One misconception that many lawyers have (and admittedly I was one of them until recently) is that the Official Notice requirement imposed under the Class Action Fairness Act (CAFA), codified at 28 U.S.C. 1715, applies only to cases removed under the CAFA’s jurisdictional provisions, codified as part of 28 U.S.C. 1332.  However, the notification requirements of section 1715, as well as the restrictions on coupon settlements, protections against loss to class members, and the restriction against geographic discrimination in sections 1712-14 apply to

any civil action filed in a district court of the United States under rule 23 of the Federal Rules of Civil Procedure or any civil action that is removed to a district court of the United States that was originally filed under a State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representatives as a class action.

28 U.S.C. 1711 (emphasis added).  Therefore, it does not matter whether the case was originally filed in state court and removed or if it was filed in federal court originally by the plaintiff.  If it was filed after the enactment of CAFA, appropriate state and federal officials must be notified.  (See my earlier entry discussing the notification requirement more generally here).

Another requirement to keep in mind is that within 10 days of the date that a proposed settlement is filed with the federal court, notice must be given to the “appropriate” state official in “each State in which a class member resides”  28 U.S.C. 1715(b).  The plain language of this provision arguably requires the defendant to locate the present location of every member of the class–even in a statewide class action in which all class members lived in the same state during the times at issue in the lawsuit–or face the prospect of having to send notice to state officials in all 50 states and in the District of Columbia.  But does a defendant truly risk the possibility that some class members may to choose not to be bound simply because they moved to other states in which the state attorneys general did not receive notice?  Legislative history suggests no.  According to the Senate Judiciary Committee Report:

The Committee wishes to make clear that this provision is intended to address situations in which defendants have simply defaulted on their notification obligations under this provision; it is not intended to allow settlement class members to walk away from an approved settlement based on a technical noncompliance (e.g., notification of the wrong person, failure of the official to receive notice that was sent), particularly where good faith efforts to comply occurred. In particular, the Committee wishes to note that where the appropriate officials received notification of a proposed settlement from at least one defendant, section 1715(e) should not be operative. New subsection 1715(e)(2) specifically states that a class member may not refuse to comply with a settlement if the notice was directed to the appropriate federal official and to the state attorney general or the primary licensing authority. This provision reflects the overall intent of section 1715 that a settlement should not be undermined because of a defendant’s innocent error about which federal or state official should have received the required notice in a particular case.

Senate Report 109-014 – THE CLASS ACTION FAIRNESS ACT OF 2005.

Although this statement reflects an intent not to cause settlements to be voidable by class members simply because the defendant committed an innocent mistake regarding notification of officials, it does not speak directly to the issue of neglecting to notifiy a particular state’s official.  Until this issue is tested in the courts, being overinclusive in sending official notice may be the only way to ensure protection against collateral attacks of federal court class actions settlements.

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Unpaid overtime claims under the Fair Labor Standards Act (FLSA) present an interesting dilemma.  On the one hand, the FLSA does not permit claims of multiple workers to be aggregated under Rule 23.  The FLSA provides for a collective action procedure that allows one or more workers to sue in a representative capacity on behalf of co-workers.  However, unlike Rule 23(b)(3), which allows a single class representative to represent others in a claim for damages unless they opt out of the action after receiving notice, in an FLSA collective action vehicle only permits the named plaintiff to represent those coworkers who opt in to the action after notice.  But what happens in a case where a plaintiff brings both FLSA claims, that can only be brought as a collective opt in action and also state law claims, that could be the subject of a class action? 

That interplay is the subject of a recent decision by the United States District Court for the Eastern District of New York in Guzman v. VLM, Inc. d/b/a Reliable Bakery, No. 07-CV-1126 (E.D.N.Y. March 2, 2008) (unpublished disposition).  Following an earlier order certifying the FLSA collective action, only 4 of up to 250 workers eligible to opt in to the settlement had done so.  In his March 2, 2008, decision, Judge Gleason agreed to exercise supplemental jurisdiction over the plaintiffs’ state law claims for unpaid overtime and certified a class of workers under Rule 23 for the purpose of resolving those claims.  Rejecting the defendant’s argument that class treatment would not be superior to other methods of adjudication in light of the pending FLSA collective action, the court accepted the plaintiffs’ “valid concern” that other workers were reluctant to opt in for fear of retaliation.  “Seen in this light,” the court reasoned, “the opt-out nature of a class action is a valuable feature lacking in an FLSA collective action. . . .  The FLSA’s opt-in procedure is simply not an equivalent stand-in for a class action in this case.”  Slip Op. at 17.  Recognizing that 28 U.S.C. 1367 permitted the court to decline to exercise supplemental jurisdiction in a case where the state law claims predominate over federal claims, the court nonetheless rejected the defendant’s request to do so, stating that “The factual overlap between the federal claims and the state claims is virtually total; it would ill serve the interests of convenience or judicial economy to relitigate in state court the defendants’ pay practices. To the extent that employees may feel intimidated about volunteering to participate in an action as suggested by the plaintiffs, fairness counsels in favor of exercising supplemental jurisdiction to hear their claims.”  Id. at 19.

