One important distinction that Rule 23 makes between different types of class actions is that the rule does not require notice to the class or an opportunity to opt out for 23(b)(1) and (b)(2) classes, but notice and an opportunity to opt out are required for 23(b)(3) classes.  See Fed. R. Civ. P. 23(c)(2)(A), (B).  There are some important constitutional constraints on this, however, as illustrated by a recent Second Circuit decision.  The Second Circuit held last week that due process requires notice and an opportunity to opt out in a (b)(2) class action settlement where a claim for money damages predominates.  The court left open the possibility that notice and an opportunity to opt out might be required even where a claim for damages does not predominate, but is more than incidental.  The Second Circuit also held, unsurprisingly, that one advertisement in USA Today was insufficient notice to a class.  The take away I see here is that this decision  might make it more difficult to settle some smaller class actions where the costs of providing notice that will satisfy due process requirements can exceed the likely settlement value.  In such settlements the relief for the class will need to focus on (and in some cases perhaps consist entirely of) declaratory and injunctive relief.

In Hecht v. United Collection Bureau, No. 11-1327, 2012 U.S. App. LEXIS 17374 (2d Cir. Aug. 17, 2012), the defendant sought dismissal of the plaintiff’s complaint on the grounds that her claim under the Fair Debt Collection Practices Act (“FDCPA”) was barred by res judicata as a result of a prior class action settlement.  The plaintiff challenged the enforceability of the class action settlement on the grounds that the notice to the class was constitutionally inadequate in that it failed to satisfy due process.  The district court (Judge Kravitz of the District of Connecticut) dismissed the complaint, but the Second Circuit reversed.

This was a small class action settlement.  The named plaintiffs received $2,500 each in accordance with the FDCPA, and the class was awarded a mere $13,254, which was 1% of the defendant’s net worth, the maximum recovery available in this type of class action under the FDCPA.  The $13,254 was to be distributed on a cy pres basis.  Class counsel received $90,000 in attorneys’ fees and costs.  Id. at *5.  Notice to class members was limited to one advertisement in USA Today.

The defendant argued that notice was not required because the settlement class was certified under Rule 23(b)(2), which governs class actions seeking declaratory or injunctive relief and, on the face of the rule, does not require notice or an opportunity to opt out.  But the Second Circuit rejected that position.  The court explained that, under the Supreme Court’s decision in Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985), particularly footnote 3 of that opinion, there is a due process right to notice and an opportunity to opt out if money damages predominate.  The court further explained that “[a]fter the Supreme Court’s decision in Dukes, the right to notice and an opportunity to opt out under Rule 23 now applies not only when a class action is predominantly for money damages, but also when a claim for money damages is more than ‘incidental.’  The Dukes Court, however, avoided deciding the corresponding constitutional question – whether the due process right articulated in Shutts now extends to actions where money damages do not predominate.”  Id. at *9. 

The Second Circuit found that its “old” (pre-Dukes) standard for class certification under Rule 23(b)(2) was still useful for determining whether money damages predominated under Shutts.  The court found that money damages predominated in the FDCPA case at issue because the complaint did not even mention injunctive relief and the class was defined as persons who would be entitled to damages, but might not have standing to seek injunctive relief (which could depend on whether they would be subject to potential future harm).  Id. at *11-12.

The Second Circuit went on to hold that “certification of a class under (b)(2) does not excuse the due process requirement that unnamed class members in a class action predominantly for money damages receive the ‘best practicable’ notice,” and that a single publication in USA Today was insufficient to satisfy constitutional notice requirements.  Id. at *16-18.  (Another way to look at this is that the settlement class really should not have been certified under Rule 23(b)(2) to begin with, rather it was the type of issue that could only be certified under Rule 23(b)(3), at least post-Dukes.  But the class here likely was certified pre-Dukes, so and the court, in the context of this collateral attack on the settlement, was not actually reviewing the propriety of certification in the prior case.)

The reality here is that nationwide notice by publication in a form that would be satisfactory to the court probably would cost more than this settlement would ever warrant paying.  But here, the defendant has now paid 1% of its net worth plus several times that in attorneys’ fees in exchange for a release that did not hold up because of the inadequacy the Second Circuit found in the notice.  Rule 23(b)(2) class action settlements can be helpful in resolving small class actions where the costs of providing notice may exceed the settlement value.  But, as Hecht teaches, in order for a (b)(2) settlement without notice to be viable, the declaratory or injunctive relief must really predominate.  It might even make good sense, in some circumstances, to structure the settlement such that declaratory or injunctive relief is the sole form of relief for the absent class members.  As Hecht also demonstrates, if the settlement class is going to focus on (or exclusively obtain) injunctive or declaratory relief, the class should be defined in such a manner that the persons falling within the class definition have standing to seek such relief.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career at Skadden.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and I was fortunate to have the opportunity to work on some prominent class actions arising from the 2004 hurricanes in Florida and later Hurricane Katrina, including cases involving the applicability of the flood exclusion, statutes known as valued policy laws, and various other issues.  My interest and experience in class actions gradually led me to focus on that area.

In Connecticut courts I’ve defended various kinds of class actions that go beyond insurance, including cases involving products liability, securities, financial services and consumer contracts.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at my desk or flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation (for more on those, see the Seminars/Programs page of this blog), I often can be found playing or reading with my young daughter, helping my wife with her real estate and mortgage businesses, reading a book about history or politics, or watching the Boston Red Sox (I managed to find bleacher seats for Game 2 of the 2004 World Series when Curt Schilling pitched with the bloody sock).  When the weather is good I also love to take the ferry to Block Island, Rhode Island and ride a bike or walk the trails there. If you go, I highly recommend the Clay Head Trail.