The Advisory Committee on the Federal Rules of Civil Procedure has published proposed amendments to Rule 23, which, if adopted, will have a significant impact on how class actions are managed. The proposed amendments focus on four areas: the timing of the certification decision and notice, judicial oversight of settlements, lawyer appointment and lawyer compensation. They are designed, in part, to enhance judicial oversight of class actions, particularly with respect to settlements and to awards of attorney fees to class counsel. Additional proposals that address overlapping and competing class actions remain under review and have not been formally published for comment.
The following is a brief summary of some of the significant changes that the proposed rule would bring to current practice. The Advisory Committee’s report and the Advisory Committee notes accompanying the proposed amendments provide an extensive analysis and historical perspective and together with the proposals can be found at www.uscourts.gov/rules/comment2002/8-01Tabl.pdf.
Timing and Notice of Class Certification Decisions
Current Rule 23(c)(1) requires courts to make class certification decisions "as soon as practicable." This provision has been criticized because it places pressure on judges to decide class certification motions before they have sufficient information needed to make sound decisions. It also has discouraged several judges from permitting discovery on class certification issues before they decide whether to certify a class. The proposed amendment to Rule 23(c)(1) will instead require that a court decide class certification "at an early practicable time." This change should encourage the development of a suitable record so certification decisions can be made on an informed basis. The Advisory Committee’s report also observes that the amendment will support a court’s decision to decide a motion to dismiss or a motion for summary judgment in advance of deciding the class certification issue.
A new Rule 23(c)(1)(B) will specify the contents of an order that certifies a class action. It requires the order to define the class and the class claims, issues or defenses. It also requires that, for opt-out classes certified under Rule 23(b)(3), the order state when and how class members may elect to be excluded from the class. Rule 23(c)(1)(C) would clarify that a class certification order may be altered or amended at any time prior to final judgment. Amended Rule 23(c)(2) describes the required content of the class notice, which must be in "plain, easily understood language," and requires that reasonable notice be sent to class members even in non-opt-out class actions.
Judicial Oversight of Settlements
The Advisory Committee’s proposal substantially rewrites Rule 23(e), which governs judicial review of class settlements. Significantly, the amended rule will clarify that a court must approve the settlement, voluntarily dismissal, compromise or withdrawal of any class claims, issues or defenses even prior to certification. The new rule will also authorize courts to direct parties who seek approval of settlements, voluntary dismissals, compromises or withdrawals to file any side agreements made in connection with such events.
The amended Rule 23(e) also authorizes courts to permit class members cases that have been certified pursuant to Rule 23(b)(3) a second opportunity to opt-out after a settlement is announced. The committee has proposed two alternative versions of this second opt-out provision. One version requires that the notice to class members state terms on which individual class members can opt out unless the court, for good cause, refuses to allow the second opt-out opportunity. The other version provides in more neutral terms that a court may require a second opt-out right. The committee specifically invites comment on which of these alternatives should be adopted.
The Advisory Committee’s proposal would add a new rule, which would require that a court that certifies a class action also appoint class counsel. The new rule would not apply where statutes such as the Securities Litigation Reform Act provide their own lawyer appointment rules. The Advisory Committee notes explains that one purpose of the proposed rule is to make it clear that class counsel owe a fiduciary duty to all class members and not just to the class representatives who retained them.
The new rule would also establish the procedure for appointment of class counsel, which would require that lawyers seeking such appointment apply, and which sets forth the factors a court must consider in deciding whom to appoint. The order appointing class counsel may also include provisions about the award of attorney fees or nontaxable costs, and the Advisory Committee notes state that the court may appoint lead or liaison counsel prior to class certification as a case management measure.
Proposed Rule 23(h) would govern the award of attorneys fees and nontaxable costs in cases certified as class actions. The rule specifies that claims for attorney fees must be made by motion, and notice of such motions by class counsel must be given to all class members in a reasonable manner. The amendment also provides that class members or parties from whom payment is sought may object to the motion, and the court may hold a hearing and must make findings of fact and conclusions of law in support of its decision. The court may also refer issues related to the amount of the award to a special master or to a magistrate judge.
Public Comment Period
Parties wishing to submit written comments concerning the proposed amendments have until February 15, 2002, to do so. Additionally, the Advisory Committee will hold public hearings on the proposals at various dates and locations in November 2001, and January and February 2002. Additional information concerning the opportunity to submit comments is available at www.uscourts.gov/rules/comment2002/8-01Memo.pdf.