Obtaining a release of liability from every class member that has not opted out of a class settlement is the defendant’s ultimate goal in settling a class action. However, it is easy for the release to be an afterthought in negotiating a settlement. This is, at worst, a mistake, and at best, a lost opportunity for the defendant. An imprecisely worded release can lead to unintended collateral liability over claims or parties that the defendant expected to be covered under the settlement. It can also lead to objections and difficulties in obtaining final approval. As a result, it is always important to consider the scope of a release long before the settlement agreement itself is finalized. Indeed, the breadth of a successful class release should be a key consideration when negotiating each term in the class settlement because every dollar the defendant pays in settling class claims should be tied to the purchase of some release of liability. Below is a sample of some of the relevant considerations in drafting an appropriate settlement release. Of course, the considerations will vary greatly from case to case, so it is important to evaluate each case on its own merits.
- What is the substantive scope of the claims that the defendants wants to be released from? Is it narrowly tailored enough to keep objectors at bay, but broad enough to ensure that the all claims reasonably related to the lawsuit are covered? One specific example of where this issue arises is in the context of handling the risk of current but unknown claims regarding the subject matter of the lawsuit. If a defendant does want this included in its release, considerations should be made as to how explicitly this risk needs to be described so that fair notice is provided of precisely the kind of release bargained for.
- Does the defendant want releases from both class members and their agents and estates? Oftentimes, class action settlement claims are made by the estates or heirs of a class member. However, if such a claim is not made, how does the defendant want to handle this type of future litigation risk?
- Does the defendant want releases for both itself and its agents and affiliates? There are many cost/benefit balancing reasons to settle just the risk of liability against the named defendant. However, there are just as many reasons to settle the larger risk associated with the subsidiaries, agents, parents, and affiliates of the named defendant. Whatever settlement choice is made, does the settlement amount and corresponding release language specifically reflect that choice?
- Does the defendant want to be released from all manner of future claims, or just individual civil lawsuits? Oftentimes with class action litigation, there is a risk for some parallel track of allegations within a governmental agency. If there is that risk in the case, should the defendant broaden its settlement negotiations to include a release that prevents administrative-type complaints in addition to routine litigation? On the other hand, is the release so broad as to draw objections from the same governmental officials that CAFA requires defendants to provide notice to?
- What time period does the defendant want the release to cover? Of course, the defined class period is always a good starting point to use in answering this question. However, when the end of the class period and the effective date of the class settlement are not co-extensive, which date gives the defendant the most protection?
- Are there any third party releases that need to be considered? Unfortunately, ensuring the best possible release protection may not end with just the release of liability contemplated in the settlement. For example, if the settlement has a medical injury component, the defendant may want to consider if there are any related Medicare, Medicaid, and/or private liens against the settlement award to claimants. If so, is there a potential to require the verification and negotiation of those releases with third parties as a part of the class settlement? Or, is there any other way to allocate that risk?
It’s important to always remember that the release is the endgame in buying the defendant peace. Keeping the scope of the class settlement release in mind during the negotiation phase of a class settlement may translate into the broadest possible class release in the settlement agreement at the end of the case without creating unnecessary grounds for objection.