Proposed Hybrid Rule 23 / FLSA Wage-Hour Class Settlement Denied

We have written a few posts about the challenges inherent in obtaining judicial approval of proposed class settlements here at the Missouri and Kansas Class Action Law Blog, and this latest order issued by Judge Kays denying a proposed hybrid wage-and-hour settlement outlines many of those concerns that counsel should be mindful of when negotiating and finalizing a proposed class settlement that will pass judicial scrutiny. (HT to our former colleague Eric Dirks who tipped us off about this order earlier this week – look for a guest post from him in the coming weeks).

In Stewart v. USA Tank Sales and Erection Co., No. 12-05136-CV-SW-DGK, 2014 WL 836212 (W.D. Mo. March 4, 2014), the plaintiffs brought a seemingly straight-forward wage-and-hour claim, alleging that their employer failed to pay them overtime; the wrinkle being that it was a “hybrid” class where plaintiffs bring a claim under both the federal Fair Labor Standards Act (FLSA) and under the state minimum wage law (here, the Missouri Minimum Wage and Maximum Hour Law, or MMWMHL).  As all of you savvy readers know, the class certification standards for these statutes are different, which ultimately became a problem down the road.

According to the order, the proposed settlement was negotiated with the assistance of a mediator within six months of the filing of the complain; informal discovery was exchanged, but there was no substantive motion practice.  While this sounds admirable and efficient, Judge Kays ultimately rejected the proposed agreement for a number of reasons:

  • Allowing Defendant to Serve as Claims Administrator with reversion provision “problematic” and “conflict of interest”

The  proposed settlement contained a reversion provision under which all settlement money not claimed by class members reverted back to an employer.  While these are not uncommon, they have been criticized because it could be evidence of potential collusion resulting in significant fees to plaintiffs’ counsel, especially if claim rates are low, resulting in limited benefits to the class. Id. at *6. While not objectionable in and of itself, the court found that the defendant’s role as claims administrator was a “patent conflict of interest” because the defendant “will have a financial incentive to deny class members’ claims.”  Id.  at *9.

  • Settlement Claim Form did not allow class members who wished to participate in FLSA settlement the opportunity to opt-out of Rule 23 state law settlement
This is where the hybrid Rule 23 / FLSA class became a potential landmine – the proposed claim form allowed class members to opt-out of both settlements, or “do nothing” to participate in the Rule 23 state law settlement, but not “opt-in” to the FLSA class.  The court found it problematic that the proposed settlement did not make any provision for a class member who wanted to participate in the FLSA settlement, but chose to opt-out of the state law settlement.  Id. at *7.  While the problem was likely academic, the court did not think it was fair that for a class member to receive a full share of the state law settlement, the class member also had to opt-in to the FLSA settlement as well.
  • Claim Provision for Rule 23 state law settlement unnecessary

Because all class members were current or former employees, and given relatively small class (~260) the court questioned whether “claims” needed to be made at all for the Rule 23 state law class, because the defendant could ensure “maximum participation” by mailing a settlement check directly to each class member.  Id.

  • Proposed class representative awards not supported by record

The parties proposed class representative incentive awards of $17,000 and $25,000, or approximately 4-6 times the average class member benefit.  The court found that a typical enhancment payment was between “$500 and $10,000″ depending on the work performed.  The court concluded that there was nothing in the record to support such an award.

  • Attorney’s Fee award problematic 

As a final matter, the court was concerned about the attorney fee award, where counsel was guaranteed its proposed fee “regardless of how many class claims are paid or how much the individual class members receive.”  Id. at *8.  The court was also concerned that plaintiff’s counsel proposed fee award had a “clear sailing” provision, which it called “prima facie evidence of simultaneous negotiations of merit relief and fees, which is a practice fraught with serious ethical concerns” justifying additional judicial scrutiny.  Id. (citation omitted).

While none of these factors individually would probably torpedo a proposed class settlement, the court noted that their “collective presence is a red-flag for potential collusion” which ultimately prevented judicial approval.

Sometimes “Better” Is Not Good Enough: Lessons For Proposed Class Settlements in the D. Kansas

Here’s an interesting order from the District of Kansas that was published right before the Thanksgiving holiday that demonstrates how a proposed class settlement can get denied not once, but twice, if counsel does not adequately represent all members of the putative absent class.

