28 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 29 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C three-part settlement process is detailed in Rule 23(e): preliminary approval, notice to class members, and final settlement approval. Rule 23(e)(2), effective as of December 1, 2018, notes that the central concern when reviewing a proposed settlement is ensuring that its terms are “fair, reasonable, and adequate.” In making that determination, courts consider several factors, including the quality of class representation, whether the negotiation took place at arm’s length, the adequacy of class relief, and whether the settlement treats class members equitably. Recently, courts have shown increasing involvement in the class settlement process, reversing a number of class settlement approvals. Notably, following the first appeal of a class settlement, the Ninth Circuit in Kim v. Allison, 8 F. 4th 1170, 1174-75 (9th Cir. 2021) reversed the district court’s approval of a settlement, finding that the district court grossly overstated the value of the claims and that the settlement’s terms were suggestive of collusion. With respect to the collusion finding, the Ninth Circuit found that plaintiff’s counsel had subordinated class relief to self-interest, noting the combination of a clear-sailing provision and an attorneys’ fee award that outstripped the likely financial benefit to the class. In light of this, the parties revised the settlement from a value of $24 million to a $5.2 million payout. But the Ninth Circuit denied the settlement yet again in Kim v. Allison, 87 F. 4th 994, 997 (9th Cir. 2023), holding that the named plaintiff was not an adequate representative of the putative class as she had signed an arbitration agreement when others in the class had not. The Court further scrutinized the named plaintiff’s failure to prosecute the action vigorously on behalf of the class and cited to her failure to conduct extensive discovery as an additional reason for reversing the settlement approval. See id. at 1003. Overall, this case exemplifies the willingness of courts to meticulously examine the district court’s endorsement of class settlements and, in particular, precertification settlements. Class action settlements will continue to pose strategic dilemmas for plaintiffs and defendants alike. The parties must strike the right balance in arriving at a settlement number: a low settlement may be disapproved upon review for being inadequate or unfair, while a settlement more favorable to plaintiffs may compromise a defendant’s ability to defend the case should the court reject the settlement. Thus, when negotiating a settlement for a class action, parties should minimize the risk of settlement disapproval by taking measures to ensure that the class settlement adequately satisfies the factors set forth in Rule 23(e)(2). Specifically, parties may be well-advised to make early investments in discovery so that they have sufficient information to justify the settlement before a reviewing court. C A CROSS-PRACTICE FOCUS Class Actions
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