450 Golden Gate, United States District Court for the Northern District of California. (Photo: Jason Doiy/ALM)

The Northern District of California’s new procedural guidance for class action settlements is among the most detailed in the nation, prompting welcome relief to critics but raising fresh concerns for some practitioners.

The guidance, announced on Nov. 1, comes as little surprise to lawyers who practice in the Northern District of California, which is home to numerous consumer class actions and judges who have spoken out about reforms. The guidance also mimics proposed changes to the Federal Rule 23 of Civil Procedure.

But the Northern District’s guidance seeks to implement some of the most far-reaching revisions in the country. Many lawyers said it creates transparency that’s been long needed in the class action process.

“It’s a good first step,” said Joel Fleming, a partner at Block & Leviton in Boston. “Sunlight is the best disinfectant and, generally speaking, having more information to the courts and the class is a good thing.”

Defense attorneys and law professors who have called for more transparency in the class action process praised the new procedures.

“They’ve done a wonderful job of figuring out what are the most important things to worry about, and let’s make sure every judge has a checklist,” said Brian Fitzpatrick, a professor at Vanderbilt University Law School. “They are wise to focus on what happens to the money after the settlement’s approved because we don’t know.”

The guidelines apply to all of the district’s judges, some of whom already have detailed standing orders on class action settlements. Others have raised numerous questions about class action settlements before approving them.

“It’s been my experience that the judges in the Northern District of California have been more attentive to these issues than others in the country,” said William Rubenstein, a professor at Harvard Law School.

Among other things, the guidance asks lawyers to provide billing calculations in class counsel’s fee request, identify the process used to select the settlement administrator, consider social media and a marketing specialist for the notice program, disclose relationships between the parties and cy pres recipients, and file an accounting of the settlement 21 days after distributing the fund to the class.

Most of the concerns, such as poor claims rates or leftover settlement funds that revert to the defendants, focus on consumer class actions, not securities fraud cases, Fleming said. For most lawyers, he said, the guidelines shouldn’t impact how they do their jobs.

“If a settlement is reached that would benefit the attorneys more than class members, this information being required will probably serve as a deterrent because it’s getting at information that’s useful for class members to know,” Fleming said. “But for plaintiffs’ lawyers doing their jobs, and keeping the best interests of class members at heart, I don’t think any of this would change the way you’d litigate your case or change the way you’d structure a settlement. It will require careful review of your materials to make sure you’re complying, but it won’t have a strategic impact.”

The biggest change in the guidelines is the accounting guidance. That revision is noteworthy because, in most cases, judges don’t keep up with what happens to a class action settlement after granting final approval. And there’s a slew of information that lawyers are supposed to post on the settlement’s website: The number of notices sent to class members, claim forms submitted, opt-outs and objections, for example, and the average, largest and smallest amounts paid to class members, methods of notice and payment, number and amount of checks not cashed—all in an “easy-to-read chart.”

The accounting revision is similar to a requirement tucked into a class action reform bill that the U.S. House of Representatives passed last year.

“It’s very hard to determine whether class settlements are doing what they’re supposed to be doing if you don’t know where the money goes and where it winds up, and you don’t know how much of the class gets paid,” said Andrew Trask, of counsel at Shook, Hardy & Bacon in San Francisco. “In the past, it’s the propriety information of the settlement vendor. So the defendant might see that information in a few cases, but usually they don’t. To the degree we continue to have debates over what class certification ought to be and what class settlement ought to look like, having that information publicly available is better than not having it.”

Fitzpatrick said the data also would help law professors who study class action trends.

“The data that we will be able to gather from these new guidelines will help inform a lot of debate and discussions about whether the class action system is working as intended,” he said. “They’re making a great contribution to the public understanding of class actions by requiring the lawyers to be transparent and return to the court with this data.”

But the guidelines haven’t come without new concerns.

Rubenstein said the guidance could “dissuade lawyers from filing in the Northern District because it feels like more hoops to jump through.”

Fitzpatrick specifically flagged the revisions prompting plaintiffs attorneys to turn over their lodestar billing, which are the hours they worked on the case multiplied by their hourly rate. He said such a mandate could encourage more judges to use the lodestar when assessing an attorney fee request that is based on a percentage of the settlement fund. That’s not required in the U.S. Court of Appeals for the Ninth Circuit, he said.

More importantly, he said, the practice raised concerns about the motivations of plaintiffs attorneys in settling class actions.

“The more and more courts that are doing lodestar cross-checks, the more lawyers are going to worry they need to bill a bunch of hours in order to get a decent fee award instead of focusing on the most important thing, which is getting the most recovery for the class,” Fitzpatrick said.

Fleming agreed that requiring lodestar could create “misaligned incentives” but, in most cases, plaintiffs lawyers are prepared to submit billing records as part of their fee requests in the event judges use them as cross-checks.

Ted Frank, a frequent critic of class action settlements, raised another question about the guidance: “What are the consequences when the guidelines are shirked?”

Frank, director of litigation at the Center for Class Action Fairness at the Competitive Enterprise Institute, noted that the Ninth Circuit, in an unpublished decision on Monday, found a district judge’s noncompliance with one provision of Rule 23 to be “harmless.” That provision requires that class members have the opportunity to oppose attorney fee requests before a settlement’s approval. But the Ninth Circuit, in a class action involving false advertising claims against Kohl’s, found that remanding the fee issue, while upholding the settlement, would remedy the error.

“If there aren’t consequences for, say, failing to disclose cy pres conflicts or previous settlement track records, settling parties will be worse off if they comply—and simply won’t,” Frank wrote in an email.