (so-called “work product”). It also describes the procedure for identifying and claiming privilege or protecting work product from disclosure (Federal Rule of Civil Procedure 26(b)(5)(A)(1)) – typically done with a privilege log – as well as remedying inadvertent disclosure of protected material (Rule 26(b)(5)(A)(2)). In 2021, the Advisory Committee on Civil Rules of the Judicial Conference of the United States invited public comment on a proposed amendment to the privilege log requirements of Rule 26(b)(5)(A)(1) but has not yet taken final action on that potential amendment.
A class action can seek non-monetary relief in the form of an injunction or a declaratory judgment. Likewise, when monetary damages are determinable on a class-wide basis (such as in the case of a uniformly applicable statutory penalty) or are otherwise readily determinable, then monetary relief may also available.
The bulk of class actions settle; very few proceed to trial. Many courts take an active role in settlement, often by encouraging or ordering settlement conferences between the parties. The federal rules are rife with suggestions for the parties to consider resolution. Indeed, with respect to class actions, the authors of the Federal Judicial Center’s Managing Class Action Litigation: A Pocket Guide for Judges (3rd Edition) 9 suggest to trial judges “[t]he most important actions you can take to promote settlement are to rule on dispositive motions and then, if necessary, rule on class certification.” Those authors further instruct federal trial judges that parties “frequently agree to settle class actions before a judge has decided that a class can be certified under Rule 23” (Id at 23). The theory is that the uncertainty of whether a class will be certified provides more room for the parties to negotiate than is the case if the class is certified. In addition, most class action settlements shift the cost of providing any required notice to the putative class members to the defendant (directly or indirectly), which provides an additional incentive for a pre-certification settlement.
Rule 23(e) was amended in 2018 to specifically recognise that many settlements occur prior to a ruling on the certification motion. The Advisory Committee Notes for that change state that “the standards for certification differ for settlement and litigation purposes.” Because of the representative nature of class actions and the binding effect on class members, the trial court must still approve the settlement and make the requisite findings under Rule 23, even in the face of a joint motion for approval.
In cases where the class members and the defendant are parties to an existing contract containing a valid arbitration provision, the Federal Arbitration Act requires that the parties be ordered into arbitration, which may on occasion occur on a class-wide basis. If the arbitration provision precludes class relief, then the arbitration can only proceed on an individual basis with each claimant having to file their own claim (AT&T Mobility, LLC v Concepcion, 563 U.S. 333 (2011)). Even if the arbitration agreement is silent on class-wide arbitration, (Stolt-Nielsen S.A. v AnimalFeeds Int'l Corp., 559 U.S. 662 (2010)), or ambiguous to its availability (Lamps Plus, Inc. v Varela, 139 S.Ct. 1407 (2019)), a court still cannot order class-wide arbitration.
Judgments entered in a certified class action bind every member of the class and the defendant(s). Class members who exercise an opt-out right (such as in Rule 23(b)(3) class actions) are not bound and may proceed with their own claims regardless of the outcome of the class proceeding. Similarly, plaintiffs who elect not to join an action brought under the FLSA collective action statute (28 U.S.C. § 216(b)), are also free to pursue their own claims. In both circumstances, however, the claims must be pursued within the applicable statute of limitations.
The Judicial Conference of the United States, the principal policy-making body of the US courts, is empowered to have a standing committee on the rules of practice, procedure and evidence (28 U.S.C. § 2073). That standing committee has advisory committees which consider proposals for rule amendments. The process typically takes two to three years from proposal to adoption. At this time, the standing committee has published several proposed amendments to the Rules of Civil Procedure, but none involve Rule 23.
In addition, parties must submit suggestions for proposed rule changes to the relevant advisory committee. In the case of the proposal to alter the privilege log procedure found in Rule 26(b)(5)(A) discussed in 4.10 Disclosure and Privilege, the Advisory Committee received a suggestion for rulemaking from the Lawyers for Civil Justice and ultimately decided to request public comment on the suggestion before making a recommendation as to whether the rules should be amended.
Other legislative and policy developments are discussed in 5.2 Legislative Reform.
