Settlement of class actions is tricky business.
7 February 2023
As a general matter, settlement of a class action, either before or after a class is certified, requires court approval. The concern is that the named parties collude to settle the matter at the expense of the purported class. In more specific words, that the plaintiff will improperly use the threat of damages that could be awarded to others in the class to enrich itself and the defendant will be happy to pay the named individual plaintiff a premium to avoid and much higher liability to an entire class. And because that class must be served, settlement of the class action is fairly complicated, with the need to have fairness, “incentive premiums” for a named plaintiff, attorney’s “administration” fees, notice to class members, class members’ objection rights, and in the Murray v. Grocery Delivery E-Services USA, Inc. case, multiple classes and their fair treatment. 55 4th 430 (1st Cir. 2022).
Murray was a unique case in that an objecting class member appealed a preliminary settlement to the United States Court of Appeals for the First Circuit and was successful. In Murray the trial court preliminarily approved a settlement of $14 Million to satisfy all members of three different classes representing three different types of violations of the Telephone Consumer Protection Act. Each member of the classes was to receive $89.00, the named plaintiff’s were to receive incentive rewards of between $2K to $10K, and counsels’ fees were to be approximately 33% of the total award. Three different people in the classes made objections, with Sarah McDonald, the appellant in the case, making the most substantial objection and one that carried the day as stated. McDonald raised multiple arguments with one being accepted by the United States Court of Appeals for the First Circuit. The appellant/objector, argued that no single lawyer or group of lawyers could adequately negotiate and recommend a settlement jointly on behalf of three subgroups having materially different claims” and the appeals court agreed that “the class as certified consists of class members with claims having significantly different elements and facing some very different defenses. Furthermore, we cannot say that the relative values of all of those different claims are sufficiently clear-cut so as to enable a court to approve a proposed apportionment of a common fund among the claimants in the absence of any informed arms-length negotiation. Given these findings, the district court lacked the requisite basis for certifying the settlement class.”
The crux of the decision quoted above shows on its own how complicated the approval of class action settlements can be. Patience must be a virtue of any lawyer defending in or advancing any class action case.