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Class Action Lawsuit Defense

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Co-authored by:  Rodger Eckelberry

Defendants settle class actions, in large part, to buy peace.  Without res judicata to bar future claims from the class members, a defendant is not getting what it pays for.  However, as two recent circuit court decisions demonstrate, class members can still try to collaterally attack a class settlement judgment on due process grounds by alleging that either they were not adequately represented, or there was not adequate notice.  Even when such efforts fail, it is often only after lengthy and expensive additional litigation.

In Juris v. Inamed Corp., No. 10-12665, 2012 US. App. LEXIS 13841 (11th Cir. July 6, 2012), the Eleventh Circuit recently upheld a ruling by the United States District Court for the Northern District of Alabama that a plaintiff was barred from bringing suit against a silicone breast implant manufacturer for injuries allegedly caused by defective implants.  The defendant had entered into a class settlement in 1999 that covered the plaintiff’s claims.  The class was certified as a limited fund under Rule 23(b)(1)(B) by a federal court in Alabama, and resolved claims arising out of alleged defects in the implants for both those already injured and those who had not manifested injury by the time of the settlement.  In 2006, the plaintiff filed an individual action in California state court asserting the same claim and collaterally attacked the class settlement in Alabama federal court, arguing that the prior class action failed to provide adequate notice, and that she was not adequately represented.  The district court rejected plaintiff’s claim that she should have received individual notice and found that the notice provided was sufficient under due process.  The court also rejected plaintiff’s argument that she was not adequately represented because the class action court did not create subclasses based upon the existence and extent of injuries of class members.  The district court found that the plaintiff was adequately represented because the court that certified the class had appointed six class representatives, including one with no manifested injury, one with minor to moderate injuries, and one who was totally disabled.  The original court had also appointed five attorneys as class counsel, including separate counsel representing those plaintiffs with potential future but not yet manifested injuries.  Thus, the plaintiff’s collateral attack failed and she was barred under the prior settlement from bringing suit.

The plaintiff also attempted to challenge the propriety of the original court having certified the class under Rule 23(b)(1)(B).  The Eleventh Circuit rejected this challenge, holding that “[A] collateral attack is not a vehicle for an absent member to retrospectively challenge the propriety of class certification under the Federal Rules of Civil Procedure.  Put otherwise, an absent class member cannot escape the res judicata effect of a prior judgment by demonstrating—without more—that certification was in error or that the class should have been certified under a different subsection of Rule 23.”

Likewise, the Sixth Circuit recently reversed the grant of class certification by the United States District Court for the Middle District of Tennessee because the Arkansas Supreme Court had previously affirmed a nearly identical class settlement of the same claims. In Gooch v. Life Investors Ins. Co. of America, 672 F.3d 402 (6th Cir. 2012), the plaintiff alleged that Life Investors had breached its contract with the plaintiff when it had begun interpreting the “actual charges” provision of his cancer-insurance policy to mean the charges that the medical provider had accepted as full payment from the primary insurer and the insured.  Prior to this case, in 2007, a class action had been filed in Arkansas state court asserting nearly the same claim.  The Arkansas case had been settled on a class basis, and notice had been mailed to 250,136 class members and published twice in USA today.

The plaintiff had opted out of the Arkansas settlement and had sought to bring an action on behalf of similar individuals in federal court in Tennessee. The district court had certified the class, but the Sixth Circuit reversed. On appeal, plaintiff argued that the notice in the Arkansas class action was constitutionally infirm because it was misleading, but the Sixth Circuit found that the notice had indeed met Constitutional requirements.  The plaintiff also challenged the prior class settlement based upon inadequate representation, in particular because of the “clear sailing” provision wherein the defendant had agreed not to contest the fees so long as the fees had not exceeded a certain amount. The Sixth Circuit rejected this argument as well, finding no evidence of collusion between class counsel and the defendant, especially since the fee award was only 2.3% of the total expected value of the settlement.

Although both the Eleventh and Sixth Circuits ultimately rejected these collateral attacks on the class action settlements on due process grounds, it was not without extensive litigation and expense to the defendants, including appeals to the circuit court.  Class action settlements can bar an individual from successfully bringing a claim that has already been resolved in litigation, but they cannot bar a plaintiff from trying.  This gives defendants’ counsel all the more reason to ensure that whatever settlement and notice requirements are negotiated will withstand the scrutiny of and gain approval from not only the initial court, but possible future courts as well.

Class Action Settlements — Res Judicata or Not?