Proposed Changes to Rule 23: Electronic Notice and Efforts to Curb Abuses in Settlement Objection Process

On this blog, we previously wrote about the Fairness in Class Action Litigation Act of 2017, and identified its potential to bring significant changes to class action practice. That Act was passed by the House on March 9, 2017, based on a 220-201 vote, split almost entirely along party lines, and has now advanced to the Senate for additional consideration.  Whether the Act will become law remains uncertain, and we will continue to monitor future developments. In the meantime, however, it is worthwhile to take note of the proposed changes to Rule 23 itself which are also currently under consideration.

In August 2016, the U.S. Judicial Conference’s Committee on Rules of Practice and Procedure published its proposed amendments to Rule 23. The amendments include a variety of changes concerning class settlement and notice.  This post will focus on two specific areas covered by the amendments: electronic notice to class members, and class settlement objectors. The proposals, if approved, could become effective in December 2018.

Electronic Notice: As currently worded, Rule 23(c)(2)(B) states that “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.”  Most courts have construed this language to require certification notice by first-class mail in every case involving a (b)(3) class where class members’ addresses are available.  The proposed amendments revise the rule by adding that the notice “may be by United States mail, electronic means, or other appropriate means.” The amendment thus places “electronic” and “other” means of notice on equal footing with first-class mail.  In our view, this is a simple, common-sense change that brings certification notice into the twenty-first century and is likely to increase the notice program’s reach in certain types of cases.  If adopted, a court should not hesitate to find that email, text messaging, social media sites such as Facebook and Twitter or smartphone applications are better suited than “snail mail” for some notice programs.  For example, in a case against an app-based company, such as Uber, ITunes or Instagram, notifying class members of their options via the app may be more effective than a letter sent to a physical mailbox.  Further, because most forms of electronic notification are far cheaper than mailing letters, allowing electronic notice in the appropriate circumstances would also produce substantial cost savings to litigants in certain cases.

Settlement Objectors: Class members’ rights under Rule 23(e)(5) to object to settlements that are not fair, reasonable and adequate serve to protect class members’ interests and prevent collusion among counsel.  Sometimes, however, so-called “professional” objectors exploit the settlement objection process by filing frivolous objections and threatening to pursue appeals solely in the hopes of obtaining a payment for withdrawing their objections. All too often, litigants are forced to make the tactical decision whether to pay off professional objectors or face a delay due to the objector’s appeal of the judgment approving the settlement. Proposed amendments to Rule 23(e)(5) seek to discourage these  bad-faith objections in two ways.

First, the amendments would force objectors to state the grounds for their objection with specificity, and also to state whether the objection applies only to the objector, to the entire class, or to a subset of the class. This change is aimed at cutting down on the boilerplate objections filed by many professional objectors solely to obtain negotiating leverage.

Second, the amendments would add new language requiring court approval for any payment to an objector or objector’s counsel in connection with either the withdrawal of an objection or abandonment of an appeal of a judgment approving a settlement. Forcing objectors and their lawyers to seek and obtain court approval for payments to withdraw their objections, rather than negotiate them behind closed doors, should deter meritless objections and help ensure that only those objections that benefit the class or the court’s evaluation of the settlement result in compensation.

In our view, the proposed amendments to Rule 23(e)(5) would serve as a useful tool in combating professional objectors’ abuse of the settlement review process, without negatively affecting the ability for class members to make valuable, good-faith objections to class settlements.