Approval of a Class Action Settlement Under C.r.c.p. 23(e)

• Publication year: 2002
• Pages: 71
• Citation: Vol. 31 No. 5 Pg. 71

31 Colo.Law. 71 Colorado Lawyer 2002.

2002, May, Pg. 71. Approval of a Class Action Settlement Under C.R.C.P. 23(e)

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71

Vol. 31, No. 5, Pg. 71

The Colorado Lawyer
May 2002
Vol. 31, No. 5 [Page 71]

Specialty Law Columns
The Civil Litigator
Approval of a Class Action Settlement Under C.R.C.P 23(e)
by Tobin D. Kern

The Civil Litigator column addresses issues of importance and interest to litigators and trial lawyers practicing in Colorado courts. The Civil Litigator is published six times a year

Column Editor

Richard L. Gabriel of Holme Roberts & Owen llp, Denver?(303) 861-7000

About TheAuthor:

This article was written by Tobin D. Kern, Denver, a partner of Hoffman, Reilly, Pozner & Williamson, LLP, who specializes in class action and commercial litigation?(303) 893-6100.

This article addresses the trial court's role in approving the terms of a class action settlement under C.R.C.P. 23(e) and explains the test the trial court applies to several issues. The article also discusses a class member's right to appeal a trial court order under the Rule and the applicable standard of review.

A class action filed in Colorado state court cannot be settled and dismissed unless the trial court has first reviewed and approved the settlement terms. Such a prerequisite to settlement is almost entirely unique to class actions1and stems from Colorado Rules of Civil Procedure ("C.R.C.P." or "Rule") Rule 23(e). C.R.C.P. 23(e) is patterned after Federal Rules of Civil Procedure 23(e) and provides as follows:

Dismissal or Compromise. A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.

This article addresses the trial court's role in approving the terms of a class action settlement under C.R.C.P. 23(e). First, it examines the trial court's general duty and scope of authority under Rule 23(e). Next, it explains the test applied by the court to each of the following issues: certification of the "settlement class"; the adequacy and fairness of the settlement terms; and the award of attorney fees, if any, payable to class counsel.2Finally, the article addresses a class member's right to appeal a trial court order under Rule 23(e) approving a class action settlement and the applicable standard of review on appeal.

Court's Duty and Scope
Of Authority

Few appellate opinions in Colorado have interpreted Rule 23(e). Nonetheless, because it is nearly identical to its federal counterpart, federal opinions are instructive for its application3and are cited in this article.

Rule 23(e) imposes on the trial court a "fiduciary duty" to safeguard the interests of all class members when a class action settlement is proposed.4 Class counsel and the class representatives take on their own fiduciary duty to the entire class from the moment the complaint is filed.5 C.R.C.P. 23(e) adds such responsibility to the court when it comes to settlement, however, because unnamed class members typically have been absent from the case prior to settlement and thus are unable to monitor effectively the prosecution of their claims by class counsel and the class representatives. In fact, class members may not even learn of the litigation until their representatives propose a settlement. Under Rule 23(e), then, the trial court serves as the final guardian of the rights of unnamed class members to ensure both that the interests of all class members are adequately vindicated by the settlement and that class members will receive adequate notice of the proposed compromise and dismissal of their claims.6

While the trial court's "fiduciary duty" to class members under C.R.C.P. 23(e) is described in broad terms, the scope of its authority under the Rule actually is quite limited. The court may accept or reject a proposed settlement only as it is presented by the parties. The court has no authority to modify or strike any term of the agreement nor may the court attempt to re-open settlement negotiations or improve on the settlement's terms.7 Moreover, the court may not decide the claims of the class on the merits or attempt to resolve unsettled legal questions that may affect the value of the settlement.8

Instead, the trial court's mission under Rule 23(e) is to analyze the claims and defenses objectively, along with the evidence gathered in discovery and the total circumstances of the case, and then to determine on that basis whether the compromise reached is within a "range" or "zone" of reasonableness.9 Under this standard, a reasonable settlement agreement should be approved even if the trial judge or objecting class members believe that a better settlement for the class was possible.10

Certification of the
Settlement Class

The first step in the trial court's Rule 23(e) analysis is to determine whether the class as defined in the settlement agreement may be "certified" and thereby made subject to the agreement's terms. To make this determination, the trial court applies the tests set forth in C.R.C.P. 23(a) and (b). Each of the four prerequisites of C.R.C.P. 23(a) must be met, together with one of the tests of C.R.C.P. 23(b). If those criteria are met, the trial judge will "certify" the class under C.R.C.P. 23(c)(1).

The trial court may have certified a class before the parties reach a settlement agreement or may have certified it as part of the settlement itself. If the trial court has certified a class under C.R.C.P. 23(c)(1) prior to settlement, the class for settlement purposes ordinarily is identical to the class certified for trial.11 Indeed, to ensure that the settlement disposes of the litigation entirely, the parties will carefully match the settlement agreement's definition of the class with the class as certified by the trial court Thus, in that context, no separate or additional certification of a "settlement-only" class typically occurs. A class member...