(This article was first published in Law360 on September 30, 2019.)

Class action. Settlement class action. Negotiation class action? What the heck is that? If you are over 50 and not a class action lawyer, your knowledge of class actions is probably limited to what you learned in a few hours in civil procedure about the requirements for class certification.

If you read the black letter text carefully, you likely assumed that early in the pretrial process plaintiffs lawyers would move for class certification, and if the judge granted certification,[1] class members would receive notice of their opportunity to opt out.[2] The case would then proceed to a classwide trial or settlement that would bind all those that remained within the class, win or lose.

If your law degree is shinier or you practice in an area where the U.S. Supreme Court hasn’t entirely wiped out plaintiffs’ ability to proceed in collective form, you likely know that most lawsuits resolved as class actions are certified for settlement purposes only. In this type of class action, defendants agree not to contest class certification if they are able to reach an acceptable settlement with the plaintiffs that the judge approves, reserving their right to contest certification if the settlement fails.

Certification follows the agreement to settle, and class members know the terms of the settlement when they decide whether or not to opt out. Settlement class actions offer a win-win proposition to class counsel and defendants: Defendants can try for a satisfactory settlement without risking their right to challenge certification and class counsel may find defendants more willing to consider settling, knowing they have preserved their certification appeal rights.

Many judges also find settlement class actions attractive as a mechanism for resolving complex litigation. Curiously, however, there is no category for settlement class actions in Federal Rule of Civil Procedure 23, which explains why if you don’t have a class action practice you may never have heard of them. But whenever you went to law school and even if you are a class action practitioner, unless you are involved in the sprawling opioid litigation now going on in the federal court in the U.S. District Court for the Northern District of Ohio, you are unlikely to have heard of a negotiation class before Sept. 11 of this year.

That’s when U.S. District Judge Dan Aaron Polster, who is presiding over the federal multidistrict opioid litigation, certified such a class, comprising every local government in the U.S. — more than 30,000 entities — for the purpose of negotiating a settlement with 13 sets of national defendants with regard to a specific set of substantive legal claims. Judge Polster found that this class, which was first proposed by plaintiff attorneys back in June, satisfied the requirements of Rule 23 (a)(1-4) and Rule 23 (b)(3).[3]

History

Settlement class actions seemingly first appeared in the 1960s but they became the norm after the U.S. Supreme Court’s 1997 decision in Amchem v. Windsor[4] explicitly recognized the procedure’s legitimacy, even while striking down a settlement between future asbestos injury claimants and a consortium of asbestos manufacturers. From time to time, class action lawyers on both sides of the v pressed the Civil Rules Advisory Committee to add a new category for settlement class actions to Rule 23 but those efforts never succeeded.

Everyone involved in class action practice — judges, plaintiffs and defense counsel, special masters, and other supernumeraries — knew that settlement class actions were the name of the game but Rule 23 remained silent on their requirements and implementation. It was not until the latest rule revision, effective last year, that the term settlement class action crept into the text of the rule, and then only in a few provisions and notes[5] advising judges on how to proceed when faced with one such.

But where does the idea of a so-called negotiation class come from and how would it work? First proposed in print by professors Francis McGovern at Duke University School of Law and William Rubenstein at Harvard Law School,[6] the negotiation class provides a means of rounding up all the potential plaintiffs in a litigation and binding them to a structure for a settlement before the actual settlement terms are negotiated.

To simplify somewhat, class members are notified of the prospect of a settlement being negotiated on their behalf and informed how that settlement, if reached, will be allocated among them. They are then asked to choose whether to remain in the class or opt out, without knowing what they might obtain if the case is settled.[7] Borrowing from bankruptcy law, if and when a settlement is reached, class members will have an opportunity to vote on it.

As described by McGovern and Rubenstein, the settlement would require a supermajority to become valid and votes could be allocated differentially to different categories of class members. Like the settlement structure, the voting rules are made known to class members before they decide whether to stay in or opt out of the procedure.

Some aspects of the negotiation class scheme have been adopted in nonclass multidistrict litigation, for example, when lawyers agree that unless a substantial number of litigants agree to a proposed settlement — sometimes referred to as the tip point — the parties are free to walk away. What’s different about this new proposal is its marriage to Rule 23.

Negotiation Class Procedure

In the negotiation class procedure, the judge presiding over the case certifies a class (applying current Rule 23 certification requirements) and approves a notice to class members that: (1) apprises them of their membership in the putative class; (2) directs them to consult a set of metrics that will be used to allocate the remedies agreed to under any settlement; (3) informs them that they will have an opportunity to vote in favor or against an aggregate settlement if one is reached; and (4) specifies what the voting rules will be (e.g., 75% of the number of class members, perhaps weighted by their estimated share of total claim value).

