Managing Class Action Litigation: A Pocket Guide for Judges

1 Managing Class Action Litigation: A Pocket Guide for JudgesBarbara J. Rothstein & Thomas E. WillgingFederal Judicial Center2005 This Federal Judicial Center publication was undertaken in furtherance of the Center sstatutory mission to develop and conduct education programs for judicial branchemployees. The views expressed are those of the authors and not necessarily thoseof the Federal Judicial page left blank to facilitate two-sided printingiiiContentsPreface, vIntroduction, 1I. Selection of counsel, 4A. Single-lawyer model, 4B. Private ordering, 4C. Selection by the judge, 5D. Empowered plaintiff model, 5E. Competitive bidding, 5II. Timing and significance of Class certification, 6A. Timing, 6B. Class certification, 6C. Defining the Class , 7D. Multiple Class actions, 7 III. Settlement review: risks and issues, 8A. Judge s role, 8B. Obtaining information about the settlement, 9C. Hot button indicators, 12D. Preliminary review of proposed settlement, 16E.

2 Notice issues, 18F. Fairness hearing, 20IV. Attorney fee issues, 22A. Mega cases, 22B. Monetary results achieved for Class , 23C. Evaluating nonmonetary results, 23D. Role of government actors, 24E. Objectors, 24F. Methods of calculating fees, 24V. Role of government actors, 25VI. Coordination with state Judges , 27 VII. Use of special masters and court-appointed experts, 28 Conclusion, 28 Bibliography, 29 About the Federal Judicial Center, 30this page left blank to facilitate two-sided printingvPrefaceThis Pocket Guide is designed to help federal Judges manage theincreased number of Class Action cases expected as a result of theClass Action Fairness Act of 2005. The new legislation expressescongressional confidence in the abilities of federal Judges to as-sure fair and prompt recoveries for Class members with legitimateclaims and to provide appropriate consideration of interstate casesof national importance under diversity jurisdiction.

3 CAFA, sec. 2(b).The Act also calls on the judiciary to develop and implement best practices for ensuring that settlements are fair to Class mem-bers and that Class members are the primary beneficiaries of anysettlement. This Guide is part of a continuing effort of the federaljudiciary to achieve those to Rule 23 that went into effect in December 2003anticipated the statutory charge, as did the Center s publication ofits Manual for Complex Litigation, Fourth in 2004. Those involved inproducing the rules and manual, particularly Judge Lee H. Rosenthal( Tex.), deserve recognition for their note of appreciation should also go to Judge D. Brock Hornby(D. Me.) for his detailed suggestion and outline of topics whichserved as a catalyst and roadmap for this hope you find this Guide useful in meeting the challenges Con-gress has entrusted to us in Managing Class Action Jacobs RothsteinDirector, Federal Judicial Centerthis page left blank to facilitate two-sided printing1 IntroductionClass actions often attract a great deal of public attention.

4 * Rulingsby state and federal Judges in Class actions have become the sub-ject of a highly polarized public debate. This debate has focused onperceived abuses of Class Action by the parties and their attorneysthat have affected both defendants and Class members. In the ClassAction Fairness Act of 2005 (CAFA) (Pub. L. No. 109-2, 119 Stat. 4(2005)), Congress responded to the debate by shifting many classactions to federal court and assigning new responsibilities to fed-eral Judges . This Guide can assist you in discharging those responsi-bilities. The Guide distills many of the most important practices formanaging Class actions found in the Manual for Complex Litigation,Fourth (MCL 4th) and provides cites to cases decided after publica-tion of the MCL 4th to illustrate many points. For your convenience,cross-references to the MCL 4th are also provided in the begins with the finding that Class Action lawsuits are animportant and valuable part of the legal system when they permitthe fair and efficient resolution of legitimate claims of numerousparties.

5 Such claims might otherwise evade legal actions may also help regulators control conduct that threat-ens to harm various markets. Securities and other consumer classactions serve to enforce regulatory standards designed to controlor deter fraudulent marketplace conduct that might otherwise es-cape regulation. Members of Congress and others who assert classactions general utility also point, however, to abuses that threatento undermine their usefulness. Critics single out cases in which thebenefits accruing to the Class as a whole and to the public seemminimal.*The Federal Judicial Center has devoted considerable attention to Class actions ineducational programs for Judges and has performed extensive empirical work forthe Judicial Conference s Advisory Committee on Civil Rules. The Center s Manualfor Complex Litigation, Fourth (MCL 4th) devotes hundreds of pages to the subject ina general chapter on Class actions (chapter 21) and a chapter on attorney fees (chap-ter 14), and discussions of Class actions in mass tort (section ), securities (sec-tion ), and employment discrimination (section ) contexts.