A full copy of the opinion is available at The NY Lawyer website:


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Many settlement agreements in consumer class actions contain an escape clause that allows a defendant to void the settlement if more than a specified threshold percentage of the class opts out of the settlement class.  Often these clauses are included in the agreement as a matter of habit, with little expectation that they will actually be triggered.  Although it is uncommon for opt outs in a typical class action to significant enough in terms of either quantity or nature to justify voiding the settlement altogether, it is important for defense counsel to consider the risks posed by opt outs.

In making this assessment, it is important to understand that the different categories of class members who tend to opt out of consumer class action settlements.  Some class members opt out because they are distrustful of any legal proceeding and do not want to be involved even if it means giving up potential benefits.  Others opt out because they are concerned about rights that they might be giving up by participating.  Still others may have personal philosophical reasons for not wanting to participate in a class action.  None of these categories are of particular concern to the defendant because although the opt outs mean that some potential claims will not be released, there is little likelihood of the defendant having to face litigation over those claims.

The category of opt outs that is of concern to a defendant is the category that consists of groups of individuals who not only do not want to participate in the class settlement, but also plan to actively pursue litigation over the same claims against the defendant after the class settlement is finalized.  This is a risk posed in cases in which a consumer class settlement has been publicized and if the class includes individuals who live in certain parts of the country, particularly in areas of the deep South.  In these areas, cottage industries of opt out litigation have arisen in which firms round up hundreds or even thousands of class members to opt out in order to pursue individual, group, or “opt out class” litigation after the underlying class action is resolved.  In most parts of the country, there is little incentive to pursue opt out litigation, since in many consumer class actions even grouping together hundreds of individual claims would not make pursuing a lawsuit worthwhile economically.  However, in certain areas, the threat of hometown justice and runaway juries can make it worthwhile for firms to pursue opt out litigation because they can turn each individual claim for even minimal alleged damages into a claim for thousands or even tens of thousands of dollars.  Where this occurs, the defendant can face the prospect of multi-million dollar opt out litigation after spending millions of dollars in settlement of the underlying class action.

What can a defense lawyer do?  The first thing is to make sure to advise a client of the potential cost of opt out litigation in considering the cost of the underlying class action settlement.  This is more an art than a science, but experience and an analysis of the geographic composition of the class can help to generally quantify the extra exposure.  Second, if reviews opt outs carefully as they come in as part of the class settlement administration process, it is not very difficult to recognize when an organized opt out effort is occuring.  Performing this review allows counsel to at least analyze whether the opt outs that are filed in a class action settlement are of the type not likely to result in additional cost to the defendant or whether they are of the type very likely to ensure that the settlement will not end the litigation.

Tort reform in recent years in states where opt out litigation has been prevalent has lessened somewhat the residual exposure presented by potential opt out litigation.  But there is no reason to believe that the time of organized opt out suits is over.  Although there is no way to completely eliminate the risk, understanding the potential exposure associated with opt out litigation and keeping a keen eye out for warning signs that an organized opt out effort is occurring can put a defense lawyer in the best position to advise a client at each step of the settlement process.

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According to a March 24 article in The Lawyer.com, the Civil Justice Council (CJC), a statutorily-created advisory organization to the British government, is considering proposing changes to the UK justice system that could, among other things, provide for an opt-out procedure similar to that applicable in FRCP 23(b)(3) actions, as opposed to the opt-in procedure for collective actions currently available in many EU jurisdictions.  http://www.thelawyer.com/cgi-bin/item.cgi?id=131831&d=415&h=417&f=416.  As the article discusses, the CJC is considering reforms that would be a hybrid of existing UK and US procedures. 

A copy of a comprehensive February 2008 report by the CJC discussing “collective redress” reforms can be found at its website:


As noted on page 168 of that report, “Other opt-out regimes have recently been introduced in Europe (Spain, Denmark, Norway, the Netherlands), each of which has different features and pre-conditions for use.”  The CJC’s January 2008 report includes an interesting comparison in participation rates in cases that utilized an opt-out process versus those that used an opt-in process.

Meanwhile, in Italy, a new law passed late last year that goes into effect this year 2008  provides for class action-style collective lawsuits to be filed by limited categories of associations.  The Mass Tort Litigation Blog has reprinted in English the relevant collective action provisions of the new law, which allows certain consumer associations to bring actions on behalf of collective interests:


For more about the CJC, see http://www.civiljusticecouncil.gov.uk/about/about.htm

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The executive committee of the Colorado Bar Association’s Litigation Section recently approved our request to form a Class Actions, Derivative Suits, and Mass Torts Subsection.  We will be holding an initial social gathering in late May and sponsoring our first luncheon CLE program sometime in June.  If you are a CBA member interested in participating in this Subsection, please contact me at pkarlsgodt@bakerlaw.com.

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