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Class Action Settlements and Mediation Blog

Here's a helpful post by my former colleague, Melanie Conroy of Pierce Atwood, describing a recent District of Maine decision approving a settlement in a wage and hour class action. The court had asked the parties to brief the effect of a December 2022 decision by the First Circuit in analyzing the fairness, reasonableness, and adequacy of the proposed settlement. That decision had reversed a district court's approval of a common fund class action settlement in a Telephone Consumer Protection Act case because no subclasses were established to avoid conflicts of interest among members of the single settlement class.

The conflicts arose, the First Circuit had concluded, because different class members possessed different claims under the statute, each with its own elements of proof and subject to different defenses. Because of those differences, the court held that the settling parties had failed to demonstrate that it would be fair, reasonable, and adequate to distribute the common fund evenly among all class members, as the settlement proposed. In the District of Maine case, in contrast, the court found that the "proposed settlement does not suffer from any of [the] fatal flaws" present in the First Circuit case, and that "the Settlement fairly apportions payment equitably among the Class Members."

You can read more about the First Circuit decision, which also addresses a circuit split over the availability of incentive payments for settling class representatives, in my earlier post on this website.

As these decisions make clear, how settling parties structure a class action settlement can determine whether a court will approve it. A mediator familiar with such decisions and with the dynamics of Rule 23's settlement approval process can help guide parties to a successful outcome.

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Class action settlements are complicated affairs. They can take months or even years to negotiate, followed by months to send notice and obtain trial court approval, and months or years longer if an approval order is appealed. The agreements memorializing class action settlements are often dozens of pages long or longer. They sometimes involve claims processes run by third-party vendors who are hired to manage years of complex data. Objections can require extensive briefing and at times result in evidentiary hearings. Between the attorneys’ fees incurred in the settlement process as well as costs of administration, class action settlements often result in expenditures of hundreds of thousands of dollars if not more, even before accounting for the agreed-upon payments to class members and class counsel.

So why do parties and their lawyers on both sides subject themselves to such a burdensome, time-consuming and expensive process? When you cut through all the posturing and all of the carefully crafted details of the written agreement and court submissions, what are the core terms at the heart of the settlement?

Every case and every class action settlement has its own unique drivers, but a few basic and familiar concepts are common to the vast majority of them. And they come in two varieties – the aims of the plaintiffs and their counsel and the aims of defendants. Respectively, they can be thought of as the Relief and the Release.

The Relief. Class counsel know their objective before they file suit: they want the best possible deal for the class they seek to represent. Few class actions go to trial, and from the outset, plaintiffs’ counsel typically view settlement as the desired outcome. In most cases, they won’t have a target settlement amount when they commence the action because they will not yet have the data from which the amount can be determined. However, they will have a general idea of the magnitude of the claim based on the size of the defendant, the general size of the affected class, the extent of the harm allegedly inflicted on the class members, the nature of the claim and the legal remedies available if they can prove it, and the amounts of settlements achieved in comparable cases. The value of the relief to the class takes on heightened importance in class actions because of the need for judicial approval. It will determine whether a court will approve the settlement as fair, reasonable, and adequate under Federal Rule of Civil Procedure 23(e), or comparable state provision. It also will be a factor in determining the amount of the attorneys’ fees the court will award class counsel. While there will be a host of important, subsidiary issues to resolve, the relief to the class is the key factor in class counsel’s decision to settle.

The Release. Defendants, too, will be focused on the cost of the relief they are being asked to pay. They might look for non-monetary ways to bridge gaps in the parties’ settlement positions that add value to the settlement without adding to the out-of-pocket costs, such as forms of prospective injunctive relief or consensual undertakings that will benefit class members in the future. The amount they are willing to pay will depend, in part, on how they calculate their litigation risk, including the probable outcomes if the case were to go to trial and the expense of getting there, as well as their degree of risk aversion, the extent of disruption to their business caused by litigation, and perhaps other, less quantifiable issues, such as employee relations, public relations, and reputational risk. The bottom line for any defendant when settling a class action, though, is the importance of achieving global peace, defined as an agreement that terminates the current lawsuit and prevents future lawsuits over the same or related conduct. While there are a number of factors that contribute to the extent of the peace that a defendant buys when settling a case on a class-wide basis, there are two interconnected provisions of the settlement agreement that require special attention: the class definition and the release. Put simply, the class definition will determine who will be bound by the release, and the language of the release will determine what they are giving up by settling (or, for most class members, by not opting out of the settlement). Other provisions of a settlement, such as a “blow-up” provision (which allows a defendant to withdraw from the settlement if too many class members opt out) may also determine how much peace the settlement will buy, but the class definition and the release language are core considerations in a defendant’s decision to settle.

The Rest. At the risk of over-simplification, when one gets beyond the relief and the release, the rest is mostly process meant to ensure that the absent class members are getting a fair and equitable shake. It comes in the form of notice, opt-out provisions, and the right to object to the settlement. “The Rest” also includes the mechanics of how the settlement will work. For example, will each class member receive the same settlement amount? If not, how will each class member’s payment be calculated? Will there be a claims process, or will class members receive automatic payments? Will there be residual funds, and if so, how will they be dealt with? What will happen if a class notice or settlement check bounces back? These are important issues that also will require careful consideration and drafting and that a court will weigh in deciding whether to approve the settlement, but they are secondary to the issues of relief and release that drive the parties to agreement.