In Better v. YRC Worldwide, No. 11-2072-KHV, 2013 WL 6060952 (D. Kan. Nov. 18, 2013), the parties were before the court for a second time for preliminary approval of a securities class action settlement. While the court initially denied approval because plaintiffs failed to satisfy the Rule 23 requirements of typicality and adequacy, it appears the parties did not sufficiently address these deficiencies the second time around. Specifically, the court identified three areas where the parties failed to protect the interests of the putative class:

First, approval was denied because the Court found that the proposed settlement failed to provide any benefit to certain class members while requiring them to sign a release of their claims.  While the named plaintiffs asserted that Dura Pharms, Inc. v. Broudo, 544 U.S. 336 (2005) mandated this result because the class members would be unable to demonstrate a causal loss connection, the court was unconvinced.  Second, the court found that the named plaintiffs did not adequately represent the entire putative class as there were several subclasses that were unrepresented by the purported class representatives; unsurprisingly, some of these subclasses were provided less relief (or none at all) than the ones represented by the named plaintiffs. As the court noted “plaintiffs have not shown that [the proposed settlement] is fair, reasonable and adequate” to the unrepresented subgroups.

And as a final matter, the court denied the amended proposed settlement because the parties failed to adequately explain why cy pres distribution was even necessary.  (For more about the controversy over use cy pres class settlements, read this timely post at the Drug & Device Law Blog).  Looking to the American Law Institutes Principles on Aggregate Litigation Section 3.07, the court denied the initial proposed settlement because the parties failed to identify a proposed recipient of any excess funds; this time, the court found fault with the parties’ failure to provide sufficient information why the settlement funds could not be distributed further to class members, or why the named recipient, the FINRA Investor Education Foundation, was an appropriate beneficiary.

While class settlements can often help parties avoid protracted litigation, they do have to provide some tangible benefit to the putative class.  Perhaps the third time will be the charm for the Better class?

Cy Pres – When Close Enough Isn’t Good Enough or “What Do We Do With All This Extra Cash?”

Cy pres – A French term for “ok, close enough” – can be tricky. The wrong has been righted, but either the class has been fully compensated, or the compensation is too de minimis or impractical to allocate and distribute. What to do? Give it away to charity, but not just any charity. This issue confronted the Court in In re Bank of America Corp. Sec. Litig., 2013 WL 3212514 (E.D. Mo., June 24, 2013). In that securities fraud MDL, the global settlement of $490,000,000.00 had been approved, and all class members had been paid. Yet, due to problems locating class members, duplicate payments, restitution, and interest, class counsel found themselves with $2,734,136.69 remaining in the kitty. This was even after the claim administrator had been caught embezzling $5,000,000.00 from the fund. Not a bad problem to have, but a problem nonetheless. After rejecting the motion of the claims administrator to intervene (it had hoped to use certain of the excess funds to pay back what it had stolen), Judge Jackson struggled with where to send the largesse.

The parties had proposed three worthy charities: Legal Services of Eastern Missouri, Mathew Dickey Boys and Girls Club, and Backstoppers (an organization dedicated to support of families of police officers and firefighters killed in the line of duty). The Court found that all three charities satisfied the requisite geographic scope requirement, as the brunt of the securities fraud upon which the MDL was based had taken place in and around the St. Louis region. But the Court found that only the proposed donation to the Legal Services of Eastern Missouri bore any relation to the purpose of the underlying action – stopping fraud – and declined to approve cy pres distribution to the other two organizations, worthy as their causes are, because those causes were “completely unconnected to that of the litigation.” While there is some authority that cy pres distribution to an unrelated charity can be permissible under certain circumstances, such a distribution won’t suffice where distribution to a different organization “presents a closer fit.” The Court was silent as to whether cy pres distribution to class action blogs is permissible.

Class Counsel Fees In Kansas – Careful What You Wish For . . . .

