Do Mandatory Monetary Settlement Classes Violate Due Process?


Linda S Mullenix

4 Preview of United States Supreme Court Cases 221


This article previews the issues and arguments in Adams v. Robertson, an appeal on the Supreme Court’s 1996-97 docket. The chief issue the Court will address is whether the Due Process Clause is violated by settlement of a mandatory, non-opt- out, nationwide class action lawsuit that also extinguishes the damages claims of some class members? Stated differently, the issue here is whether the Due Process Clause requires that nonresident class members be afforded a right to opt out of a class to preserve the right and ability to pursue individual damages claims.

This case is singularly important because the Supreme Court is asked to resolve the problem left open by its 1985 Shutts decision and by the Court's decision not to address the problem in the Ticor Tile case. The Shutts problem has become increasingly prominent during the last decade, as more and more class litigants have attempted to resolve aggregate litigation through mandatory, binding settlement classes that incorporate damages claims, the release of damages claims, or both.

Although the Shutts problem exists across a broad range of substantive class action lawsuits including securities derivative litigation, this case also is significant for global mass tort settlement classes certified under Rules 23(b)(1) and 23(b)(2), such as the Fibreboard case in the Eastern District of Texas.

The Supreme Court has not spoken as yet concerning due process requirements applicable when either a state or federal nationwide class action settlement seeks to bind class members who lack minimum contact with the forum. In 1985 the Supreme Court held that a Kansas class action judgment binding class members with no connection to Kansas did not violate the Due Process Clause of the Fourteenth Amendment. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985).

The Court reasoned that class members who did not elect to opt out, i.e., exclude themselves from the class, effectively consented to the trial court's jurisdiction. In addition, the Court noted that class action status involves numerous other due process protections, including notice to class members, the opportunity to be represented by independent counsel, and the trial court's oversight of the adequacy of class representation.

The Shutts decision concerned only the due process requirements for an opt-out class under Federal Rule of Civil Procedure 23(b)(3), not other types of class action lawsuits addressed by Rule 23. In a now very famous footnote, the Court indicated that its "holding today is limited to those class actions which seek to bind known plaintiffs concerning claims wholly or predominately for money judgments." In the intervening decade, state courts and lower federal courts have struggled with the due process requirements for other types of class action lawsuits, most particularly the types of mandatory, non-opt-out class action lawsuits permitted under Rules 23(b)(1) and 23(b)(2) that also include claims for damages.

The Court's silence concerning the due process requirements for mandatory class action lawsuits is called the "Shutts problem." This case asks the Supreme Court to resolve the problem.The Supreme Court now has the opportunity to indicate whether due process requires an opt-out right or additional due process protection for mandatory classes certified under Rules 23(b)(1) and 23(b)(2), an approach that theoretically may undermine the nature and purpose of those classes.

As a general matter, class action lawsuits under Rules 23(b)(1) and 23(b)(2) are useful only to the extent that they bind all class members and do not permit class claimants to exit the class and pursue individual litigation.

Alternatively, the Supreme Court may approve settlement of mandatory, mixed-relief class action lawsuits as long as the settlement is accompanied by an array of due process protections ("due process surrogates"), but not including an opt-out right. If the Court takes this approach, it will have to articulate the ways in which litigants who negotiate class action settlements must structure those settlements to preserve the due process rights of all class members.

Full Citation

Linda S Mullenix, Do Mandatory Monetary Settlement Classes Violate Due Process?, 4 Preview of United States Supreme Court Cases 221 (December 6, 1996). View Online