The Supreme Court was adamant that the lower courts resist the urge to conflate the 23(a)(4) adequacy and 23(e) settlement fairness inquiries.256 Courts today have found a new way to link the two inquiries. First, if courts believe that compensation amounts are reasonable under the circumstances, they discount the possibility that there were tradeoffs among class members. For example, in his order granting final approval to the BP economic loss class settlement, Judge Barbier noted that there were no conflicts in part because “[t]he differences within the [settlement] frameworks developed through arms-length negotiation, are rationally related to the strengths and merits of similarly situated claims.”257 Similarly, in the NFL litigation, the appellate court found that “the terms of the settlement reflect that the interests of current and future claimants were represented in the negotiations,” because the terms were fair to both groups.258 Other lower
254. Id. at 121 (“[L]everaging outsiders’ expertise is a more viable means of achieving cognitive diversity.”). See also Elizabeth Chamblee Burch, Optimal Lead Plaintiffs, 64 VAND.L.REV. 1109, 1156–60 (2011) (reviewing and applying the cognitive diversity literature to the selection of lead plaintiffs in securities fraud class actions under the PSLRA).
255. Economic Final Approval Order, supra note 132, at 32.
256. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 622 (1997).
257. Economic Final Approval Order, supra note 132, at 31.
258. In re NFL Players, 821 F.3d 410, 43233 (3d Cir. 2016).
federal courts have adopted similar approaches.259 Assessing common practices, the Sixth Circuit observed:
[C]ourts customarily demand evidence of improper incentives for the class representatives or class counsel—such as a promise of excessive attorney fees in return for a low-cost, expedited settlement—before abandoning the presumption that the class representatives and counsel handled their responsibilities with the independent vigor that the adversarial process demands.260 Second, lower courts have suggested that if settlement terms are structured in an unfair way so as to disadvantage subsets of class members without justification, then a fundamental conflict may be found to exist. For example, in Dewey v. Volkswagen,261 the Third Circuit confronted a settlement of a product defect case involving various models of Volkswagen and Audi vehicles with sunroofs that were allegedly defectively designed and thus prone to leaking without special maintenance. The settlement provided various kinds of relief, including most importantly an $8 million fund,262 which prompted objectors to allege two different types of conflicts of interest. The Third Circuit’s disparate treatment of them demonstrates the utilitarian creep that has shaped application of Amchem and Ortiz in the years since they were decided.
First, objectors in Dewey argued that the settlement implicated the futures problem that so prominently figured in Amchem because the named plaintiffs, who had all already suffered sunroof leaks, represented a class that also included persons who had not.263 Objectors alleged that persons who already suffered leaks had an interest in ensuring generous immediate compensation, and were relatively less interested in assuring compensation for failure to inform the class, or in assuring compensation for “future protections,”264 such as inspections and funding for payment of future damage claims. The Third Circuit acknowledged that “[t]his
259. For example, in In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454 (9th Cir. 2000), the Ninth Circuit affirmed a trial court’s finding that representation was adequate even though class counsel representing two classes of purchasers chose a damages measure for settlement purposes that favored one of them, finding that disfavored class members were unlikely to be successful on the merits on the other. Id. at 462–63. The court held: “[w]ere we to decertify the current class it is possible that no one will recover anything from Mego.” Id. at 463.
260. Int’l Union, United Auto., Aerospace, & Agric. Implement Workers of Am. v. Gen. Motors Corp., 497 F.3d 615, 628 (6th Cir. 2007).
261. Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 173 (3d Cir. 2012).
262. Id. at 175.
263. Id. at 185.
264. Id. at 186.
case bears some resemblance to Amchem and raises some of the same concerns.”265 Nevertheless, the court found that a mere misalignment of allocation preferences alone was not sufficiently fundamental to raise conflict concerns,266 especially where, as in Dewey, persons who had already experienced leaks were capable of experiencing future leaks, and where the settlement’s terms were “structured to ensure that even past claimants had an incentive to protect the rights of all members of the class to make future claims” by actually providing for payment of such claims.267
Dewey objectors were more successful with regard to the second conflict they alleged, i.e., that between persons in a “reimbursement group” who had priority under the settlement and all other class members relegated to a “residual group” capable of making claims only if any portion of the $8 million fund remained.268 The boundaries of the residual group were determined by reference to the claims rate on a vehicle model.269 But the claims rate that distinguished those in the two groups was arbitrary, in that there was no justification for treating the two groups differently but for the class representatives’ desire to maximize the funds available to persons in the residual group.270 The Third Circuit found this conflict to be sufficiently fundamental to trigger adequacy of representation concerns.271 Why was this conflict different from the futures issue? The court found the degree of misalignment of interest here to be starker than with regard to the differential preferences of persons who had already experienced an injury and those who had not, because the reimbursement and residual plaintiffs’ preferences were relatively more oppositional.272 More to the point, the court found that the “structure of the settlement agreement itself,”273 which treated the groups differently for no apparent reason, was proof that the conflict was fundamental. That is, an unfair settlement term proved the existence of a
265. Id. at 185.
266. Id. at 186 (“[E]ven if the representative plaintiffs did value protections for future claimants less than other members of the class, we do not believe that, again on this record, their differing valuations would create a fundamental conflict sufficient to undermine their ability to adequately represent the class.”).
267. Id.
268. Id. at 187.
269. Id.
270. Id. at 187–88.
271. Id. at 187.
272. Id. at 188 (“The problem is that the interests of the representative plaintiffs and the interests of the residual group aligned in opposing directions.”).
273. Id. at 187 (emphasis added).
structural conflict. That is why the court posed as a solution either amendment of the settlement to eliminate the arbitrary distinction made between “reimbursement” and “residual” claimants or subclassing.274
Dewey illustrates an intermediate appellate court not only giving Amchem a narrow read on the required degree of misalignment of interest, but flipping Amchem on its head275 by relying on an analysis of the fairness of the settlement’s terms to determine whether conflicts of interest are sufficiently fundamental to call the adequacy of representation into question. This reliance on the fairness of settlement terms to demonstrate the inadequacy of representation is evident even in the Second Circuit. In Payment Card Interchange, discussed above, the court went out of its way to demonstrate the relative stinginess of the relief accorded to (b)(2) settlement class members relative to (b)(3) settlement class members276 and to criticize the unfairly broad scope of the release made by (b)(2) members.277