Judicial Review of Class Action Settlements
40 Pages Posted: 26 Feb 2009
Date Written: January 21, 2009
This article proposes a simple and coherent approach to judicial review of class action settlements. Specifically, we propose that for questions going to the adequacy of a settlement, where no warning signals of fraud or collusion are found, the court should act relatively deferentially by employing a lenient standard of scrutiny and approving a settlement if it has a rational basis. An intermediate level of scrutiny should apply when the settlement presents facial issues that implicate the fairness of the settlement. Such facial issues include the allocation of settlement proceeds among subgroups in a class, the presence of coupon-type relief, "shotgun" settlements occurring very early in the litigation, and settlements in overlapping class actions. In settlements with one or more of these characteristics, if the initial inquiry raises concerns, the court should demand a well-reasoned explanation for the choices made. Finally, where the components of a settlement present a direct conflict between the interests of class counsel and those of the class issues, such as issues related to attorneys' fees, courts should employ exacting scrutiny and require convincing evidence that the proposal is reasonable.
Keywords: judicial review, class action settlements
JEL Classification: K10, K40
Suggested Citation: Suggested Citation