23. How should the court respond to the proposed settlement agreement?

A class action involves a single plaintiff or small group of plaintiffs who represent a larger group, or «class» of people who share a common interest. A class action may be useful when the class is too large. In a class action, only the named class representatives must satisfy the requirements of personal jurisdiction, subject-matter jurisdiction, and venue. As a result, a class action may be helpful if a group of plaintiffs would have difficulties satisfying personal jurisdiction, venue, or diversity.

Federal Rule of Civil Procedure (FRCP) 23 lays out FIVE requirements of a class action, including that the case must:

(i) be so large that joinder of all members is impracticable;

(ii) contain common questions of law or fact shared by the class;

(iii) have claims or defenses from the named representatives that are typical of those in the class;

(iv) have representatives that fairly and adequately protect the interests of the class; AND

(v) meet the definition of one of the THREE TYPES of classes enumerated under 23(b), including cases where:

a single action is necessary to avoid inconsistent outcomes or impairment of absent members' interests;

injunctive or declaratory relief is necessary in response to a defendant's actions or inactions; OR common questions of fact or law among the members prevail over individual members' issues.

The Class Action Fairness Act of 2005 (CAFA) adds protections to class action suits in federal court, including the expansion of subject-matter jurisdiction over many large class action lawsuits.

CAFA permits federal courts to preside over certain class actions in diversity jurisdiction where:

the aggregate amount in controversy exceeds $5 million;

the class comprises at least 100 plaintiffs; AND

there is at least «minimal diversity» between the parties (i.e., at least one plaintiff class member is diverse from at least one defendant).

CAFA also directs courts to give greater scrutiny to class action settlements, especially those involving corporations.

Judgment in a FRCP 23(b)(3) class action is binding on all those whom the court finds to be members of the class. However, any person has the right to exclude himself from the class if he notifies the court to that effect prior to the date specified in the notice of the class action. This is known as «opting-out.» To get relief from a class action ruling that a plaintiff finds unsatisfactory, the plaintiff will need to attack one of the four FRCP 23 requirements for certifying a class.

FRCP 23(e) requires the court to approve of the dismissal or any settlement agreement in a class action lawsuit. Procedural for the court's approval must include a hearing to ensure the settlement is «fair, reasonable, and adequate.»

In cases involving a FRCP 23(b)(3) class action suit, the court may decline to approve a settlement if members of the class do not have the opportunity to «opt-out.» Although the outcome of a FRCP 23(b)(3) class action will bind all members of the class, a member may choose to exclude himself (opt-out) by notifying the court before a certain date.

In class actions involving coupon settlements as payment to members, attorneys' fees may be determined based on the value of the coupons awarded to the class, but only those coupons actually redeemed. Or, attorneys' fees may be calculated based on the amount of time counsel for the class reasonably spent on the case.

D is correct. When a class action lawsuit reaches a settlement agreement, FRCP 23(e) requires the court to hold a hearing and approve of the settlement so as to ensure it is «fair, reasonable, and adequate» for the class.

Here, the class representative (the man) and the defendant (corporation) agreed to a binding settlement involving coupons for the class members, and the court must hold a hearing to determine that this settlement is fair.

A is incorrect. The court is required to hold a hearing to make sure that the settlement is fair. It is an incorrect statement of the law that the court would be permitted to choose not to approve the settlement agreement through a hearing.

B is incorrect. The court is permitted to give members of the class an opportunity to opt out of the settlement, but is not required to, before conducting a hearing and approving the agreement.

C is incorrect. The court is not required to approve of the 10% attorneys' fees. Under CAFA, attorneys' fees may not be a percentage of the value of a total coupon settlement. Rather, the fees may be calculated based on a percentage of the value of the coupons that members actually redeem or on the reasonable amount of hours counsel spent on the case.