Rule Changes for Class Actions Clear Hurdle

The U.S. Judicial Conference has unanimously accepted proposed changes to Federal Rule of Civil Procedure 23, which governs the handling of class actions. One important change would allow judges to reject a proposed settlement unless class members are given a second chance to request exclusion from the class after the settlement terms are known. If accepted by the U.S. Supreme Court and Congress, the amendments would go into effect on Dec. 1, 2003.

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The U.S. Judicial Conference has made a unanimous decision to accept proposed changes to Federal Rule of Civil Procedure 23, which governs the handling of class actions. Among the changes is a provision that would give class action plaintiffs a second opportunity to opt out of a class settlement after the original opt-out period has expired. The 27 judges of the Judicial Conference decided on Sept. 24 to approve the changes drafted by the civil rules advisory committee, which has been studying the class action rule since 1991. The proposed changes had previously received the approval of the rules standing committee in June. If accepted by the U.S. Supreme Court and Congress, the amendments would go into effect on Dec. 1, 2003, as the first significant revision to Rule 23 since 1966. One of the more important changes would give judges discretion to reject a proposed settlement unless class members are given a second opportunity to request exclusion from the class after the settlement terms are known. Currently, class action plaintiffs must decide whether or not they want to opt out at the beginning of the suit, sometimes before any settlement terms are known. Edward H. Cooper, an advisory committee reporter and a professor at the University of Michigan Law School, said the changes would merely make explicit what is implied in the current rule. Speaking for himself and not the committee, Cooper said the changes would confirm a judge’s authority to refuse to approve a settlement that is not fair, reasonable or adequate. Melvyn I. Weiss of New York’s Milberg Weiss Bershad Hynes & Lerach said the second opt-out provision would have to be used very carefully, especially in commercial class actions involving antitrust or securities claims. “It keeps maximum dollars from being put on the table by the defendant, because of the insecurity about the number of future claims left unresolved,” he said. Judges should use the provision predominately in personal injury class actions, such as asbestos or mass tort cases, Weiss said, where plaintiffs may not know at the beginning of the suit how severe their injuries could be. “The problem is that this rule can be applied across the board” to all class actions, he said. “It’s hard to compartmentalize different types of cases,” said Richard L. Marcus, special consultant to the advisory committee and a professor at the University of California’s Hastings College of the Law. Rule 23 used to compartmentalize cases, breaking class actions into true, hybrid or spurious, he said, but it created a lot of “headaches,” and the pigeonholes were eliminated in 1966, when the rule was rewritten. In a summary outlining the advantages and disadvantages of the proposed changes, the advisory and standing committees acknowledged that a second opt-out “might inject additional uncertainty into settlement … potentially defeating some settlements and making others more costly.” But the committees already took that into account, said Cooper. When the proposals were originally published for comment in August 2001, the public was asked for its opinion on two alternatives, he said. The first version said plaintiffs “must” be given a second chance to opt out unless the court determines there is good cause not to provide that opportunity. The second alternative said the court “may” provide a second opt-out at its discretion. The current version, Cooper said, does not presume a second opt-out opportunity. “It’s a change of perspective,” he said. Instead of having the court order a second opt-out, the rule merely says the court may refuse to approve a settlement that does not afford plaintiffs a second opt-out opportunity. In many cases, the defendant and class representatives reach a settlement at the same time as certification, so plaintiffs already know the settlement terms during the original opt-out period and changes to the rule would have no practical effect, said Matthew M. Neumeier, co-chairman of class action litigation at Chicago’s Jenner & Block. But the new rule would not be fair in cases where a settlement is reached later in the suit and then a plaintiff, who got a “free ride” by relying on the class representatives, changes his mind and doesn’t have to bear any of the risk, Neumeier said. The changes don’t really benefit defendants, acknowledged David M. Bernick, a member of the rules standing committee and a partner at Chicago’s Kirkland & Ellis. Speaking for himself and not the committee, he said,”The second opt-out is designed to be more fair for plaintiffs. It may make it a little more difficult to settle, but everyone will have their eyes open.”

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