Judge Vratil’s order in Gambrell v. Weber Carpet, Inc., 2013 WL 1659591 (D. Kan. April 17, 2013), stands in stark contrast to the Missouri Supreme Court’s recent analysis on class counsel fees. In this case, Judge Vratil ultimately approved an award of fees to class counsel in this FLSA settlement, but did so in a manner likely to haunt class counsel for years. The Court had overruled the parties’ first motion to approve the proposed FLSA settlement because the parties had submitted it in camera. The Court overruled the second attempt at approval for failing to provide sufficient information needed to support the key findings (such as whether the proposed settlement was fair, reasonable and adequate). At this point, class counsel was undeterred by the Court’s stated skepticism of their request for $40,375.00 in fees for a $14,000 settlement. The third attempt at approval failed for lack of supporting information necessary to account for the difference between recovery among different class members and because the settlement required a general release contrary to the policy of the FLSA.

The fourth time, however, was a charm, and the Court approved the settlement, but then slashed class counsel’s fees. First, the Court slashed all class counsel time dating from first failed approval attempt, reflecting that it is “not reasonable to compensate counsel for time spent correcting mistakes.” The Court also noted that “the high number of attempts reflects poorly on the quality of the representation.” The Court then slashed the rates, first finding that class counsel had failed to support their assertion that $295.00/hour was a reasonable rate, then finding that $168.58/hour was a more reasonable rate for wage and hour representation, then finding that quality of the overall representation was below average, and cutting the rate to $125.00/hour. At one point, the openly questioned whether class counsel had left settlement money “on the table.”

In a marked divergence from the Missouri Supreme Court’s treatment of the “results obtained” factor in Berry v. Volkswagen Group of America, Inc., Judge Vratil further balked at awarding fees in excess of the monetary reward obtained for the class, concluding that class counsel appears to have “over-litigated the case in light of the amount of money at stake.” Accordingly, she then dropped the total fee award to 30% of the settlement amount, or $6,000, leaving class counsel with a fraction of the award sought, and an order they probably wish didn’t exist. The moral of this story is not to seek fees for correcting unnecessary mistakes, support your rate requests, and don’t seek treble the class benefit in class fees.

Class Counsel Fees in Missouri – Based On Potential or Actual Class Benefit?

In Berry v. Volkswagen Group of America, Inc., 2013 WL 1421604 (Mo., April 13, 2013), the Missouri Supreme Court affirmed an award of $6,174,640.00 in class counsel fees where the class recovered a grand total of $125,261.00. Because our firm submitted an amicus brief in this case, we will keep the report of this decision factual.

That case involved an MMPA class settlement for allegedly defective window regulators, resulting in the settlement of a 22,304 member class eligible for payments of $75.00 each. But after notice was mailed out the class members, only 177 claims were made and only 130 paid. Class counsel submitted a bill for 7,910 hours billed at rates ranging from $200 for staff to between $252-$650/hour for counsel, calculated the lodestar at $3,087,320.00, and asked for a 2.6 multiplier. The trial court limited the multiplier to 2.0, resulting in $6,174,640.00 in fees, plus costs. Volkswagen appealed.

As a preliminary matter, class counsel moved to dismiss the appeal on the basis that Volkswagen had waived its right to appeal the fee award in the settlement. The Supreme Court noted that the agreement’s requirement to pay “reasonable fees” in no way prevented a party from appealing the final determination of attorneys’ fees, and overruled the motion.

Applying the eight factors upon which Missouri courts rely to determine the reasonable amount of fees to which counsel is entitled under a statutorily authorized fee provision like the MMPA, the Supreme Court could not say the trial court had abused its discretion in awarding the lodestar amount. Nor did the Supreme Court find that the trial court had abused its discretion in granting the 2.0 multiplier. While recognizing that the federal standards for applying multipliers set forth in Perdue v. Kenny A. ex rel, Winn, 559 U.S. 542 (2010) can provide “useful guidelines,” the Court declined to adopt the use of the federal factors. Instead, the Supreme Court relied on three findings by the trial court: 1) the contingent nature of the fee; 2) taking this case precluded class counsel from engaging in less risky employment; and 3) the time required by the demands of this case delayed work on class counsel’s other cases. Citing the paternalistic intent of the MMPA, the Supreme Court found no abuse of discretion.

Judge Stith concurred in the affirmance of the lodestar, but dissented with respect to the multiplier. She believed that the trial court either failed to consider the proper factors in determining the reasonableness of the lodestar award, or did so sub silencio as the majority found, but then relied improperly on those same factors in approving the multiplier. And because the trial court expressly determined it need not consider the actual benefit to the class in determining the multiplier, Judge Stith would also remand the case to consider both potential and actual benefit to the class.

