Archive for July 18th, 2008

It is well-established that a properly tailored class action settlement release can preclude future actions by absent class members, even those who don’t respond to or otherwise participate in the settlement.  (As an example, see this recent Eleventh Circuit Court of Appeals opinion).  So, in agreeing to a class action settlement, the defendant assumes that it is buying peace from civil liability from all future actions arising out of the same alleged conduct.  There are a few notable exceptions, including the threat of opt out litigation (see this earlier ClassActionBlawg.com entry) and the possibility of collateral attack if the settlement does not meet due process standards (see this article by Gerson H. Smoger summarizing possible arguments supporting collateral attack).  For the most part, defendants’ counsel can minimize the risk of these residual exposures in crafting the terms of the settlement in the first place.  (See this article on claims-made settlements).

Possible residual exposures due to the threat of governmental action, however, are more difficult to avoid.  A settlement in a class action will generally buy the defendant protection from private civil exposure, but it may not prevent potential regulatory penalties or possible criminal liability.  It may also not protect the defendant from actions by state Attorneys General, the Federal Trade Commission, or other regulators for injunctive relief.  While it may not be possible to completely shield a client from these exposures, a lawyer can at least advise a client of their possibility and advise about other possible steps to mitigate them, such as voluntary changes in policy.  For an excellent discussion of the interplay between private class actions and the concurrent powers to enforce consumer’s rights by state attorneys general and the FTC in antitrust matters see this presentation by Patricia A. Conners of the Florida Attorney General’s office, from the FTC’s website. 

Even beyond these more obvious state and federal law enforcement and regulatory powers, there has been a growing trend in recent years for attorneys general and other governmental agencies to use the doctrine of parens patriae to also pursue the monetary claims of private individuals.  For a general discussion of the origins and recent trends in the use of this doctrine in aggregating private tort claims, see this uncredited Columbia Law Article entitled Constituting Parens Patriae.  Under the parens patriae doctrine, a governmental entity pursues claims for monetary relief for the benefit of its citizens by essentially standing in their shoes and pursuing the citizens’ claims in a representative capacity. 

Because of the representative nature of parens patriae actions, a propertly tailored release on behalf of class members in a civil case–at least theoretically–should foreclose the possibility of a governmental entity bringing an action for the same monetary relief.  But try telling that to the government.  A defendant that reached a settlement for 50% of the potential compensatory damages might find itself facing a suit by the government for the other 50%.  Similarly, a defendant that reached a claims-made settlement where not all potential claimants responded might face a parens patriae action filed on behalf of those who didn’t participate.  Or maybe the state or federal agency takes the position that it isn’t bound by the fact that amounts were paid at all.  The client can end up facing the possibility of defending against exactly the same monetary exposure for civil damages that it faced in the civil lawsuit.

Thankfully, most state officials have better things to do than file copycat lawsuits to try to squeeze more money out of a corporation that entered into a reasonable settlement of civil claims.  As a state official that I spoke to recently noted, AG’s consumer protection efforts are more commonly focused on exercising their law enforcement powers to prevent ongoing or future harm than on trying to ensure civil compensation for alleged victims of past civil wrongs.  On the other hand, the same official commented that one area of focus in reviewing the notices now required to be sent under the Class Action Fairness Act (see previous entry here and here), is to look for settlement agreements that are attempting to release potential parens patriae claims by the state or otherwise seek to interfere with the state’s sovereign power.

As a practical matter, because government officals typically do leave civil damages enforcement up to private civil enforcement in the courts, post-settlement government action is not likely to become an issue except in those cases where a governmental agency was already investigating or pursuing action relating to the subject matter of the civil dispute even before the settlement.  In those situations, it is a good idea to try ensure some resolution with the government before finalizing the settlement in the civil case.  Patricia A. Conners’ commentary cited above provides some examples of cases in which this type of global resolution has occurred in the antitrust context.

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