6 This Guide high-lights some of the practices endorsed in the manual and cross-references major pro-visions of the manual. Other resources, including an outline and videotape of a Fed-eral Judicial Television Network program on the Class Action Fairness Act (Rothsteinet al. (2005) in the Bibliography) are available on the Center s sites on the judiciary sintranet and Internet and through the Center s Information Services Action Pocket GuideClass actions demand that Judges play a unique role. There is nosuch thing as a simple Class Action . Every one has hidden hazardsthat can surface without warning. Your role includes anticipatingthe consequences of poorly equipped Class representatives or at-torneys, inadequate Class settlement provisions, and overly gener-ous fee stipulations. The high stakes of the litigation heighten yourresponsibility, and what s more, you cannot rely on adversaries toshape the issues that you must resolve in the Class context.

7 Indeed,you have to decide first which adversaries on the plaintiff side Class representatives and Class counsel can represent the classadequately and whom you should appoint to do so. And, once theadversaries agree on a settlement, you must decide largely with-out any clash of views from Class counsel, Class representatives, orthe defendant whether that settlement is fair, reasonable, and ad-equate to satisfy the interests of the Class as a whole. This guideattempts to clarify the standards that inform those decisions. It isdesigned to help you use accumulated judicial experience to deter-mine when Class representatives and counsel are adequate andwhether a settlement s terms are fair to the Class as a whole, rea-sonable in relation to the Class s legitimate claims, and adequate to redress Class members actual that CAFA is on the books and Federal Rule of Civil Proce-dure 23 has been amended, you can expect to encounter the follow-ing Class Action responsibilities: applying CAFA s new federal jurisdiction rules, such as its $5million amount in controversy for the Class as a whole, mini-mum diversity of citizenship between Class members anddefendants, and complex set of rules regarding cases in whichthe primary defendants are local citizens (see Rothstein et al.)

8 (2005) in the Bibliography); ruling on remand motions; appointing counsel who have the professional skills, legalsupport staff, and financial resources needed to provide theclass with adequate representation; Managing discovery and pretrial motions practice with theobject of separating meritorious claims from meritless oneswhile keeping expenses to a reasonable level and moving thecase toward resolution; determining when and how to decide Class certification mo-tions;3 Class Action Pocket Guide reviewing notice plans and notices to the Class to ensure thebest notice practicable; coordinating with state and federal Judges the managementof competing and overlapping Class actions; evaluating the merits of proposed settlements to determinewhether they are fair, reasonable, and adequate for classmembers; and assessing reasonable attorney fees for counsel for the classby ensuring that fee awards are commensurate with the valueof the results to the Class as a Part I of this Guide , we consider the matter of selecting coun-sel, and in Part II, we touch on the timing and significance of deci-sions about whether to certify a Class .

9 In Part III, we focus exten-sively on both procedural and substantive elements of reviewing aclass settlement, generally the most important challenge you willface in Managing Class Action litigation. Part IV concerns reviewingrequests for attorney fees. In Part V, we discuss the role of govern-ment actors; in Part VI, coordination with state Judges ; and in PartVII, the use of special masters and court-appointed Action Pocket GuideI. Selection of CounselAttorneys representing classes are in a position to control the litiga-tion process far more than attorneys representing individual Class Action device enhances the role of such lawyers by virtueof the fact that even the approved Class representatives do not havelegal control over the litigation. Your power to appoint counsel andapprove or reject a Class settlement may be the only checks andbalances on the power of attorneys for the are at least five approaches to selection of counsel in classaction litigation.

10 Note that in multidistrict litigation (MDL), the trans-feree judge has the authority to appoint lead and liaison counselregardless of whether Class claims are involved. See MCL 4th approach you use, it is important to make clear to coun-sel at the outset the content and form of records you require tosupport applications for awards of fees and expenses or for a lode-star cross-check. See Attorney Fee Issues, infra Part IV, and MCL4th You may find it useful to instruct Class counsel that alllawyers should submit fee and expense requests in a similar for-mat one that will be accessible by the Single-lawyer modelIn the typical Class Action , the lawyer who filed the case will be theonly logical choice for appointment as Class counsel. That lawyermay have investigated the case independently or may have spokenwith government regulators, investigative journalists, or other pub-lic information sources.