Lesson learned: a preliminary class-action settlement may be stayed upon transfer to MDL

What happens if parties negotiate a preliminary class-action settlement, but the case is subsequently transferred to an MDL for pretrial purposes under 28 U.S.C. § 1407?

The short answer: the MDL court has power to facilitate a global settlement by enjoining one-off settlements of cases transferred to the MDL.

Judge Lungstrum’s order in MDL 2138 (In re Bank of America Wage and Hour Employment Litigation) provides an instructive lesson.

The Lopez class action originated in California state court and was ultimately removed and transferred to the MDL.  Before transfer, the Lopez parties negotiated a preliminary class settlement.  After transfer, the MDL court granted a joint motion to stay the proceedings to allow MDL counsel to negotiate a global settlement.  The Lopez parties apparently didn’t want any potential MDL settlement to interfere with their preliminary settlement.  Here are the relevant events:

  • Dec 2007 – Lopez filed as class action in California state court
  • Mar 2010 – Bank removes Lopez to Northern District of California
  • Apr 2010 – Court orders MDL parties to identify “all related cases pending in state or federal court”
  • Jul 2010 -  Lopez parties negotiate a preliminary class settlement
  • Sep 2010 – MDL court enters an order (a) admonishing Bank of America for “undermining the MDL process” by failing to “disclose Lopez to the JPML or this court at any time” and (b) enjoining the Bank from issuing notice of the proposed settlement  until it has disclosed Lopez to the JPML and allowed the JPML to determine in the first instance whether Lopez should be transferred to the MDL.
  • Oct. 2010 – JPML transfers Lopez to the MDL
  • Nov. 2012 – MDL court grants joint motion to stay MDL to permit MDL counsel to engage in settlement negotiations

The Lopez plaintiffs moved to lift the stay, claiming that the Lopez case was somehow “separate” from the MDL and that the MDL plaintiffs’ counsel and the Bank were attempting to structure a global settlement of all claims in the MDL to the detriment of the Lopez class.  The MDL court denied the Lopez plaintiffs’ motion to lift the stay for three reasons:

  1. The Lopez case is not “separate” from the MDL; Lopez became part of the MDL upon the JPML’s transfer order.  Contrary to plaintiffs’ argument, under 28 U.S.C. § 1407, there is no need for a separate “consolidation” order or any additional order.  Accordingly, the Lopez case is subject to the stay order, just like all the other “related cases” transferred to the MDL for pretrial purposes.
  2. There is no evidence of conflict of interest or collusive settlement negotiations.  The appropriate method for raising such concerns is to assert an objection to the proposed settlement that is ultimately submitted to the MDL court.
  3. There is no “Lopez settlement.”  The MDL court observed that the Lopez settlement was just a preliminary settlement and that notice hadn’t been sent to class members.  “In other words, no separate Lopez settlement class exists for separate representation in any event.”

The lesson is that it gains nothing to try to carve out a related case and separately negotiate or litigate it away from the MDL, because the MDL court can and indeed should refuse to give effect to side deals worked out among related cases that may threaten the viability of the consolidated proceedings.

The order is available at In re Bank of America Wage and Hour Employment Litigation, 2013 WL 615147 (D. Kan. Feb. 19, 2013).

 

Not Getting What You Pay For – When is a Settlement Not a Settlement? McClean v. Health Systems, inc., 2013 WL 594204 (W.D. Mo., Feb. 15, 2013)

The defendant in this case got an unpleasant valentine from Judge Kays when he granted the plaintiff class’s motion to enforce the class settlement, despite the Defendant’s assertion there was no settlement.  In July 2012 the parties had informed the Court that they had agreed to settle this putative FLSA class action and were working on finalizing the agreement.  For the next two months, Plaintiffs continued to inform the Court that they had settled the case, while the Defendant failed to respond to the Court’s requests for a status update – never a good practice – until in November it informed the Court that the parties had reached an impasse.  Plaintiffs disagreed, claimed they did indeed have a deal, and moved to enforce it.

