The author presented the following paper at the 2020 Class Actions National Institute of the American Bar Association.
What makes mediating a class action different from mediating an individual case? In both settings, parties seeking to resolve their disputes agree to a non-binding process designed to get them to “yes.” In both settings, the parties engage a third-party neutral who will bring them together, then separate them, then bring them together again, employing a variety of techniques to reach an accord. And in both settings, the parties are usually represented by counsel who will advocate for them and advise them about the risks and probabilities they face.
So, again, what makes mediating a class action different from mediating an individual case? Plenty. Here are some of the key differences.
The Timing of the Mediation
Class action litigation shares many of the attributes of individual litigation. It begins with the filing of a complaint, is often followed by a motion to dismiss, and if the case survives, will typically advance first to discovery, then to summary judgment, and finally to settlement or trial.
But Rule 23 adds a significant, potentially dispositive stage that does not exist in individual litigation: the crucial and potentially dispositive motion for class certification. Usually filed after pre-certification discovery (that is, discovery relevant to the claims of the named plaintiffs and to the issue of class certification) and before the summary judgment stage, the outcome of the motion for class certification will determine whether the plaintiffs may aggregate the claims of the many or only the isolated claims of the few, or the one. A plaintiff victory on class certification significantly heightens defendant’s litigation risk and enhances the settlement value of the case. A defendant victory, on the other hand, can all but end the case, or at least convert it into something far more manageable with far less exposure.
In individual cases, mediation generally works best after discovery, when the relevant facts have been shared among the parties, and before a decision on summary judgment, when the risks tip heavily in one side’s favor. In a class action, mediation also tends to be more effective after at least some discovery has taken and before the court decides class certification. This timing can happen in multiple ways: before the certification motion is filed, after it is filed but before it is argued, or after it is argued but before it is decided. And if a mediation scheduled at any of these points is unsuccessful, there is always the possibility of conducting another mediation before or after the summary judgment motion or ruling. In sum, a class action provides additional timing opportunities that do not exist in individual cases. And for parties whose ultimate goal is settlement, that is not a bad thing.
The People in the Room
The parties and their attorneys attend individual mediations. For corporate parties, that usually means someone with settlement authority. But who are the parties in a class action? And which parties should show up at the mediator’s office?
On one side, the fact that a case is postured as a class action makes no difference – a defendant is a defendant is a defendant. This assumes, of course, that we’re talking about a plaintiff class action. There is such a thing as a defendant class action, but such cases are rare and beyond the scope of this paper.
On the other side, the named plaintiffs obviously are parties and have a stake in the outcome of the case regardless whether a class is certified. Does that mean the named plaintiff should attend? The answer is: it depends. In many class actions, there is not much that a named plaintiff can add to the mediation process. If the negotiations contemplate a class action settlement, the named plaintiff’s stake in the outcome is relatively small, and class counsel will be focused on getting the best deal possible for the entire class. And while named plaintiffs have a role in deciding whether to accept a settlement, they usually exercise that role by relying on the advice of class counsel. In a very real sense, class counsel are the decision makers at the mediation, and there is little value having the named plaintiffs in the room where it happens.
There may be some types of cases where the named plaintiff’s presence is important. For example, in an employment class action, it could be helpful to have the plaintiff at the mediation in case questions come up about the employer’s practices. But in many class actions, such as consumer cases or antitrust cases, the named plaintiffs will have nothing to do at the mediation, and there is no point wasting their time.
The People Not in the Room
In an individual mediation, all the stakeholders are normally present. Not so in a class mediation. Depending on the size of the class, there may be tens, hundreds, thousands, or millions of people whose rights are being negotiated but who are not in attendance and likely have no idea that a lawsuit has been filed on their behalf, let alone that there is a mediation.
Although such stakeholders are not in the room, their role in the settlement process will not be lost on those who are. That’s because, unlike in an individual mediation, the measure of success at a class mediation is not its production of a settlement among the attending parties, but the production of a settlement that will win court approval. And approval will depend on the settling parties’ ability to satisfy a court that the settlement is fair, reasonable, and adequate for all members of the settlement class. There are not supposed to be sweetheart deals in class action settlements, and Rule 23(e) is designed to ensure that settling parties do not collude to take advantage of absent class members. So the questions that experienced class action litigators and mediators will ask at the mediation are:
- How likely is it that the proposed settlement will draw objections from absent class members?
- If there are objections, what is the likelihood that the court will sustain them and reject the settlement?
