What is the appropriate notice to different kinds of class actions, different stages of the same lawsuit? Why are they different?
If you haven't already, be sure to read part 1 of this article.
The Fear – Invalid Class Action Notice
Hundreds of thousands, perhaps millions, of class action notices mailed for a single case.. Different types of class actions have different notice requirements. And these requirements change at various stages of class actions. What is the appropriate notice to different kinds of class actions, different stages of the same lawsuit? Why are they different?
Spoiler Alert: Central theme. Protect the interest of absent class members. They are bound by a class action settlement or judgment. In the end, the court holds responsibility to ensure legally adequate notice. Judges, litigants fear --- deficient notice exposes the settlement or judgment to collateral attack.
So, it better be done right.
The New Landscape of Rule 23 Notice
Federal Rule of Civil Procedure 23 was amended in December 2018, providing significant changes in class action notice requirements. Those changes are addressed in Part III of this series.
In short, the new rules change finally appreciates in law the technological changes in communications by creating a new standard of “United States mail, electronic means, or other appropriate means,” meaning no particular means --- particularly expensive U.S. mail, is statutorily preferred any longer. Or, the internet is part of everyone’s life, let the law finally live in reality.
Notice Requirements Vary for Different Types of Class Actions
There are many different types of class actions, each with their own set of rules. For an in-depth review of the differing types of class actions, please click here for Class Action 102 – The Different Types of Class Actions. In summary, some class actions have no ‘opt-out’ rights. (For more information about ‘opt-out,’ click here for I Received a Class Action Notice – Opt-Out or Stay In?)
If a class action has no right to ‘opt-out’ rights (I don’t want to be part of this class action), the notice requirements decrease or do not exist at all. Indeed, a Rule 23(b)(1) class action, defined as the genuine risk that separate individual actions would lead to “incompatible standards” or prejudice, usually to the defendant, and 23(b)(2) for declaratory and injunctive relief, --- no opt-out rights. Why? A Rule 23(b)(1) class action would be undermined if a class member could opt put as its purpose is to prevent inconsistent adjudications. The same reasoning holds for Rule23(b)(2) actions seeking injunctive and declaratory relief with respect to the class as a whole. If someone could opt-out these different standards could apply to different individuals.
Bottom line - Certification notice is discretionary for Rules 23(b)(1) and (b)(2). Rule 23(b)(3) class actions, seeking monetary damages, are most common. In these cases class members must receive notice of certification and opportunity to opt-out or be heard about their concerns, as their monetary claims could be forever barred.
The Old Days (2018) - ‘Best Notice Practicable’
Even though a new Rule 23 was instituted in December 2018, most of the rule remains the same. Certification of a class is still a critical stage in class action litigation. Notice of class certification remains mandatory for (b)(3) damage actions, but discretionary for (b)(1) and (b)(2) injunctive styled actions. A (b)(3) action effectively binds class members unless they affirmatively opt-out. But Due Process requires notice, and the right to opt-out and pursue claims separately.
The former standard did not appreciate ‘electronic means’ to have equal footing as U.S. Mail as ‘best notice practicable.’ Rule 23(b)(3)(B). The old and new rule both state “best notice that is practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort.” The rule does not require notice always be received or is received before the opt-out deadline. The question is not actual notice but reasonably calculated to reach absent members. The concept is that those actually receiving notice represent the interests of unaware class members.
For the sake of background and understanding the development of this rule, consider the 1974 U.S. Supreme Court case of Eisen v. Carlisle & Jacquelin when the court ruled “individual notice must be sent to all class members whose name and addresses may be ascertained through reasonable effort.” In Eisen 2,250,000 class members were odd-lot traders and brokerage firms in an antitrust/securities class action. Now, that’s a large class, and sending mail to everyone is expensive, even in 1974. The class argued that the cost of class notice was prohibitive and that in reality, no one had the incentive to opt-out because their claims were not large enough to warrant bringing individual suits. The Supreme Court said, so sorry, but notice was not discretionary, regardless of the costs. Due Process trumps all.
Reasonable Efforts – What Does That Mean?
Here, back in 2018, before the rule change, first-class mail was the norm. E-mail could be an adequate substitute. Concerns always arose that class action members ignore or are unwilling to open an email or visit a site because of identity theft, internet scams, and virus concerns. However, depending on the size of the class, whether it is an internet-based case (i.e., all class members bought from Amazon) with available email addresses, or limited or unavailable postal addresses.
If an objector or anyone else wishes to argue nonreceipt as a basis for invalidity they must argue the notice plan not a reasonably calculated for best notice. Not receiving the notice is only step one.
Reasonable efforts depend on the facts of the case. No precise definition of ‘reasonable efforts’ exists. Are there names, last known addresses, known to the parties and capable of identification? Courts must weigh the means to identify and locate class members and balance against its anticipated benefits versus costs. Remember, you don’t need to notify everyone if it would require an unreasonable effort. But whichever party has information to identify class members must provide it to the other, and ultimately the class action administrator.
As an example, consider the case of farmworkers seeking damages for breach of employment agreements. A standard notice plan would be:
After that, courts could have heard to determine response rates to notices before final approval of a settlement. It would be up to a class member not receiving any notice to challenge the reasonableness of this plan and argue a better method they could have been contacted.
Different Types of Non-Electronic Notice
There is no ‘one size fits all’ when class action notice is involved.
Electronic notice, such as email, Facebook, creation of an internet web site, etc., are discussed in part III Class Action Notice Post-2018 Rule 23 Amendments.
Certification - Content of the Notice
A Rule 23(c)(2)(B) Notice must contain:
Nature of the case, claims, issues or defenses;
The content must be in plain English and designed to capture the attention of class members. As in art, space is as important as content. Hence, the notice must be readable, and capital letters, highlighting, etc. are permitted, but don’t overdo it! Interestingly, notices are not required to say if a class member opts out they will not be adversely affected by class action judgment or be permitted to participate in class action recovery. Simpluris usually counsels that it is a better practice to include this additional notice though, even if it is not required. Why run the risk of a collateral attack?
While in the end, it is the court’s ultimate responsibility for the contents of the notice, not the parties; it is the latter that bears the brunt of a judgment or settlement reversal … not the judge.
Settlement Notices – The ‘Reasonable’ Standard
Courts must require parties to give ‘reasonable’ notice of settlement terms to all class members bound by the proposed settlement. Note the lesser standard than ‘best notice practicable’ of certification. Part of this lessened standard is that a class action settlement is usually dependent on the response rate of claimants. If the response rate is marginal, the court can determine that the settlement notice plan was inadequate. If the response rate is high, how can anyone argue lack of reasonable notice?
Again, the court determines what reasonable manner of notice is, and they must include the time and place of a ‘fairness hearing’ along with a manageable process for objections. Of course, the notification must contain adequate information about the proposed settlement to permit the formation of objections. Hence, for certification, the decision has already been made, a heightened standard of notice. For settlement, the chance remains to repair or undue faulty notice issues.
Lastly -Don’t Forget Notice to the Government
Defendants are also required to notify appropriate federal and state officials of proposed settlements within ten days of the order. It is up to defendants to determine which officials in the federal government are to receive notice. The attorney general is the usual default unless a particularized agency is involved, such as banking regulators. As for appropriate state officials, defendants must notify those having primary regulatory or supervisory responsibility, such a licensing with respect to the defendant to conduct business in the state.
How Have Things Changed?
Read on in part III, Rule 23 Amendments, The Future is now!