As previously discussed, there are two main sources of federal class action law: the Federal Rules of Civil Procedure as promulgated by the US Supreme Court pursuant to the Rules Enabling Act of 1934 (28 U.S.C. § 2072), which permits the Supreme Court to promulgate rules of civil procedure so long as the rules do not abridge a substantive right. There are also legislative enactments which impact class or collective actions directly (such as the FLSA collective action legislation) or indirectly (such as CAFA or the SLUSA). Congress can also directly create or amend the federal procedural rules.
Potential Amendments to Rule 23 through the Judicial Conference of the United States
The most recent amendments to Rule 23 became effective on 1 December 2018. At this point, there are no pending amendments to Rule 23, nor are there any proposed amendments to Rule 23 in the current proposed amendments to the Federal Rules of Civil Procedure. As it typically takes three years from consideration of potential rule changes to any rule becoming effective, there are not currently any anticipated changes from the promulgation route.
Potential Legislative Action
There is one bill currently pending in the US House of Representatives, H.R. 41, 117th Congress, 1st Session (2021), which would amend Rule 23(a) to preclude claims alleging “the misclassification of employees as independent contractors” from being maintained as class actions. The stated purpose of this piece of legislation is “to protect the ‘gig economy’ and small businesses that operate in large part through contractor services from the threat of costly class action litigation […].” That bill remains in committee and does not appear likely to become law in 2021.
In addition, a number of bills were introduced in 2021 which could affect class action litigation including H.R. 3947, 117th Congress, 1st Session (2021), which would prohibit clauses limiting class action lawsuits in health insurance contracts; H.R. 2751 and S. 1334, 117th Congress, 1st Session (2021), which would explicitly permit so-called “medical monitoring” class actions by persons significantly exposed to PFAS and setting standards for the determination of significant exposure on a class-wide basis; H.R. 2025 and S. 840, 117th Congress, 1st Session (2021) would require class counsel to disclose to the court and all named parties the identifies of third-party litigation funders who are entitled to payment contingent on a monetary recovery in the class action and produce any agreements creating that entitlement; and H.R. 963, 117th Congress, 1st Session (2021) which would prohibit enforcement of arbitration provisions involving certain types of antitrust, employment, consumer, or civil rights disputes including waivers of class action proceedings. All of those bills remain in committee.
On the other hand, H.R. 7, 117th Congress, 1st Session (2021), which among other things would explicitly permit Rule 23 class actions in cases currently covered by the FLSA penalty mechanism (29 U.S.C. § 216(b)), passed in the House of Representatives but did not pass in the Senate.
This is not applicable in this jurisdiction.
In the short-term, COVID-19 impacted the US judiciary across the board, regardless of the types of claims asserted. For a period of time, courthouses were shut down and a number of states tolled statute of limitations as a result of the pandemic. When hearings and trials resumed, they were often conducted remotely. Even the US Supreme Court conducted oral arguments remotely. The US discovery process, which generally relies on the exchange of written documents and testimonial depositions of potential witnesses was initially limited and then resumed, in large part, remotely. The result of all of the above was a delay in how many cases proceeded. These included criminal cases which, in many US jurisdictions, must be completed fairly rapidly in order to protect criminal defendants’ right to a speedy trial.
The easing of pandemic-related restrictions, along with the ready availability of vaccines, has resulted in more in-person hearings and trials, along with more in-person depositions. The backlog caused by the imposition of pandemic restrictions, however, will take some amount of time to clear. Because of the speedy trial rights of criminal defendants, many courts will have to give precedence to those cases, which will place civil actions, including class actions, further back in the queue.
Current Issues in US Class Action Litigation
Class action litigation continues apace in the United States with several issues currently percolating. This article addresses two of these. The first, whether a court may exercise personal jurisdiction over the claims of class members which have no connection to the forum, has been rekindled by two recent Supreme Court decisions. The second involves the current state of two common settlement features: cy pres awards (settlement funds paid to charitable or other organisations instead of class members) and the use of “incentive” or “service” payments made to class representatives.
Personal Jurisdiction over Claims of Absent Class Members
Broadly speaking, personal jurisdiction deals with a court’s power to compel a party to come into court and defend itself. The US Constitution’s Due Process Clause limits the ability of state courts to exercise personal jurisdiction over claims against companies to suits brought in (i) their state of incorporation or where they maintain their principal place of business; and (ii) those states where they have sufficient contacts both to the forum and to the claims asserted in that forum. In actions where there are multiple plaintiffs, each plaintiff must individually show that the court has personal jurisdiction over the defendant as to their claim (Bristol-Myers Squibb Company v Superior Court, 582 US ___, 137 S.Ct. 1773, 198 L.Ed.2d 395 (2017)).