Defendant Health Systems Inc. identified three sticking points: the virtual settlement fund and calculation of class attorneys’ fees; the scope of class notice; and the scope of the release.  Plaintiffs’ counsel cannily mooted the settlement fund and attorneys’ fees by acceding to Health Systems’ position.  Judge Kays mooted the notice issue by taking it out of the parties hands, explaining that as the Court it would decide what was the best notice practicable.  Judge Kays then shut down the release issue:  Health Systems claimed it had believed it was obtaining releases from all members of the FLSA class who did not affirmatively opt out of the class.  The Court accurately noted that only FLSA plaintiffs who affirmatively opt into the settlement class may have their claims extinguished by the class settlement and release, and that Health Systems knew or should have known that.

What is troubling is the Court’s assessment that, regardless of this fundamental mistake, there was indeed a “meeting of the minds” capable of sustaining an enforceable class settlement under principles of contract law.    As the Court explained: “In order for a settlement agreement to be enforceable, the parties must have reached agreement on the essential terms of the deal.”  Frankly it is difficult to imagine a more essential mistake than mistaking the scope of the releases obtained.  The Court relied on authority that a mistake of law will not preclude contractual agreement, citing Thompson v. Violini, 849 S.W.2d 48, 50-51 (Mo. App. W.D. 1993), but that case involved a mutual mistake, as opposed to what appears to have been a unilateral mistake in this case, and a mistake as to the viability of the underlying action (enforcing an agreement to extend the statute of limitations where the parties failed to realize it had already expired), as opposed to a mistake as to the value of the key consideration of the settlement.   It is disquieting to think that a settlement agreement is an enforceable contract where one party has made a substantive fundamental mistake as to the scope of a key term such as the release.

At the same time, it is difficult to conceive of how such a fundamental error could have occurred if the parties had communicated with the Court and had followed a careful sequence of agreeing to a fundamental terms sheet before informing the Court they had reached even a tentative agreement in principle, and then carefully fleshing out the key terms in the settlement through negotiation, while at the same time reserving the right to terminate negotiations with no prejudice if negotiations on any of these key points stalled.  At the end of the day, this is a cautionary tale about communication with the court, identification of key terms, awareness of the controlling law, and carefully sequencing negotiations to make sure you get the finality you think you are purchasing.  Caveat emptor.

Shining a Light on Professional Objectors – In re Law Office of Jonathan E. Fortman, LLC, 2013 WL 414476 (E.D. Mo., Feb 1, 2013)

In a brief, but useful order, Judge Fleissig denied a motion to quash a subpoena and for sanctions asserted by counsel characterized as a “professional objector.”   Class counsel for a class action pending in the United States District Court for the Central District of California had served a subpoena on the Law Office of Jonathan E. Fortman, LLC, which represented an objector to the proposed class settlement.  The subpoena instructed Fortman/Movant to attend a deposition and produce documents related to:

1) The filing of the objection in the underlying action;

(2) Any objections filed in state or federal court by Movant to other class action settlements;

(3) Any fee sharing arrangements between Movant and its clients in relation to the current and other objections; and

(4) Any settlements or payouts Movant received in return for withdrawing a client’s objection or appeal.

Fortman asserted “outrage,” moved to quash, and sought fees as a sanction.  We imagine asserting “outrage” must be analogous to calling “shenannigans.”  Class counsel responded by asserting that Fortman had filed 26 prior objections to various class settlements, characterized Fortman as a “professional objector,” and asserted that the “background and intent” of objectors is indeed relevant in assessing the merits of their objections, particularly where there is evidence that the objection is motivated by something other than the best interests of the class. Judge Fleissig agreed, citing both the broad scope of discovery under Fed. R. Civ. P 26(b)(1) as well as cases from other jurisdictions in which the courts have taken into account the track record and potential motivations of professional objectors, and denied Fortman’s motion.

Those of us who have struggled with the problem of professional objectors – defined by the District Court as “those who seek out class actions to simply extract a fee by lodging generic, unhelpful protests” — can attest to the added cost and frustration they can bring to class settlement dynamics.  This case illustrates an excellent way to turn the tables and reveal their true motivations to the court.  We’re tucking this little order away in our back pocket.

