The U.S. Court of Appeals for the Seventh Circuit recently affirmed the denial of a post-judgment motion filed by two class members to exclude themselves from the class settlement or alternatively enlarge their time to opt out in order for them to continue parallel litigation in state court.
In so ruling, the Seventh Circuit held that their separate litigation was barred by the release in the class settlement, and that the trial court did not abuse its discretion because the dissenting class members were provided notice of the settlement by mail, their attorneys had actual notice of the settlement, they failed to show excusable neglect to justify extending the opt-out deadline, and the trial court properly rejected their argument that their continued litigation provided "reasonable indication" of a desire to opt out of the settlement.
A copy of the opinion is available at: Link to Opinion
A manufacturer of trucks ("Manufacturer") settled a class action lawsuit concerning allegedly defective engines for $135MM, which was preliminarily approved in the U.S. District Court for the Northern District of Illinois ("district court") in June 2019.
A court-approved notice pursuant to Fed. R. Civ. P. 23(e) (the "Notice Letter") was mailed to all class members on August 9, 2019 notifying them of the suit, settlement terms, option to litigate independently, relevant opt-out deadlines and instructions to obtain full opt-out details online or by telephone. A fairness hearing was held on November 13, 2019 wherein some class members' objections to the settlement were rejected, and a final judgment implementing the settlement was entered on January 21, 2020.
Meanwhile, a concurrent lawsuit against the Manufacturer filed in Ohio state court by two member corporations of the settlement class (the "Dissenting Class Members") proceeded after the trial court declined to enjoin parallel suits in state court. After the settlement was approved, the Manufacturer's lawyers notified the Dissenting Class Members' counsel of its position that their claims in Ohio state court were barred by the release in the settlement and final judgment.
The Dissenting Class Members argued that they were not bound by the class settlement because they purportedly never received notice of the settlement and argued that the continued prosecution of the state court matter provided "reasonable indication" of their desire to opt out.
The trial court permitted the Dissenting Class Members to intervene to present its belated argument for exclusion from the class settlement. Upon consideration of the briefs and review of the evidence, the trial court concluded: (i) that two Notice Letters were sent to Dissenting Class Members at its business addresses (though the Dissenting Class Members argued that the envelopes providing the Notice Letters were addressed properly but were not allegedly received, the district held that but mailing is evidence of receipt, see Hagner v. United States, 285 U.S. 427, 430 (1932), and a disclaimer of memory does not refute receipt); (ii) the Dissenting Class Members were given opportunity to provide an email address to the Manufacturer for notice and had chosen not to do so; (iii) the Dissenting Class Members' lawyers in the Ohio suit had actual notice of the settlement based upon letters sent to the Manufacturer's counsel showing awareness of the pending class action and distinguishing their settlement demand from the class-action settlement; (iv) the Dissenting Class Members' lawyers must have known about the need to opt out but did not do anything to protect their interest in opting out, and; (v) the Dissenting Class Members could not show excusable neglect that would justify an extension of the opt-out deadline because they and their attorneys had actual knowledge of the need to opt out.
Accordingly, the trial court denied the Dissenting Class Members' intervening motion to exclude them from the settlement or alternatively enlarging their time to opt out. This appeal followed.
On appeal, the Seventh Circuit first reviewed the Dissenting Class Members' argument that the mailing of the Notice Letters by first-class mail was in sufficient under the Due Process Clause of the Fifth Amendment.
The Seventh Circuit rejected this argument, citing the Supreme Court of the United States' opinion in Dusenbery v. United States, 534 U.S. 161 (2002) which holds that mail (to the correct address) satisfies the constitutional requirement that notice be reasonably calculated to give actual knowledge. Even if some other forms of notice may be necessary if the postal service returns mail unclaimed (Jones v. Flowers, 547 U.S. 220 (2006)), neither of the Notice Letters were returned and the Dissenting Class Members' lawyers undisputed actual knowledge of the class action settlement is imputed to their clients.
Next, the Court examined whether the Dissenting Class Members' delay was excusable, permitting an untimely opt out. The Seventh Circuit determined that the Dissenting Class Members' delay was not excusable because their counsel's actual knowledge of the settlement is conclusive, and the trial judge's suspicions that the Dissenting Class Members were trying to achieve the greater of two potential settlements in the class action and their own state court case — which has been impermissible since the 1966 amendments to Rule 23 (Premier Electrical Construction Co. v. National Electrical Contractors Ass'n, Inc., 814 F.2d 358, 362–63 (7th Cir. 1987)) – was not an abuse of her discretion.
Lastly, the Dissenting Class Members argued that their continued litigation in Ohio state court provided "reasonable indication" of that it wanted to opt out of the class. This language comes from Wright & Miller's standard set forth in 7A Federal Practice & Procedure §1787 (1972) (now 7AA Federal Practice & Procedure Civil §1787 (3d ed.)), explaining that "considerable flexibility is desirable in determining what constitutes an effective expression of a class member's desire to exclude himself and any written evidence of it should suffice."
The Tenth Circuit adopted this standard in In re Four Seasons Securities Laws Litigation, 493 F.2d 1288 (10th Cir. 1974), holding that a district court did not abuse its discretion by finding that a class member effectively opted out in a letter to the Trustee for Four Seasons, rather than to the clerk of court as the notice had directed, while the Second Circuit also cited this language in Plummer v. Chemical Bank, 668 F.2d 654, 657 n.2 (2d Cir. 1982), observing that the Court "f[ou]nd nothing in Rule 23 which requires them to file written reasons for their exercise of choice. Any reasonable indication of a desire to opt out should suffice."
While the Seventh Circuit acknowledged that a rule under which any "reasonable indication" of a desire sufficiently excludes oneself from a class has been mentioned in the Seventh Circuit, but not adopted (Sanders v. John Nuveen & Co., Inc., 524 F.2d 1064, 1075 (7th Cir. 1975)), it declined to adopt any such rule.
While agreeing that when a trial court has not issued instructions about how to opt out, a judge may accept an "reasonable indication" of such a desire, when a judge has specified opt-out procedures in detail, such as the case here, it cannot accept an opt out by other means, as doing so could make class actions difficult, if not impossible to administer.
Because the Dissenting Class Members did not opt out of the class settlement, their state court claims were barred by the release in the settlement, and the trial court's order denying their motion to exclude themselves from the settlement was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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