The situation is murkier when a plaintiff seeks to proceed in a representative capacity. Class representatives are the “named plaintiffs” and the class members they seek to represent (“absent class members") are not, at least initially, parties to the lawsuit. In the past, courts often held that personal jurisdiction over claims of the entire class could proceed as long as personal jurisdiction existed for the class representative’s claim.
In Bristol-Myers, the Supreme Court addressed whether California could exercise personal jurisdiction over claims brought by out-of-state plaintiffs who were joined with in-state plaintiffs in a suit against a pharmaceutical manufacturer. The vast majority of the plaintiffs were from other states and their claims had no connection to California. Analysing the question under the Due Process Clause of the 14th Amendment, the majority concluded that the exercise of personal jurisdiction over the claims of the non-residents violated the US Constitution.
In the wake of Bristol-Myers, class action defendants have argued, with at best limited success, that personal jurisdiction must exist over the claims of absent class members and not just those of the named plaintiff. For example, Mussat v IQVIA, Incorporated, 953 F.2d 441 (7th Circuit 2020), holds that personal jurisdiction need exist only as to the named plaintiff’s claim, but Wiggins v Bank of America, North America, 448 F.Supp.3d 611, 622 (S.D.Ohio 2020) states that “Courts are somewhat split on whether Bristol-Myers applies to putative class members, courts generally agree that Bristol-Myers applies to named plaintiffs in class actions”. In Mussat, 953 F.3d at 447, the appellate court refused to apply Bristol-Myers to the claims of absent class members by stating:
"We see no reason why personal jurisdiction should be treated any differently from subject-matter jurisdiction and venue: the named representatives must be able to demonstrate either general or specific personal jurisdiction, but the unnamed class members are not required to do so."
Underlying this reasoning was the court’s explicit assumption that subject-matter jurisdiction existed for all claims in a class action so long as it existed for the claims of the named plaintiff.
A recent US Supreme Court decision, TransUnion LLC v Ramirez, No 594 US ___, 141 S.Ct. 2190, 210 L.Ed.2d 568 (2021), addressed subject-matter jurisdiction in class actions and that decision may have some impact on the personal jurisdiction analysis for claims of absent class members seeking monetary damages. In the United States, “Article III, Section 2 of the Constitution limits the subject-matter jurisdiction of the federal courts to ‘Cases’ and ‘Controversies’” and the “standing doctrine” emerged from this limit on subject-matter jurisdiction (SM Kids, LLC v Google LLC, 963 F.2d 206, 211 (2nd Circuit 2020)). As a result, the Supreme Court has held that a plaintiff must possess “Article III standing” in order to proceed with a suit in federal court (Spokeo, Incorporated v Robins, 578 US 330 (2016)).
Prior to the Supreme Court’s decision in TransUnion, however, US appellate courts were split on whether absent class members were required to have Article III standing in order to recover damages as a class member in federal court. Compare Neale v Volvo Cars of N. Am., LLC, 794 F.3d 353, 362 (3rd Circuit 2015) – “We now squarely hold that unnamed, putative class members need not establish Article III standing. Instead, the ‘cases or controversies’ requirement is satisfied so long as a class representative has standing...” – with Denney v Deutsche Bank AG, 443 F.3d 253, 264 (2nd Circuit 2006) – “no class may be certified that contains members lacking Article III standing”. The TransUnion majority squarely held that “every class member must have Article III standing in order to recover individual damages”, while leaving open the “distinct question whether every class member must demonstrate standing before a court certifies a class” (TransUnion, 141 S. Ct. at 2208 and n. 4).
TransUnion’s recognition that Article III’s standing analysis applies to absent class members seeking money damages should lead to re-analysis of whether a court may assert personal jurisdiction over claims of absent class members seeking money damages who have no relationship to the forum. TransUnion flatly rejected the notion that as long as there was subject-matter jurisdiction over the named plaintiff’s claim, there was also subject-matter jurisdiction over the absent class members’ claims. If the Seventh Circuit in Mussat was correct in its assumption that the personal jurisdiction analysis as to claims of absent class members mirrored the subject-matter jurisdiction analysis, then TransUnion requires a re-examination of that decision.