- If there are no objections, how great is the risk that the court, acting in its role as fiduciary for absent class members and exercising the enhanced diligence required under recently amended Rule 23(e), will reject the settlement or send it back for modification?
In a federal case, CAFA also adds the wrinkle that appropriate state and federal authorities must be advised of the settlement proposal. The CAFA notice requirement is designed to add another layer of protection for absent class members, and over the years CAFA notice recipients have taken more active roles in reviewing and commenting on proposed settlements. Although in most cases the risks of state and federal intervention are low, they also should be considered during the mediation process.
The Joint Session
Because of the differences described above, the structure and dynamics of class action mediations also tend to differ from those of individual mediations. When an individual plaintiff, or an officer of a corporate plaintiff, attends a mediation, one of the defendant’s goals is to persuade that person to compromise their claim because of the litigation risks they face. That effort at persuasion often happens in a joint session at the beginning of the mediation, where defense counsel makes an opening statement ostensibly to the mediator, but in reality with the plaintiff or plaintiff representative as the intended audience.
Counsel in a class mediation often choose to skip that step, especially if the only attendees representing the plaintiff are the attorneys. By the time the mediation session occurs, counsel on both sides know their case and likely have exchanged mediation statements presenting their positions in the best possible light. The mediator also has read the mediation statements, and any questions the mediator has can be addressed either in a joint session without opening statements or in private shuttle diplomacy. The mediator may want to begin the mediation with a joint session to explain to all parties how the mediation will be conducted and to hear from the parties about any special issues they would like to bring to the mediator’s attention in the presence of all counsel, but attempts by one side to persuade the other through oral argument or posturing are likely to be a waste of everyone’s time. Better to let the mediator work his or her magic in a series of private sessions until the discussions either have progressed to the point of near-agreement or have bogged down and would benefit from having everyone in the same room.
The Term Sheet
All good mediators know the importance of preparing and having the parties sign a term sheet at the end of a successful mediation session. Doing so helps avoid any disputes or confusion over the terms of the agreement in principle that the parties reached.
When a class action mediation results in an agreement in principle, it is also important that some of the key terms be reduced to writing before the mediation adjourns. Class action settlement agreements tend to be lengthy documents that address many detailed, material terms, but the term sheet should focus only on the most salient of them. Examples of what should be included are:
- The class definition. The term sheet should define the settlement class (including any multiple classes or subclasses) as clearly and definitively as possible, with the understanding that the definition may be refined by agreement in the final settlement documents. The definition should include, inter alia, the temporal and geographic limits that apply. The entire administration of the settlement, including the delivery of notice and the distribution of relief, will depend on understanding who is in and who is out of the settlement class. The class definition will also determine who is bound by the release and other settlement terms. If during the mediation it appears to the mediator that the parties are defining the class in different ways, the mediator may need to address the class definition even before an agreement in principle is reached in order to keep the negotiations on a productive track.
- The relief to the class. This one is obvious, but the scope of relief to the settlement class or classes also should be clearly set forth, including both monetary and non-monetary relief.
- Service awards. Most class action settlements include service awards to the named plaintiffs for the time and trouble they incurred in prosecuting the lawsuit on behalf of the class. Service awards generally represent a very small percentage of the total settlement amount, with named plaintiffs often walking away with four- or five-figure payments on top of any relief to which they may be entitled as members of the settlement class. The existence and amount of service awards in class action settlements are rarely controversial and take up little time at the mediation. However, recently a panel of the 11th Circuit ruled that service awards are unlawful, based on two Supreme Court decisions from the 1880s in non-class, common-fund cases. Whether that decision will survive further review in the 11th Circuit or the Supreme Court, and whether it will persuade other Circuits to follow, is questionable. But if the settling parties intend to include a service award in their settlement, it should be specified in the mediation term sheet.
- Residual funds. In a monetary settlement that is likely to result in residual funds, the term sheet may provide some preliminary indication of how those funds will be handled. Courts have not been friendly to reverters (provisions that allow unclaimed funds to be returned to the defendant), so the issue usually becomes whether residual funds will be subject to a second distribution to the class or will be paid to a cy pres
- The scope of the release. The class action defendant is going to want global peace, which means as broad a release as possible. For a variety of reasons in certain cases, such as preventing the inadvertent release of unknown claims, avoiding objections, reducing the risk of non-approval, or supporting the request for attorneys’ fees, plaintiffs’ counsel may want the release to be narrowly circumscribed. Obtaining general agreement at the mediation about the scope of the class release and reducing it to writing before the parties go their separate ways can avoid significant cost and delay in the negotiation of the final document.