Take-Away. Not every class action should or will settle, but many do. To achieve settlement, parties and their counsel should stay focused on the core issues at the heart of any settlement: the relief that will be provided to the class, and the release that will be provided to the defendant. Once the parties agree on these core terms, they should be able to reach agreement on the rest.

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Having experienced class action mediations both as advocate and as mediator, I have witnessed a variety of approaches to the mediation process, some helpful and some unhelpful. Here is a partial list of do’s and don’ts when representing parties to a class action mediation.

DO come to the mediation fully prepared, knowing the strengths and weaknesses of your case and understanding the litigation risks to both sides. The risk analysis will depend in part on the stage of litigation during which the mediation occurs. For example, has the court yet ruled on the motion for class certification? If so, what is the likelihood that the court’s decision will withstand an appeal (if it hasn’t already gone through a Rule 23(f) appeal)? If not, how do you handicap the likelihood of class certification? Has summary judgment been briefed, argued, or decided? If not decided yet, what are the probabilities of success for each side? If plaintiffs prevail, what models are available for measuring damages, and which of those models have the greatest chance of being chosen? Are there any significant cases pending on appeal in a relevant jurisdiction that could change your assessment of the case? These and other questions should be fully evaluated and discussed with your clients before you set foot in the mediator’s office.

DO understand and clearly communicate the scope of the class that would be covered by a settlement. As I have mentioned in previous posts, the class definition is central to any settlement, as it determines who is eligible for class relief and who will be releasing claims. Class definitions have a few key components, including their geographical scope, their temporal scope, and the event, transaction, or relationship that entitles the class members to participate in the case. Clarity early in the process around how the settlement class will be defined can help prevent post-mediation disputes about the scope of the settlement.

If you are part of a group of lawyers, DO identify your roles and work out any differences among you in advance of the mediation. Class action lawyers often travel in packs, especially on the plaintiffs’ side. By the time you get to mediation, your respective roles may or may not be clear, depending in part on whether the court has appointed lead counsel or liaison counsel. Decide in advance who will speak for the group and lead the negotiation process. Have discussions among the group in advance about the range of settlement options that would or would not be acceptable. If the case will require an allocation among a group of attorneys or the subclasses they represent, try at least to arrive at a tentative allocation before the mediation. Do your best to leave any differences behind before the mediation session begins in order to avoid an avoidable blow up during the precious time in the mediator’s office.

DO be as candid as you can be with the mediator. Help the mediator understand the drivers behind your decision making. Is the case only about money, or are there other interests at stake, such as concern that the litigation could set a precedent that will adversely affect either side going forward, or about the publicity that further litigation might generate. You don’t have to authorize the mediator to disclose your interests to the other side, but helping the mediator understand them privately will help them facilitate the settlement that you and your counterparts across the table are there to achieve.

DO play nice. Each side is at the mediation with the same goal: to reach an agreement that will benefit their clients and avoid the ongoing risks and costs of litigation. If you are successful, you will work together to seek the court’s approval of the settlement you have hammered out. Avoiding acrimony during the course of the mediation will help set the stage for a cooperative relationship that will optimize the likelihood that you will succeed. If the relationship has been strained before, the mediation is the time to begin to repair the damage by treating each other with the respect and dignity that you all deserve.

DON’T get discouraged or close doors. I don’t know what the statistics would show, but in my experience a large percentage of class actions do not settle after the first mediation session. Although the parties may walk away from the first session still miles apart in their settlement positions, they often will return after a few days, weeks, or months to pick up where they left off, and may well reach an agreement after two, three, or even more sessions. The key to ultimate success in those situations is not to get overly discouraged and not to form grudges or part ways in an uncivil or unprofessional manner. If the case doesn’t settle on day one, chances are it will settle sometime later, and to get to “yes” you still need to be able to communicate productively with the other side.

DO write it down. When, after a day or more of mediation, you finally reach agreement on the key terms of a settlement, a good mediator will work with you to reduce the agreement into a short term sheet or memorandum of understanding that both sides will sign before leaving the mediator’s office. The document should expressly contemplate the drafting and execution of a more complete and binding settlement agreement in the coming days or weeks, and should also describe clearly the parties’ preliminary agreement on key terms, including but not limited to the settlement amount, how the settlement amount will be distributed to the class, any incentive payments to named plaintiffs, the class definition, the general nature and scope of the release, and the parties’ understanding about the amount of and procedures around attorneys’ fees.

DO select a mediator with class action experience. Class actions and class action settlements are complicated. Settling a class action is not like settling an individual claim, and conducting a class action mediation is different as well. When you are selecting a class action mediator, make sure that they will bring to the table enough experience with class action settlements to recognize their unique nuances, challenges, and opportunities.

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