David Lat posted an article on the legal industry blog Above the Law yesterday that caught my eye. Lat’s post, entitled Benchslap of the Day: Second Circuit Rebukes Rakoff, discusses the Second Circuit Court of Appeals’ per curium decision granting a stay pending the appeal of the lower court’s refusal to approve the settlement in SEC v. Citigroup Global Markets Inc., No. 11-5227-cv (2d Cir., Mar. 15, 2012). Although the case is an SEC enforcement action and not a class action, I would argue that the following sentiment from the Second Circuit’s opinion applies with equal force in the class action context:
It is commonplace for settlements to include no binding admission of liability. A settlement is by definition a compromise. We know of no precedent that supports the proposition that a settlement will not be found to be fair, adequate, reasonable, or in the public interest unless liability has been conceded or proved and is embodied in the judgment. We doubt whether it lies within a court’s proper discretion to reject a settlement on the basis that liability has not been conclusively determined.
There is a corollary to this statement, which holds that a settlement does not have to fully compensate alleged victims in order to be fair and reasonable. Too often, I hear statements by the media, members of the public, and even lawyers and judges, that are critical of a class action settlement because it does not fully compensate the members of a class or because it does not force a defendant to fully pay for the alleged harm. As the Second Circuit panel’s opinion reminds us, a settlement is a compromise. Except perhaps in the rare case where liability has already been proven, it is not unfair or unreasonable that a class action settlement does not provide full relief for the alleged victims of some as-yet unproven wrong. You can bet that I will be citing this decision the next time I face that sort of argument in a class action settlement.