Settlement Classes As Precedent In Litigation Classes

Rule 23 of the Federal Rules of Civil Procedure requires judicial approval of class action settlements. Under Amchem Products v. Windsor, 521 U.S. 591 (1997), class action settlements must meet all of Rule 23's requirements except manageability. Thus judicial approval of a settlement class can place defendants at risk of later having the settlement class cited as "precedent" for certifying litigation classes in other actions.

Amchem Products v. Windsor

Amchem is the leading authority on judicial approval of federal class action settlements. In Amchem, the Court addressed a proposed settlement of claims brought against asbestos manufacturers. The proposed class consisted of all persons who had been exposed, or whose spouses or family members had been exposed, to asbestos products attributable to one of the defendants. Some of the named plaintiffs alleged they had already suffered physical injury, while others alleged they had experienced only exposure with no manifestation of asbestos-related conditions.

The district court conditionally certified a settlement class under Rule 23(b)(3). The Third Circuit vacated the certification, however, because the proposed class did not meet Rule 23's requirements. Individual issues predominated over common issues, and serious intra-class conflicts of interest rendered the representatives inadequate. The Third Circuit also rejected the district court's findings of typicality and superiority.

The Supreme Court affirmed this decision. The Court explained that manageability need not be considered when a court is asked to certify a class for settlement purposes, since settlement obviates the need for trial. This was the only difference, however, that the Supreme Court identified between the requirements for a settlement class and the requirements for a litigation class. The Court specifically rejected the suggestion that a settlement class could be certified so long as Rule 23(e)'s "fairness" considerations were satisfied.

Reliance on Settlement Class Certification as "Precedent"

In light of Amchem's holding that settlement classes must satisfy all Rule 23 requirements except for manageability, an important question arises as to whether a settlement class certification could be used against a defendant as precedent for certifying a litigation class in another lawsuit. Most cases hold that a district court must make detailed findings in support of a Rule 23 class certification. See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 794 (3d Cir. 1995). A trial court's order or opinion certifying a settlement class could contain findings of fact and conclusions of law that a plaintiff could use to support certification of a litigation class in another lawsuit raising similar factual and legal issues.

The Prudential Example

In several reported decisions, class plaintiffs have cited the settlement class certified in In re Prudential Insurance Company Sales Practices Litigation, 148 F.3d 283 (3d Cir. 1998) as authority for litigation class certification. In Prudential, the Third Circuit affirmed certification of a settlement class of policyholders who alleged that Prudential engaged in a systematic fraudulent marketing scheme through false and misleading sales presentations, policy illustrations, marketing materials, and other information approved and disseminated by Prudential to its salespeople. The sales force used only materials that had been centrally approved, and Prudential's extensive training of its agents produced uniform oral sales presentations across the country.

Based on these findings, the district court concluded that Prudential had engaged in a "common course of conduct" in making uniform misrepresentations to the plaintiff class. These uniform misrepresentations satisfied Rule 23's predominance requirement.

Prudential's predominance finding spurred considerable judicial discussion. Two later Third Circuit opinions referred favorably to Prudential in the context of evaluating litigation classes, but distinguished it on the facts. See In re LifeUSA Holding Inc., 242 F.3d 136, 146-47 (3d Cir. 2001) (vacating and remanding district court's certification of litigation class); Johnston v. HBO Film Mgmt., 265 F.3d 178, 190-91 (3d Cir. 2001) (affirming denial of litigation class certification). These decisions prompted the Second Circuit to identify the Third Circuit as having considered "in the greatest depth" the issue of whether allegations of oral misrepresentations are uniform and can be susceptible to certification. Moore v. Painewebber, Inc., 306 F.3d 1247, 1254 (2d Cir. 2002) (affirming denial of litigation class certification).

Significantly, Moore does not mention that the Prudential decision certified a settlement class. LifeUSA and Johnston mention the settlement class, but the settlement context does not appear to influence the analysis.

These courts have at least tacitly approved Prudential's value in evaluating litigation class approval. The decisions discuss and develop Prudential's rationale and then distinguish it on the facts rather than dismissing it as a settlement class decision. The Johnston court goes even farther by carefully circumscribing its decision and writing that "we are in no sense undermining Prudential."

Other courts, however, have rejected Prudential as authority on the Rule 23(b)(3) predominance inquiry. These courts note that the Prudential court was not required to analyze the manageability of trying claims with many variations in state law. Neither case addressed whether settlement class certification is authority for a Rule 23(b)(3) predominance finding, but the courts seem to assume that settlement class certification does not constitute such authority. See, e.g., Chin v. Chrysler Corp., 461 F. Supp. 2d 279 (D.N.J. 2006); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 174 F.R.D. 332, 350 (D.N.J. 1997). These courts have also emphasized that the Prudential defendant did not oppose class certification. The courts appear to doubt Prudential's precedential value because certification was an uncontested, and therefore undeveloped, issue. See, e.g., In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214, 225 (E.D. La. 1998); Ford Motor Co. Ignition Switch Litig., 174 F.R.D. at 349.

Some Suggested Prophylactic Measures

Serious problems could arise for defendants if courts cite settlement class-only certification opinions as authority for litigation class certification. A class plaintiff's ability to use a prior settlement class as precedent may discourage a defendant from settling the lawsuit, which would thwart the public policy favoring such settlements. That public policy is frequently emphasized in settlement class decisions. See, e.g., In re Gen. Motors Corp. Fuel Tank Litig., 55 F.3d at 784; Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 626 (9th Cir.1982).

Because federal courts must make explicit Rule 23 findings, defendants cannot have total comfort that a settlement class will never come back to haunt them. The risk increases if the subsequent case raises similar allegations and claims. Defendants should adopt some prophylactic measures to reduce, albeit not eradicate, the risk that settlement class certification will later be cited as precedent to certify a litigation class:

  • In the settlement agreement and related filings, explicitly identify the certification as "for settlement purposes only." Reserve the right to oppose a litigation class if the settlement falls through.
  • Emphasize there has been "no evaluation of manageability" in the certification of the settlement class. This reminds everyone that the judge who applied Amchem and approved the settlement did not conduct a full Rule 23 analysis.
  • Present an agreed order to the judge with proposed findings of fact and conclusions of law. Proposing findings of fact and conclusions of law may diminish the possibility that the judge will issue lengthier, more comprehensive findings and conclusions that would later be cited as precedent.
  • Try to keep the order unpublished if possible. While the effects of any type of order remain uncertain, an unpublished order may have less precedential value than a published one.