Published Article
For Better or Worse: The New CAFA Notice Requirements
The Class Action Fairness Act of 2005 (“CAFA”)1 contains a so-called “Consumers Bill of Rights” that is codified within the Federal Judicial Code.2 Section 1715 contains extensive new provisions requiring each defendant to notify the “appropriate” federal and state officials not later than 10 days after a proposed settlement is filed in court with a 90 day window within which the officials may review the settlement before a court may grant approval of the settlement.
The theory of this provision is that government officials, once notified of a pending settlement, provide some unspecified scrutiny of what might otherwise be a collusive settlement in which plaintiffs’ attorneys may receive high fees and the class members relatively little value. To enforce compliance, CAFA permits class members to challenge the finality of the settlement or consent decree if they can demonstrate that the notice has not been provided. 28 U.S.C. § 1715(e). The result of this provision is likely to result in the inundation of federal and state officials with boxes of often duplicative documents by defendants anxious to preserve the finality of a court-approved settlement agreement. We anticipate, and will provide real time monitoring of, policy directives and rulemaking by federal and state officials who are affected by this provision. While the Senate Judiciary Committee Report at least suggests that good faith compliance or compliance by at least one defendant may provide protection,3 punctilious compliance by all defendants is advised.
What is the “Appropriate” Notice?
Section 1715 of CAFA requires that notice be served on the “appropriate Federal official” and the “appropriate State official” within “[n]ot later than 10 days after a proposed settlement of a class action is filed in court[.]” 28 U.S.C. § 1715(b). The notice must contain the following items:
- The complaint, and any amended complaints, together with documents that may have been filed with the complaint unless notice is provided to the official that these documents are available through the Internet;
- Notice of any scheduled hearings;
- The proposed or final notification to class members, the proposed settlement and the existence or non-existence of any right to request exclusion from the settlement;
- Proposed or final settlement agreements;
- Agreements between class counsel and counsel for the defendants;
- Any final judgment or notice of dismissal;
- “[I]f feasible,” the names of the class members who reside in each state and the estimated proportionate share of their claims; if “not feasible,” the notice must include “a reasonable estimate of the number of class members residing in each State and the estimated proportionate share of the claims” in the settlement; and
- Any written judicial opinions regarding class notification, the settlement agreement, judgment or dismissal.
The latter provision puts the most pressure on the notice provider, who is usually charged with identifying the target demographics and likely class members when class members are nor readily identifiable. This requirement is likely to create the additional expense of an economist, actuary or accountant to work with the notice provider and the settling parties in calculating the information required by this provision. Defendants would be well advised to provide that the notice provider and such other persons be available to testify in the event of a later challenge to the finality of the settlement or to preserve records of their research for an appropriate period of time. Who is the Appropriate Federal and State Official?
Who is the Appropriate Federal and State Official?
The “appropriate Federal official” is the Attorney General; however, special rules apply to federal financial institutions. In the case of “a Federal depository institution, a depository institution holding company, a foreign bank, or a non-depository institution” that is a subsidiary of one of the foregoing institutions, notice must be provided to the person “who has the primary Federal regulatory or supervisory responsibility” over the defendant “if some or all of the matters alleged in the class action are subject to regulation or supervision by that person.” 28 U.S.C. § 1715(a)(1)(B).4
The state provision is more ambiguous and requires that notice providers perform continual research on state regulatory institutions. The “appropriate State official” is “the person in the affected state who has the primary regulatory of supervisory responsibility with respect to the defendant, or who licenses or otherwise authorizes the defendant to conduct business in the State, if some or all of the matters alleged in the class action are subject to regulation by that person.” 28 U.S.C. § 1715(a)(2). In the absence of such a person, notice must be given to the State attorney general. In the case of Federal depository institutions, notice to the appropriate Federal official is required and state notice is waived.
The Senate report provides some guidance. In a case involving claims against an insurance company, for example, “involving insurance practices, such as how premiums are calculated, notice would be required to the state insurance commissioner in each state where the company is licensed and where class members reside. If some class members reside in states where the company does not do business and therefore is not subject to regulation, then notice would be given to those states’ attorneys general. Similarly, if the company at issue were a toy manufacturer, which is not licensed by a particular regulatory body, then notice would have to be given to the state attorney general of each state where plaintiffs reside.”5
State regulatory and licensing agencies differ widely from state to state. Some states have a plethora of agencies to regulate everything from insurance to oriental medicine practitioners. Other states have fewer regulatory and licensing agencies. In addition, the regulatory agency that regulates the business of a defendant may differ from state to state. (See Appendix B – A Sampling of Texas Regulatory and Licensing Authorities.)
While notice providers will undoubtedly be providing research and information on state regulatory authorities, this burden will lie most heavily on the defendant which is subject to the regulation or supervision. In this instance, legal judgments about the reach of state regulatory or supervisory functions will be required.
1 Pub. L. No. 109-2, 119 Stat. 4 (2005).
2 28 U.S.C. §§ 1711-1715.
3 S. Rep. No. 109-14, at 35 (2005), reprinted in 2005 U.S.C.C.A.N. 3, 34 (“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.”)
4 The Senate report provides an example: If, for example, “a national bank were sued over its lending practices, notice would have to be provided to the Comptroller of the Currency. If it were sued in a nationwide lawsuit regarding the food in its cafeterias, notice would be provided to the Attorney General.” S. Rep. No. 109-14, at 33-34 (2005), reprinted in 2005 U.S.C.C.A. 3, 33.
5 Id. at 34, 2005 U.S.C.C.A.N. at 33.