As with an Article III standing challenge to subject-matter jurisdiction, parties will also have to litigate the timing of any challenge to personal jurisdiction over absent class members' claims. In Cruson v Jackson National Life Insurance Company, 954 F.3d 240 (5th Circuit 2020), the court held a defendant’s objection to personal jurisdiction for absent class members’ claims was not “available” until certification of a class. See also Molock v Whole Foods Market Group, Incorporated, 952 F.3d 293, 298 (D.C.App. 2020), holding that a motion to dismiss claims of absent class members on personal jurisdiction prior to certification was premature and Moser v. Benefytt, Inc., 8 F.4th 872 (9th Circuit 2021), which vacated a trial court’s certification order and remanded the case for further development as to the application of Bristol-Myers to absent class members.. These cases suggest such motions will likely not be entertained prior to certification, although defendants may nonetheless attempt to argue the deficiency of a class definition that would encompass claims of class members over which the certifying court lacks personal jurisdiction.
Settlement Issues: Cy Pres and Incentive Payments
There have also been a number of recent challenges to two fairly common features of US class action settlements: cy pres payments to non-class members and “incentive” or “service” payments to class representatives. Cy pres payments grew out of the dilemma of what a court should do with unclaimed or undistributed settlement funds. Incentive or service awards – payments made to class representatives above and beyond what they would be entitled to receive as class members – are intended to reward or compensate them for acting as the class representative. Both practices are often present in class action settlements, and both have come under recent attack.
Cy pres relief in class action settlements
Grounded in trust law, the phrase “cy pres” comes from the French phrase, cy pres comme possible (“as near as possible”), and is based on the concept that unclaimed or undistributed settlement funds should be given to charitable or public interest organisations whose interests align with the class members and their claims. The use of cy pres relief in settlements has been increasing for years (see Martin H Redish et al, Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, analysing the growth of cy pres settlements). In theory, when distribution (or further distribution) of settlement funds to class members is not administratively feasible, the doctrine allows the court to order distribution of the settlement funds to entities with at least some relationship to the claims of the class because such payments would indirectly benefit the class members.
As the court stated in In re Baby Products Antitrust Litigation 708 F.3d 163, 172 (3rd Circuit 2013):
"When excess settlement funds remain after claimants have received the distribution they are entitled to under the terms of the settlement agreement, there are three principal options for distributing the remaining funds – reversion to the defendant, escheat to the state, or distribution of the funds cy pres. Among these options, cy pres distributions have benefits over the alternative choices. Reversion to the defendant risks undermining the deterrent effect of class actions by rewarding defendants for the failure of class members to collect their share of the settlement. Escheat to the state preserves the deterrent effect of class actions, but it benefits the community at large rather than those harmed by the defendant's conduct. Cy pres distributions also preserve the deterrent effect, but (at least theoretically) more closely tailor the distribution to the interests of class members, including those absent members who have not received individual distributions."
The bulk of federal courts now allow or even direct that district judges use a percentage method to calculate attorney fees awards in common-fund cases, Manual for Complex Litigation (Fourth) § 14.121 at 210 (2005). The availability of cy pres relief can drive up the value of the common fund and the corresponding fee award. In re Baby Products Antitrust Litigation, 708 F.3d at 173 notes the potential for conflict between class counsel and class members but states that the remedy is careful review of the proposed settlement by the trial court.
The increasing use of cy pres was driven in part by the coupon settlement provision of the broader Class Action Fairness Act of 2005, 28 U.S.C. § 1712, which limited the award of attorneys’ fees in coupon settlements to the value of the coupons actually redeemed rather than the theoretical value of all class members eligible for the coupons. This reduced the size of the common fund and therefore the amount of attorneys’ fees awarded. As a result, class actions settlements have increasingly included cy pres components and some settlements provide no monetary relief to absent class members. Settlement funds instead cover attorneys’ fees, administrative costs, incentive awards to class representatives, and payments to one or more cy pres recipients.
