The recent settlement creating a $228 million fund by Federal Express in a multistate class action brought in 2005 alleging that drivers were misclassified as independent contractors. However, the parties are encountering some reluctance from the court in obtaining court approval of the settled. This case is a good example that entering into a settlement with the opposing party does not necessarily end the case. Parties in a class action must still obtain court approval of the settlement. This Friday’s Five provides a list of five items to understand about the settlement process of class actions.
1. The judge must approve the settlement to protect the interests of absent class members
The judge is tasked with the roll of protecting the absent class members who will be impacted by the settlement. The judge will review the claims asserted by the plaintiffs, how strong the claims are, and the likelihood of success on the claims in reviewing the terms of the settlement. Therefore, it is usually contingent upon plaintiffs’ counsel to set out a detailed evaluation of the claims and potential risks in continued litigation when seeking the court’s approval. Judicial approval requires the judge to review the judgment of experienced counsel and make a determination that the agreement is “fair, adequate and reasonable” in context with the risks and delay of continued litigation.
2. Notice to the absence class members must be given
The California Rules of Court provide that, in the event the court grants preliminary approval and certifies a settlement class, “notice of the final approval hearing must be given to the class members,” which shall “contain an explanation of the proposed settlement and procedures for class members to follow in filing written objections to it and in arranging to appear at the settlement hearing and state any objections to the proposed settlement.” The court will likely require notice to be provided to as many of the class members as possible, and that the notice is sent to each individual class member if practicable.
3. Court will review plaintiff’s attorneys fees and the incentive awards provided to the named plaintiffs
It is likely that the named plaintiffs will seek an incentive award, which is a payment beyond the payment they will receive with the other class members. Courts approve these payments for the named plaintiffs’ work in bringing the case and participating in the litigation. As for the plaintiffs’ attorney’s fees, the court will look to the monetary and nonmonetary results achieved for the class members. Plaintiffs’ fees are usually based upon a percentage of the total recovery for the class members, with “lodestar” cross-check. The lodestar method cross-check examines the plaintiffs’ attorneys’ reasonable hours spend on the case multiplied by a reasonable rate per hour.
4. The court ensures the settlement was not collusive
In determining whether a class action settlement is fair, the court will look to whether the settlement was reached through “arm’s-length” negotiations. Therefore, if an independent mediator was involved in helping the parties reach the settlement, the parties will explain the mediation process to the court. The court will also look to whether plaintiffs’ counsel conducted sufficient investigation and discovery into the claims in order to make a reasonable determination of the strengths and weaknesses of the case. The experience of the class counsel is also taken into account by the court. Finally, the judge will review the number of objectors to the settlement in addition to how many of the class members opted out of the settlement in evaluating the fairness of the settlement.
5. After preliminary approval, the court holds a final fairness hearing
Once the court has preliminarily approved the class action settlement, notice has been provided to all of the class members, the class members have the opportunity to file an opt-out or objection to the settlement, the court will hold one last fairness hearing. At this point in time, the parties can submit to the court all of the information pertaining to how many class members participated in the settlement, how many opted out of the settlement, and if there were any objectors. Objectors also have the ability to appear at the fairness hearing. Managing Class Action Litigation: A Pocket Guide for Judges, explains:
If objectors and unrepresented class members appear at the fairness hearing, it is important to permit them to fully voice their concerns. For class members who feel strongly enough about their injuries to appear, the fairness hearing is their “day in court.” Judges in settlements involving tort claims such as the Agent Orange and silicone gel breast implant litigation held multiple days of hearings to accommodate the interests of class members.
The Federal Express case illustrates that the process of obtaining court approval may take multiple attempts to cure issues the court has with any number of the items set forth above. Indeed, the FedEx settlement is only at the initial preliminary approval stage, and the court has set the final fairness hearing to take place on March 24, 2016. What is the lesson to learn from this case? The work is not done once a settlement is reached, the parties still have to obtain the court’s approval.
Photo: Rob Young