Class action litigation in the United States is fairly characterized by two signal procedural events that largely determine the outcome of the litigation. The first crucial event centers on a court’s decision to certify or not certify a class under the relevant class action rule. If the court evaluating class certification refuses to certify the class, a plaintiff may appeal the denial to a higher court. However, federal appellate courts have discretion to hear such appeals and the standards for review of such decisions often make it difficult to appeal adverse certification decisions. Consequently, if a plaintiff is denied permission to proceed with a proposed class action, more likely than not the plaintiff will dismiss the case and abandon efforts to resolve the underlying litigation on a classwide basis.
On the other hand, if a court does certify the class, litigation risks and strategies are modified, and parties to the dispute will act in fairly predictable fashion. In this situation – where a court grants class certification – defendants also are likely to seek interlocutory review of the trial court’s certification decision. If the defendant prevails and the appellate court overturns the certification decision, the plaintiff may then decide to withdraw the litigation (in the same way that a plaintiff most likely would do if the trial court initially denied certification). If, instead, the appellate court affirms the class certification decision, then the litigation will develop procedurally, with the parties engaging in discovery, various pre-trial motions, and eventually a trial by jury.
However, the reality in most American class litigation is that class actions are rarely if ever tried to a jury. It is very difficult to find reported evidence of class actions that have been tried to jury verdicts in American courts. In class actions that survive both trial and appellate orders certifying a class action, almost all these class actions are settled before trial. Indeed, a substantial jurisprudence and academic literature supports the conclusion that a court’s class certification decision is the seminal event in the class litigation process, because the court’s affirmative decision to certify a class places considerable pressure on defendants to settle the action.
Consequently, the second signal event in class action litigation is the settlement process and judicial approval of a negotiated settlement. In American class action litigation, very little trial “litigation” of class actions to juries actually ever occurs. When American attorneys speak of class action litigation, then, they typically refer to the two major procedural encounters between plaintiffs and defendants: first, the adversarial fight over class certification, and second, the negotiation that results in class settlement. Most American attorneys who identify themselves as class action litigators actually focus most of their “litigation” efforts on these two aspects of class litigation.
This paper discusses class action settlements in American class action practice. The article surveys various aspects of class action settlement, including the history, theory, jurisprudential bases, and doctrine, as well as the procedural and substantive law relating to settlement classes. In surveying the concept of the American settlement class, this paper addresses: (1) the role of settlement in ordinary and class action litigation and the historical development of the settlement class concept, (2) due process requirements for the binding effect of settlement orders and the possibility of subsequent collateral attack against settlements, (3) possible types of settlement classes, (4) ethical problems inherent in class action settlements and potential abuses, (5) forces that militate in the negotiation of a settlement, (6) parties and fiduciaries involved in the settlement process, (7) substantive terms of a settlement, (8) procedural rules and standards governing the finalization of settlements, and (9) implications of the Class Action Fairness Act of 2005 for class action settlements.
Arguably, in addition to the class certification decision, the most important dimension of class action litigation in the United States is class action settlement. Within the last decade, both the United States Supreme Court and the American Congress have turned their attention to problems involved in class action settlements, setting forth judicial and statutory principles to guide current class action settlements. In the Court’s last two pronouncements dealing with class action litigation, the Supreme Court has twice addressed problems of “settlement classes” in two landmark cases.
Additionally, the American Congress also entered the debate over class action settlements through provisions in the 2005 Class Action Fairness Act of 2005, which provisions directly set forth procedural and substantive requirements for class action settlement. These CAFA settlement provisions generally are intended to protect consumers involved in consumer class actions to receive fair and just resolution of their claims through negotiated settlement.
Linda S. Mullenix, Class Action Settlements in the United States, in La Conciliazione Collettiva 147 (Gregorio Gitti & Andrea Giussani eds.; Milan: Giuffre, 2009) [Published in Italian].