One extreme example of this type of settlement, Lane v Facebook, Incorporated, 696 F.3d 811 (9th Circuit 2012) rehearing and rehearing en banc denied, 709 F.3d 791 (9th Circuit 2013), involved a Facebook program which allegedly resulted in the improper disclosure of private information. The proposed settlement required Facebook to terminate the offending program and pay USD9.5 million in exchange for a release of all class members’ claims. Of that amount, approximately USD3 million would cover attorneys' fees, administrative costs, and incentive payments to 19 class representatives. The class members whose claims were extinguished received nothing from the remaining USD6.5 million.
Instead, the cy pres “beneficiary” of that money was a new charitable organisation created by Facebook which would “fund and sponsor programs designed to educate users, regulators[,] and enterprises regarding critical issues relating to protection of identity and personal information online through user control, and the protection of users from online threats” (Lane, 696 F.3d at 817). The three members of the organisation’s board of directors included a Facebook employee, and a separately created “Board of Legal Advisors” which included class counsel and counsel for Facebook that would monitor the organisation’s activities. The district court approved the settlement over a number of objections and, on appeal, a majority of the court of appeals panel hearing the case affirmed.
On further appeal, the Supreme Court denied an objector’s petition for certiorari (Marek v Lane, 571 U.S. 1003, 134 S.Ct. 8 (2013)). In an unusual move, however, Chief Justice Roberts issued a statement “respecting the denial of certiorari”, stating that while he agreed with the decision to deny the petition, because the case may not have been the proper vehicle to address them, the use of cy pres in class actions presented a number of real concerns:
"Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be elected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on. This Court has not previously addressed any of these issues... In a suitable case, this Court may need to clarify the limits on the use of such remedies."
Clarification not found in class actions claims against Google
Several years later, the Court granted a certiorari petition intending to address those limits: "Three named plaintiffs brought class action claims against Google for alleged violations of the Stored Communications Act. The parties negotiated a settlement agreement that would require Google to include certain disclosures on some of its webpages and would distribute more than [USD5 million] to cy pres recipients, more than [USD2 million] to class counsel, and no money to absent class members. We granted certiorari to review whether such cy pres settlements satisfy the requirement that class settlements be ‘fair, reasonable, and adequate’" (Frank v Gaos, 139 S. Ct. 1041, 1043 (2019)). Following argument and supplemental briefing, however, the Court issued a per curiam opinion declining to address the merits and instead sending the case back for further consideration as to whether any of the named plaintiffs had Article III standing under Spokeo (Frank, 139 S.Ct. at 1046).
Justice Thomas dissented in Frank stating he would have reached the merits of the dispute and would reverse:
"Whatever role cy pres may permissibly play in disposing of unclaimed or undistributable class funds, see Klier v Elf Atochem North Am., Incorporated, 658 F.3d 468, 474–476 (CA5 2011); id, at 480–482 (Jones, C J, concurring), cy pres payments are not a form of relief to the absent class members and should not be treated as such (including when calculating attorney's fees). And the settlement agreement here provided no other form of meaningful relief to the class. This cy pres-only arrangement failed several requirements of Rule 23. First, the fact that class counsel and the named plaintiffs were willing to settle the class claims without obtaining any relief for the class – while securing significant benefits for themselves – strongly suggests that the interests of the class were not adequately represented. Second, the lack of any benefit for the class rendered the settlement unfair and unreasonable under Rule 23(e)(2). Further, I question whether a class action is 'superior to other available methods for fairly and efficiently adjudicating the controversy' when it serves only as a vehicle through which to extinguish the absent class members' claims without providing them any relief" (Frank, 139 S. Ct. at 1047–48).
Despite these cautions from the Supreme Court, most courts continue to approve cy pres provisions in settlement agreements. One court recently noted the concerns, but further stated in approving a settlement which provided no direct benefit to class members:
"[A]s of today, the Court is aware of no controlling authority holding that settlements providing direct payments to class members are always preferable to cy pres-only settlements. Indeed, controlling authority holds to the contrary." (In re Google LLC St. View Elec. Commc'ns Litigation, 2020 WL 1288377, at *13 (N.D. Cal. Mar. 18, 2020)).
One of the cases that court cited, Nachshin v AOL, LLC, 663 F.3d 1034 (9th Circuit 2011), rejected a cy pres settlement because none of the proposed recipients had “anything to do with the objectives of the underlying statutes on which Plaintiffs base their claims" (Nachshin, 663 F.3d at 1040).
