Civil Justice Reforms-Settlements
Judicial Review of Class Action Settlements
Jonathan R. Macey
Deputy Dean and Samuel Harris Professor of Corporate Law, Corporate Finance and Securities Law, Yale Law School.
Geoffrey P. Miller
Stuyvesant P. Comfort Professor, New York University Law School. We thank Richard Stewart for helpful comments.
Both Macey and Miller have consulted in class action cases, and Miller has testified as an expert witness in a number of class action settlements, including several of the cases referenced herein.
© The John M. Olin Center for Law, Economics and Business at Harvard Law School 2009
Abstract: This article proposes a simple and coherent approach to judicial review of class action settlements. Specifically, we propose that for questions going to the adequacy of a settlement, where no warning signals of fraud or collusion are found, the court should act relatively deferentially by employing a lenient standard of scrutiny and approving a settlement if it has a rational basis. An intermediate level of scrutiny should apply when the settlement presents facial issues that implicate the fairness of the settlement. Such facial issues include the allocation of settlement proceeds among subgroups in a class, the presence of coupon-type relief, "shotgun" settlements occurring very early in the litigation, and settlements in overlapping class actions. In settlements with one or more of these characteristics, if the initial inquiry raises concerns, the court should demand a well-reasoned explanation for the choices made. Finally, where the components of a settlement present a direct conflict between the interests of class counsel and those of the class issues, such as issues related to attorneys ' fees, courts should employ exacting scrutiny and require convincing evidence that the proposal is reasonable.
Legal Analysis
Judicial scrutiny over settlements is the most important safeguard against inadequate or conflicted repre-sentation by class counsel.1 Yet
Jonathan R. Macey
Deputy Dean and Samuel Harris Professor of Corporate Law, Corporate Finance and Securities Law, Yale Law School.
Geoffrey P. Miller
Stuyvesant P. Comfort Professor, New York University Law School. We thank Richard Stewart for helpful comments.
Both Macey and Miller have consulted in class action cases, and Miller has testified as an expert witness in a number of class action settlements, including several of the cases referenced herein.
© The John M. Olin Center for Law, Economics and Business at Harvard Law School 2009
Abstract: This article proposes a simple and coherent approach to judicial review of class action settlements. Specifically, we propose that for questions going to the adequacy of a settlement, where no warning signals of fraud or collusion are found, the court should act relatively deferentially by employing a lenient standard of scrutiny and approving a settlement if it has a rational basis. An intermediate level of scrutiny should apply when the settlement presents facial issues that implicate the fairness of the settlement. Such facial issues include the allocation of settlement proceeds among subgroups in a class, the presence of coupon-type relief, "shotgun" settlements occurring very early in the litigation, and settlements in overlapping class actions. In settlements with one or more of these characteristics, if the initial inquiry raises concerns, the court should demand a well-reasoned explanation for the choices made. Finally, where the components of a settlement present a direct conflict between the interests of class counsel and those of the class issues, such as issues related to attorneys ' fees, courts should employ exacting scrutiny and require convincing evidence that the proposal is reasonable.
Legal Analysis
Judicial scrutiny over settlements is the most important safeguard against inadequate or conflicted repre-sentation by class counsel.1 Yet
References: It appears that courts do, in general, apply an intermediate scrutiny on allocation questions. Some courts are explicit on this point, describing the Journal of Legal Analysis (2009) 1(1): 167-205 at 190 Journal of Legal Analysis (2009) 1(1): 167-205 at 191 The analysis of the appropriate scrutiny level in this context can again consider the factors of information and interest Journal of Legal Analysis (2009) 1(1): 167-205 at 193 But the timing of settlements also impacts the issue of interest