The Roles of the Players in Class Settlements. Part 1: Defense Counsel

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Class action settlements are different from other settlements for several reasons. The most obvious difference is that class action settlements are subject to a unique notice and court approval process. The overriding purpose of the process is to ensure fairness to members of the class. Judicial oversight is deemed necessary because most class members have little knowledge of the lawsuit and are unknown to plaintiffs’ counsel yet will be bound by the decisions counsel make on their behalf.

The nature of class action settlements and the process to which they are subject fundamentally alter the roles of counsel and the court. This post and the ones that follow will explore these altered roles. We will start with the simplest one – the role of defense counsel.

Examining the role of defense counsel in a class action settlement is simplest because, unlike plaintiffs’ counsel, defense attorneys generally possess no potential conflict of interest in the settlement approval process. Their duty to their clients remains undivided throughout the proceedings, subject only to their ethical duties and responsibilities as officers of the court. The role takes on different forms in the three key stages of settlement: negotiating the key terms of settlement, drafting the settlement agreement, and seeking settlement approval.

Negotiating the Key Terms

The goal of defense counsel in the settlement negotiation is straightforward: negotiate the best possible deal for their client. However, the best possible deal in a class settlement may not be the same as the best possible deal in a private one. It must be a deal that a court will view as fair, adequate, and reasonable for class members. For this reason, a defendant that wants to achieve a class-wide settlement cannot adopt a take-no-prisoners approach to the settlement terms. Defense counsel’s duty to their clients certainly demands that they press hard to achieve their clients’ business objectives on favorable terms, but they must remember, and may need to remind their clients, that getting plaintiffs’ counsel to accept their terms is only the beginning, not the end, of the process. A defendant that overreaches by demanding terms that are objectively unreasonable and unlikely to be approved puts the entire settlement, and all of the substantial time and expense incurred in pursuing it, at risk.

While plaintiffs’ counsel have their own obligation not to sell the class down the river, experienced defense counsel, knowledgeable about the types of settlement terms that courts favor and those courts disfavor, also must be prepared to advise their clients when they are pushing too hard for terms that are unlikely to gain court approval or withstand possible appellate review. And, as a corollary, if plaintiffs’ counsel are inexperienced or inattentive, defense counsel may have to make an extra effort to ensure that plaintiffs’ counsel are not requiring terms or making procedural errors that could create or perpetuate conflicts among settlement class members or between the class and counsel that could put the settlement at risk.

Drafting the Written Agreement

After the key terms are agreed upon, counsel for both sides begin work on the written settlement agreement and all of its exhibits (such as the class notices). Which side takes the lead on the initial draft will vary depending on the case and the parties’ inclinations, but ultimately the drafting represents the collective effort of the now more closely aligned interests. Until the agreement is reduced to a signed writing, of course, counsel must still be vigilant to protect and advance their clients’ interests, and there typically will be disagreements along the way. Still, in this phase counsel for both sides can work through their disagreements knowing that they share the ultimate goal of getting the deal done. The settlement agreement will contain some standard boilerplate, but much of it will need to be customized in accordance with the basic terms that have been agreed upon and tailored to the needs of the particular case. For defendants, the most important provisions of a class action settlement are the class definition and the release, and counsel will need to pay careful attention to their scope and wording. Despite the more friendly nature of the parties’ relationship in this phase of the case, the need for counsel to be alert to the many complex details of the written agreement make it common for this drafting process to take longer than expected. Defense counsel should do their best to work efficiently with their client and with class counsel to avoid unreasonable delays.

Seeking Court Approval

Once the parties have reached agreement on settlement terms and prepared the written agreement, their posture towards each other and towards the court fundamentally changes. Originally opposed, their interests in obtaining approval are now aligned, though the burden rests primarily on class counsel. Defense counsel typically assume a more passive role in this third stage of the process, focused primarily on making sure that everyone else is fulfilling their responsibilities, such as meeting the settlement agreements’ deadlines for court filings, notice mailings, and settlement account funding. Defendants may choose (and, in my opinion, are usually well advised) not to join in the motions for preliminary or final approval, but counsel will want to review and have input on drafts of class counsel’s motions, memoranda, and declarations before they are filed. Their purposes in doing so include making sure that class counsel’s filings accurately describe the settlement and the defendants’ positions, and sufficiently demonstrate to the court that the settlement requirements of Rule 23 (or applicable state rule) have been satisfied. Defense counsel also will want to make sure, both in the settlement agreement and through class counsel’s filings, that the documents cannot be interpreted to reflect an admission by defendant that the requirements for certification of a litigation class are met, in the event that the settlement is not approved and the parties are returned to their adversarial positions. As with the motion papers, class counsel ordinarily should take the lead in court in arguing for approval, with defense counsel standing by fully prepared to respond to any questions or concerns raised by the court that they are in a better position than class counsel to answer.

If objections are filed, defense counsel also should be prepared to support class counsel in responding to them. Similarly, if the court decides to conduct an evidentiary hearing to entertain objections, defense counsel should assist class counsel in the conduct of the hearing to the extent appropriate to the case. Defense counsel also should coordinate with class counsel in briefing and/or arguing any appeal from the trial court’s settlement decision.

Conclusion

In sum, defense counsel’s role in the class action settlement process is significantly different from their role in negotiating a private settlement agreement. Counsel must keep their eye on several moving pieces, always working diligently to protect their clients’ interests, yet never forgetting that it is the court that decides whether the settlement will occur.