RE: Coulter v. Anadarko Petroleum Corp. – Defining Adequacy of Class Counsel and Fairness of Class Settlements In Kansas

In Coulter v. Anadarko Petroleum Corp., 2013 WL 135664 (Kan, Jan. 11, 2013), the Kansas Supreme Court closed the book on nearly fifteen years of oil and gas lease class litigation and provided some helpful guidance on how Kansas courts will evaluate the adequacy of class counsel and the fairness and adequacy of class action settlements.  This class action was brought in 1998 by owners of mineral interests in lands leased by APC principally, and alleged that APC had wrongfully allocated production and marketing costs against royalty payments in violation its contractual obligation to produce gas at its own expense.  After a bench trial and submission of proposed findings of fact and conclusions of law by both sides in 2002, the case sat with no ruling for years.  In 2008, after moving to recuse the judge and receiving no ruling on that motion, the parties took matter into their own hands and resumed settlement negotiations.  Those negotiations led to an agreement, culminating in a 2009 fairness hearing that resulted in the approval of the class settlement.

Appellant Stan Boles was the sole class member to file an objection and appear at the fairness hearing to challenge the settlement.  Boles assailed both the adequacy of class counsel and the fairness of the settlement based on class counsel’s alleged failure to investigate “non-gathering” claims –  i.e., those claims alleging reduction in royalties attributable to downstream events other than the gathering and fuel costs incurred in the gathering system – before releasing them on behalf of the class as part of the class settlement.  The district court had permitted Boles to call an expert witness who testified that the non-gathering claims were worth in excess of $40,000,000.00, and that the full value of the gathering and non-gathering claims were worth in excess of $140,000,000.00 rather than the $33,000,000.00 agreed upon in the settlement.    Following the district court’s denial of his objection and motions for intervention and further discovery, Boles appealed, and the case was transferred to the Kansas Supreme Court pursuant to K.S.A. 20-3018(c).

Writing for the Court, Justice Johnson first addressed Boles’ contention that class counsel was inadequate by failing to adequately identify and investigate the value of potential non-gathering claims.  In 2010, K.S.A. was amended to more fully delineate the criteria by which the adequacy of class counsel is assessed:

“(1) Appointing Class Counsel. Unless a statute provides otherwise, a court that certifies a class must appoint class counsel. In appointing class counsel, the court:

(A) must consider:

(i) the work counsel has done in identifying or investigating potential claims in the action;

(ii) counsel’s experience in handling class actions, other complex litigation, and the types of claims asserted in the action;

(iii) counsel’s knowledge of the applicable law; and

(iv) the resources that counsel will commit to representing the class;

(B) may consider any other matter pertinent to counsel’s ability to fairly and adequately represent the interests of the class;

(C) may order potential class counsel to provide information on any subject pertinent to the appointment and to propose terms for attorney’s fees and nontaxable costs….”

The Court acknowledged that these post-amendment standards were not controlling in this fifteen-year-old case, but concluded nonetheless that the additional language provided a useful framework for its analysis.  Applying these standards, the Court affirmed the district court’s finding that class counsel adequately represented the class.   In particular, the Court agreed that class counsel had indeed identified and investigated the value of the non-gathering claims, and had properly concluded that there was none.   The Court flatly declined to impose upon class counsel a duty to determine the precise value of “hypothetical claims which counsel believes to have no merit.”

The Court then addressed the fairness of the class settlement and concluded that the district court did not abuse its discretion approving the class settlement as fair and adequate.  Although K.S.A. 60-223 was recently amended to track the Rule 23 standard requiring that the class settlement be “fair, reasonable and adequate,” the prior version of the statute – and the version controlling the approval of this settlement – required only judicial approval with no further explanation of the governing standard.  After discussing the various factors applied by various courts in evaluating class settlement, the Court decided – without determining what standards would become a “mandatory inquiry in all class actions in Kansas district courts” –  to consider “all of the relevant circumstances, including those deemed important by federal courts,” to assess whether the settlement is fair, reasonable and adequate.  Functionally, the Court applied the factors relied upon by the Tenth Circuit:

(1) whether the proposed settlement was fairly and honestly negotiated;

(2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt;

(3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and

(4) the judgment of the parties that the settlement is fair and reasonable.

Under these standards, the Court readily determined that the district court had not abused its discretion in approving the class settlement.  The Court particularly rejected the argument that the settlement was unfair because it released non-gathering claims, relying on class counsel’s testimony that the inclusion of the non-gathering claims in the release had enabled the class to negotiate a better overall settlement, although class counsel believed these claims themselves had no value.

