Class Settlements under Attack
75 Pages Posted: 20 Nov 2007 Last revised: 14 Dec 2012
Date Written: December 13, 2012
Settlements dominate the landscape of class actions, and the value of claims so resolved corresponds directly to the finality that the settlement offers. The law of class actions remains surprisingly unsettled, however, on where judicial review of class settlements may take place, what that review encompasses, and how the parameters for review should be defined. This article offers a cohesive account of the where, what, and how questions surrounding class settlement review, with particular attention to the long-running debate over collateral attacks on such settlements. The where questioned is informed by the recognition in the Class Action Fairness Act (CAFA) of the difficulties presented by what one might describe charitably as the anomalous court - for CAFA proponents, one inclined to certify a nationwide class action when the vast majority of other courts would not. Most of the class action commentary assumes the original certifying court to be suspect and the subsequent reviewing court to be virtuous. Our contention is that the problem of the anomalous court is not confined to the initial class certification. The same problem of outlier courts can arise when the parties agree to park a class settlement for approval and, later, where a class member might mount a collateral attack on its binding effect. In the first instance, we look to see whether the forum for the class action was congressionally mandated or subject to strategic behavior by the parties.
The what question calls for a distinction between structural conflicts of interest in the class representation and other defects in the nature of bad deals for some or all of the class members. Only the former kind of defect bespeaks a proceeding illegitimate from its outset in a manner akin to the sorts of jurisdictional deficiencies thought to warrant collateral attacks on judgments in ordinary litigation.
The how question is one of proper preclusion for class settlements. The term collateral attack has been used sloppily to encompass everything from appeal to relief from the judgment to outright circumvention by filing anew in a different jurisdiction. In this section, we disentangle the various forms of procedural challenge to class action settlements and propose that the level of preclusion be conditioned by where the original suit was filed, how the challenge is presented, and what is the basis of the asserted challenge. Greater preclusion against collateral attack should flow from use of the congressionally preferred forum, as delineated by CAFA, as compared to the potentially anomalous court selected simply by settling counsel. The scope of preclusion should correspond, moreover, to the nature of the defect alleged in the class representation. Structural conflicts of interest warrant an approach that asks whether the rendering court considered and rejected the conflict in question, though not necessarily at the behest of the class member now the proponent of a collateral attack. Bad deals, by contrast, warrant an approach that would ask simply whether there was a full and fair opportunity to challenge the fairness of the settlement in the rendering court, in keeping with the broadened approach to standing in that setting in the Supreme Court's 2002 decision in Devlin v. Scardelletti.
Keywords: Adequate representation, CAFA, Class Action Fairness Act, class actions, class settlements, collateral attacks, due process
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