- The allocation of administrative costs. Once an agreement in principle is reached, the parties in most cases will need to engage a settlement administrator to handle the notice, opt-out, and distribution processes. The term sheet should specify who is going to pay the administrator’s costs.
- Attorneys’ fees. In many cases, the parties will not discuss attorneys’ fees until after they have reached agreement on the relief that will be provided to the class. Defendants often agree to pay a total settlement amount, and are indifferent about how much of that amount will be apportioned to attorneys’ fees. Many agreements include a “clear sailing” provision, representing the defendant’s commitment not to object to a fee request up to an agreed-upon amount. Whatever agreement is reached about attorneys’ fees at the mediation should be included in the term sheet.
The Importance of Civility
Most litigators who have been practicing a while would likely agree that lack of civility between opposing lawyers was once more prevalent than it is today. Sometimes incivility was an aspect of some lawyers’ characters; other times, it was employed to impress clients who wanted their lawyers to be aggressive. The irony of the nonfiction book title “A Civil Action” (in which one of the minor characters happens to bear my name) is that so much of the lawyers’ behavior was anything but civil. After years of abuses, courts began to clamp down, with some adopting standards of civility. Civility standards tend to be aspirational, but their adoption sent a clear message to lawyers in the adopting jurisdictions that judges were fed up with bad behavior in their courtrooms, in depositions, or in other settings that affected the cases before them.
Even if lawyer behavior has improved, that does not necessarily mean that lawyers who are adversaries like or are cordial to each other. Good litigators still fight hard, and hard fights naturally strain relationships. And the attitudes, prejudices, and unconscious biases of each side of the class action bar also can create hostilities among otherwise professional attorneys.
The need to get along, although present to some degree in every case, is heightened in class mediations because of the nature of the class action settlement process. Before settlement, plaintiffs’ and defendants’ counsel occupy their typical roles as adversaries, with each side trying to prevail in motion practice, appellate practice, and in some cases, at trial.
Once the parties arrive at a settlement, interests realign. Because both sides now share an interest in obtaining settlement approval, they need to work together to craft the settlement agreement, to facilitate class notice, to overcome objections, to satisfy the court that the requirements of Rule 23(e)(1) and (2) have been met, and to ensure that the requirements of the final approval order with respect to the distribution of any settlement fund and/or the implementation of injunctive relief are fulfilled. This fundamental shift that, of necessity, turns adversaries into allies makes it all the more important that they not burn bridges at the mediation or, really, at any stage of the litigation. Experienced class action attorneys understand this, and will treat each other with dignity and respect throughout the settlement process.
The Virtue of Patience
Because of the relative complexity of class action settlements and their attendant risks, as well as the factual and legal complexities of the underlying claims in some cases, getting to “yes” can take significantly longer than in an individual mediation. I recently settled a complex, high-exposure case that went through four mediations with two different mediators over the course of a couple of years. While that may be an extreme example, such protracted settlement negotiations with multiple mediation sessions spanning different stages of the litigation are not unheard of and are probably more common than one would think. They almost certainly are more common in class actions than in individual cases. If the first mediation does not succeed, counsel should not assume that a second, third, or even fourth session later in the case would not produce a settlement. After all, although good litigators are always willing and able to try their cases, most plaintiffs’ counsel and defendant corporations do not want to take that risk, and if a case is not disposed of by motion practice, trial is the only alternative to settlement. So be patient and be open to returning to the mediation room if the first mediation session fails to achieve your goals.
Choosing the Mediator
You wouldn’t go to a cardiologist when you need brain surgery, and you wouldn’t bring in a real estate attorney to try a personal injury case. No disrespect to the cardiologist or the attorney, but every professional has her own unique combination of training and experience and one size does not fit all.
There are a lot of mediators out there, but not all mediators have experience with class actions. When choosing a mediator, you should try to find someone who has litigated or mediated a meaningful number of class action cases. That person can be a retired judge who presided over a number of class actions while on the bench, a professional mediator who has mediated class actions, or an experienced class action attorney in private practice who brings to the table mediation skills, training, and a reputation for fairness. The right mediator can be sensitive to the dynamics or the negotiations, understand the motivations and incentives driving the mediation, and spot and help the parties avoid potential obstacles to ultimate court approval. And getting that accomplished before significant resources are spent drafting and negotiating the written settlement agreement, presenting the settlement to the trial judge, and incurring settlement administration costs, will increase the efficiency and reduce the risks inherent in the settlement approval process.
In short, the right mediator can help each side achieve their business goals. Which, after all, is the whole point of class action mediation.