Armed with this information, members of the defined class choose either to remain in the class — and take their chances that they will be satisfied with the ultimately negotiated aggregate settlement amount or, if dissatisfied with that amount, that other class members will share their views and vote it down — or opt out. Whereas nonclass mass tort settlements typically are limited to claimants who already have filed individual lawsuits, a negotiation class can be defined more broadly, which might make it more attractive to defendants seeking resolution.

By certifying that the class satisfies Rule 23 requirements (and following other Rule 23 provisions, including that the judge approve the settlement for “fairness, adequacy and reasonableness” after a hearing), the judge assures defendants — who are under no requirement to accept this negotiation scheme — that if they do agree to settle, the settlement will have the binding force of a Rule 23 class settlement. Importantly, at the time of negotiating the settlement, the defendants know the scope of the class since no opt-outs or opt-ins are permitted after initial certification.

This fixes a glaring weakness — from defendants’ perspective — of current settlement class practice: Typically, notice of preliminary certification and preliminary approval of a settlement indicate the total settlement amount (and sometimes details of claiming eligibility and procedures), meaning that class members have at least an inkling of what they will obtain when they exercise their right to opt out. The nightmare scenario for defendants in a class that includes a mass of small-value claims plus a significant number of very large-value claims is that they will be forced to pay off the mass (who will remain in) while still having to litigate the most expensive and most risky claims (who will likely opt out).

The Opioid Negotiation Class

The negotiation class might have remained a law professor’s fantasy had Judge Polster not been persuaded to adopt it as one of several approaches to arriving at a global resolution of the opioid litigation. Not entirely coincidentally one assumes, McGovern is a court-appointed special master in the opioid litigation and Rubenstein is a court expert. The negotiation class that Judge Polster certified on Sept. 11 adheres closely to the model proposed by McGovern and Rubenstein. At 30,000-plus the size of the negotiation class far outnumbers the approximately 2,000 lawsuits estimated to be before Judge Polster in the MDL.[8]

Soon after the consolidated case was assigned to him by the Judicial Panel on Multidistrict Litigation, Judge Polster expressed a hope that the lawyers would be able to achieve a global resolution of all of the opioid lawsuits, including those brought by state attorneys general in their home state courts, which he does not have jurisdiction over. In this, Judge Polster followed in a long tradition of judges presiding over multidistrict litigation, many of whom were selected by the JPML specifically because of their reputation as good settlers.

As has become conventional in mass litigation, to facilitate settlement, Judge Polster appointed special masters and lawyers’ negotiating committees. At the request of the lawyers, he also established trial tracks for different groups of cases and set Oct. 21 for a first bellwether trial. As a result of the lawyers’ efforts and the judge’s decisions, the opioid litigation offers a trifecta of options for resolving complex mass litigation: old fashioned settlement negotiations (albeit on a grand scale), bellwether-trial-assisted settlement and, now, a newfangled form of class action.

Motion to Recuse

Defendants in sprawling mass litigation usually welcome judges’ efforts to facilitate settlement even if they ultimately decide continued litigation is preferable to whatever settlement may be on offer. However, three days after Judge Polster certified the negotiation class, two groups of defendants — including some who are scheduled for the Oct. 21 bellwether trial — filed a motion asking him to recuse himself from the MDL proceedings.

The negotiation class was seemingly a small part of what these defendants objected to: Their brief cited other decisions of the judge, but focused mainly on statements by Judge Polster that these defendants argued reflected such a strong desire for a global resolution of the opioid litigation as to constitute bias.[9] On Sept. 26, Judge Polster denied the motion.[10]

The Path Ahead

With so many procedures in play, it’s hard to predict which, if any, will ultimately produce a settlement of the opioid litigation or indeed, whether the very fact that so many lawyers are at work trying to achieve a settlement using so many different approaches might prove to be the key to unlock a global resolution. With the bellwether trial yet to come and opt-out forms in the negotiation class procedure not due until Nov. 22, Purdue Pharma LP has announced a tentative settlement with the 2,000 plaintiffs in the MDL; settlements with two other defendants were announced in August.

Some state attorneys general have announced opposition to the proposed Purdue settlement and it is not yet a done deal. It is worth noting, however, that the settlements that have been announced recently all seem to have emerged from conventional settlement negotiation — if anything about the opioid litigation can be described as conventional.

Does the negotiation class have a future as part of a global resolution of the opioid litigation? Defendants who achieve settlements with the MDL plaintiffs may have little incentive to pursue negotiations with a class representing every local government in the U.S.

If defendants do decide to come aboard and the negotiation class produces a settlement that Judge Polster approves, parties that choose to appeal the outcome will have multiple arguments at their disposal. Since defendants are free not to participate in the negotiation class, appeals would likely come from objecting class members after Judge Polster approved the settlement.

To begin with, there is the not-so-small fact that Rule 23 nowhere mentions such a procedure. Supporters of the negotiation class argue that this is true of settlement classes as well, but the settlement class procedure emerged organically from decades of class action practice.