On the other hand, some courts have recognised and applied the concerns expressed by members of the Supreme Court. For example, in Poblano v Russell Cellular Incorporated, 2021 WL 2914985, at *2 (M.D. Fla. June 10, 2021), the district court stated that – "Given the abiding debate about the lawfulness of Article III courts to permit cy pres distributions as a remedy in the class action context… the Court will not approve a settlement agreement that purports to create one”. In Loreto v Gen. Dynamics Info. Tech., Incorporated, 2021 WL 1839989, at *11 (S.D. Cal. May 7, 2021), the court indicated that while a cy pres award might be approved, a proposed recipient which bears no relationship to the claims asserted in the litigation “likely cannot be approved". See also Barbara J Rothstein and Thomas E Willging, Managing Class Action Litigation: A Pocket Guide for Judges, Third Edition at 19 (Federal Judicial Center 2010), which outlines considerations in approving a settlement containing a cy pres component. Nonetheless, for the time being, most courts considering approval of a class action settlement have continued to approve cy pres provisions. Challenges to class action settlements which provide little or no relief to absent class members will continue to face challenges, at least until the US Supreme Court provides guidance in this area.
Challenges to incentive or service payments to class representatives
Another common feature of class action settlements, “incentive” or “service” payments to class representatives which provide them with a greater monetary recovery than other class members, are “intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general” (Hubbard v RCM Technologies (USA), Incorporated, 2021 WL 5016058, at *6 (N.D. Cal. October 28, 2021) quoting, Rodriguez v West Publishing Corporation, 563 F.3d 948, 958-959 (9th Circuit 2009)). Likewise, in O’Bryant v ABC Phones of North Carolina, Incorporated, 2021 WL 5016872, at *3 (W.D. Tenn. October 28, 2021) the Court stated: "Within this Circuit, district courts have recognized that, ‘where the settlement agreement provides for incentive awards, class representatives who have had extensive involvement in a class action litigation deserve compensation above and beyond amounts to which they are entitled... by virtue of class membership alone'.”
Recently, however, the majority of a panel of the United States Court of Appeals for the Eleventh Circuit canvassed the historical and legal basis for such rewards and concluded that two US Supreme Court cases from the late 19th century “prohibit the type of incentive award that the district court approved here – one that compensates a class representative for his time and rewards him for bringing a lawsuit” (Johnson v NPAS Solutions, LLC, 975 F.3d 1244, 1260 (11th Circuit 2020)). The class representative has petitioned for rehearing or rehearing en banc of that decision and numerous amici have supported that petition. And while that court has withheld its mandate (that is, it has not released jurisdiction back to the trial court) as it considers that petition, courts within the Eleventh Circuit have treated the decision as binding. See, for example, in In re Equifax Incorporated Customer Data Security Breach Litigation, 999 F.3d 1247, 1257 (11th Circuit 2021), cert. denied sub nom. Huang v Spector, No 21–336, 2021 WL 5043620 (US November 1, 2021), which reversed the lower court’s ruling on the incentive awards and remanded solely for the limited purpose of vacating those awards; and Drazen v Godaddy.com, LLC, 2021 WL 1881648, at *1 (S.D. Ala. April 22, 2021) where the court indicated it would apply NPAS and refuse to approve an incentive payment to an objector (cf, Fruitstone v Spartan Race, Incorporated, 2021 WL 2012362, at *13 (S.D. Fla. May 20, 2021) where the court reserved jurisdiction to award service payments if NPAS was reversed).
To date, courts outside the Eleventh Circuit have declined to follow NPAS when faced with challenges to incentive payments. See, for example, Grace v Apple, Incorporated, 2021 WL 1222193, at *7 (N.D. Cal. March 31, 2021); Vogt v State Farm Life Insurance Company, 2021 WL 247958, at *4 (W.D. Mo. January 25, 2021); Somogyi v Freedom Mortgage Corporation, 2020 WL 6146875, at *9 (D.N.J. October 20, 2020). The district judge in Somogyi stated that, “[u]ntil and unless the Supreme Court or Third Circuit bars incentive awards or payments to class plaintiffs, they will be approved by this Court if appropriate under the circumstances”. There is no indication when the Eleventh Circuit may issue a decision on the rehearing petitions and there is a real possibility of a further appeal to the Supreme Court once proceedings in the Eleventh Circuit have concluded. This will be another issue to watch in the coming year.