The Court was similarly unimpressed with Boles’ assertion that, because the non-gathering claims were never litigated, there was no “adverseness” and therefore no Article III standing to release these “unlitigated” claims.    Without deciding whether federal standing analysis applies to state court class action settlements, the Court rejected this argument, concluding instead that the non-gathering claims were not separate claims, but “simply additional damages for the class’ allegations of breach of contract” under the “identical predicate rule,”  which permits “the release of a claim based on the identical factual predicate as that underlying the claims in the settled class action even though the claim was not presented and might not have been presentable in the class action.”  Wallace B. Roderick Revocable Living v. XTO Energy, 679 F. Supp.2d 1287, 1308 (D. Kan. 2010).  The Court also found that the non-gathering claims had indeed been sufficiently litigated in the course of establishing the factual predicate for the gathering claims, thereby eliminating any lingering due process concerns raised by Boles.

While the Court’s analysis was nominally executed under a pre-amendment standard, the Kansas Supreme Court functionally applied a post-amendment framework to flesh out both the standard for determining adequacy of class counsel and the benchmarks for assessing the fairness of class action settlements.  As such, this opinion should provide useful guidance on these issues prospectively.

RE: Doyle v. Fluor Corp. – One Shot At Opt Out in Missouri is Enough

In an opinion paralleling that in Anadarko, another lengthy class action came to (nearly) rest on the other side of the border in Doyle v. Fluor Corp., 2013 WL 150807 (E.D. Mo. Jan. 15, 2013).  That opinion marks the resolution of the protracted Doe Run smelter property damage litigation, and involved the claims of some 700 surrounding current and former property owners whose properties were contaminated by elevated levels of lead.  After a decade of litigation, the case reached resolution in 2012 whereby the class agreed to release all property-related claims in exchange for $55,000,000.00.  On the eve of final approval, a group of objectors composed of twenty-four former property owners and four current property owners moved to intervene and challenge the settlement, asserting that the notice scheme was inadequate and the allocation plan unfair.  The trial court denied their objections and approved the class settlement.

On appeal, Judge Ahrens, writing for the E.D. Mo. panel, affirmed the trial court’s order approving the class settlement.  First, the Court held that the objectors had waived all arguments they had failed to raise at the fairness hearing and had only raised for the first time in their post-fairness hearing pleadings.  Although the Court found no Missouri law on this point, it agreed with law from other jurisdictions that untimely objections to class settlements are deemed waived.  This seems like common sense, but now there’s no doubt that you’d better timely raise all grounds for your objections at the fairness hearing or risk losing them forever.

Indulging the objectors by addressing the merits of their issues regardless of waiver, the Court found their complaints lacking any merit.  First, the Court rejected the argument that class counsel could not adequately represent the interests of the different segments of the class as a whole.  While recognizing the potential for some “tension” between current and former property owners, the Court found that the trial court did not abuse its discretion in finding class counsel to be adequate for the entire class.  Although the objectors argued that remediated property owners required separate counsel from the unremediated property owners, the Court noted that very few properties were still in fact unremediated, and none of the objectors were in fact owners of unremediated properties, thereby mooting their concern.

The Court then rejected various complaints asserted by the objectors as to the adequacy of the class notice.  Interestingly, the Court found no abuse of discretion in the trial court’s refusal to require the 2012 notice of settlement to provide a second opportunity to opt out of the class settlement after the original opt out date established by the 2010 notice of the existence of the certified class had passed.  Unlike the Fed. R. Civ. P. 23(e)(4), Rule 52.08 contains no provision authorizing the trial court to refuse to approve settlement of a previously certified class unless class members are provided a new opportunity to opt out.   Regardless, it is difficult to imagine that a trial court lacks discretion to condition approval on a second opt out opportunity, and the same reasons that compelled the addition of this provision to the federal rule make equal sense in Missouri.  As Rule 23’s advisory notes explain: “A decision to remain in the class is likely to be more carefully considered and is better informed when the settlement terms are known.”

Finally, the Court found that the trial court had not abused its discretion by denying the objectors’ motion for a continuance and additional discovery, on the basis that adequate, albeit not complete, discovery had been provided to the objectors’ counsel both in that action, and in related personal injury cases against Doe Run where the objectors’ counsel represented the plaintiffs.  After thirteen years, it is difficult to conceive of what additional discovery could have yielded.