Secondly, there is the humongous size of the negotiation class. Would appellate courts that blanched at nationwide classes of smokers[11] and female Wal-Mart Stores Inc. workers[12] look kindly at a class comprising every local government in the U.S.? Third, will appellate courts be comfortable with the marrying of the negotiation’s voting procedure with Rule 23(e)’s requirement that the judge independently review a proposed class settlement for fairness, adequacy and reasonableness?

While McGovern and Rubenstein argue that the voting results (assuming supermajority approval) will provide useful information to the judge, I wonder about the ability of any judge to independently assess the settlement in the face of such voting data. Objectors might also raise questions about whether negotiation class counsel — whom Judge Polster has permitted to continue to interact with lead counsel charged with managing other aspects of the litigation — were conflicted.

On the other hand, as we law professors like to tell our students, the virtue of the common law system is its ability to respond to new factual situations. The history of mass litigation in the U.S. is a history of procedural innovation engendered by judges and litigators working collaboratively. Whether or not it survives as part of a resolution of the opioid litigation, the negotiation class may be destined to play a role in resolving ever-more-complex mass litigation in the future.

Deborah Hensler is the Judge John W. Ford professor of dispute resolution and the director of law and policy lab at Stanford Law School.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Until Rule 23 (c) (1) (a) was amended in 2003, judges were instructed to make the certification decision “as soon as practicable after commencement [of the action].” In recognition of the complexities of class action practice, including the emergence of settlement class actions discussed infra, Rule 23 (c) (1) (a) now calls for certification “at an early practicable time.”

[2] Providing an opportunity to class members to exclude themselves from a class action is required only for Rule 23(b) (3) class actions. Judges may provide an opt-out opportunity for Rule 23 (b) 1) and (b) (2) class actions but are not required to do so.

[3] In re: National Prescription Opiate Litigation, Case No. 1:17-md-2804, J. Dan Aaron Polster, Order Certifying Negotiation Class and Approving Note, Sept. 11, 2019, Document #2591. See also Jeff Overley, “Opioid ‘Negotiation Class’ Wins Approval,” Law360, Sept. 11, 2019 available at https://www.law360.com/articles/1184460/opioid-mdl-negotiation-class-wins-approval. Information about the size of the negotiation class is available at https://www.opioidsnegotiationclass.info/.

[4] Amchem Products, Inc., et al. v. Windsor et al. , 521 U.S. 591 (1997).

[5] Rule 23 (c) (2) (B) and 23 (e) and Advisory Notes thereto.

[6] Francis McGovern & William Rubenstein, “The Negotiation Class: A Cooperative Approach to Class Actions Involving Large Stakeholders,” Duke Law School Public Law & Legal Theory Series No. 20`19-41, June 20, 2019, revised Aug. 5th, 2019. McGovern is a court-appointed special master in the opioid multi-district litigation and Rubenstein is a court-appointed expert. McGovern and Rubenstein’s proposal resembles the settlement mechanism proposed for nonclass aggregate litigation by the American Law Institute’s PRINCIPLES OF THE LAW OF AGGREGATE LITIGATION §3.17 (American Law Institute, 2010). Although endorsed by majority vote of the ALI, the proposal has not found favor with many judges.(NB: I was on the Advisory Committee to the ALI project.)

[7] The structure of the settlement tells class members what their relative shares of any settlement will be but because the total amount of the settlement (if any) is unknown, they cannot calculate their actual compensation. Note that requiring class members to opt out or remain in a class without their knowing the full consequences seems to have been contemplated by the 1966 drafters of Rule 23 (c) (1) (a), which instructed judges to certify class actions “as soon as practicable after commencement [of the action],” at which point notice of class action pendency would issue. Moreover, in the traditional “litigation” class action where trial is possible, class members are required to make their opt-out decision before trial, when the outcome that will bind class members is unknown.

[8] In addition to the approximately 2,000 consolidated lawsuits assigned to Judge Polster, several hundred cases are being litigated in state courts, including but not limited to cases brought by state attorneys general.

[9] Memorandum in support of Motion to Disqualify Pursuant to 28 USC §455 (a).

[10] In re: National Prescription Opiate Litigation, Case No. 1:17-MD-2084, Opinion and Order, Sept. 26, 2019, Doc #2676. See also Emily Field, “Opioid MDL Judge Won’t Withdraw Over Bias Charge,” Law360, Sept. 26, 2019, https://www.law360.com/articles/1201252/opioid-mdl-judge-won-t-withdraw-over-bias-charge.

[11] Castano v. the American Tobacco Co. , 84 F.3d 734 (5th Cir. 1996).

[12] Wal-Mart Stores v. Dukes , 564 U.S. 338 (2011). The Court vacated class certification of the Wal-Mart class action on the grounds that it did not satisfy Rule 23(a) and Rule 23 (b) (2) requirements but the huge scale of the class – widely estimated at around one million — was frequently cited in the period leading up to the decision as a reason the court would look askance at it.