CAFA settlement notice provision: optimal regulatory policy?

AuthorSharkey, Catherine M.
PositionClass Action Fairness Act

INTRODUCTION I. MYRIAD DIMENSIONS OF CAFA AS REGULATORY POLICY II. PRE-CAFA LANDSCAPE: LITTLE-STUDIED PAST A. AG Objections B. Coordinated AG Efforts to Object C. AG Pursuit of Litigation in the Wake of Objection III. POST-CAFA LANDSCAPE: UNCERTAIN FUTURE A. Formal Actions B. Informal Activity IV. CAFA SETTLEMENT NOTICE PROVISION: TAKING STOCK A. What Has Changed? 1. Information 2. Collaboration B. Optimal Regulatory Policy? CONCLUSION INTRODUCTION

Sometimes the periphery proves to be of central importance. In its infant years, the Class Action Fairness Act of 2005 (CAFA) (1) has undergone much critical scrutiny. (2) This Article moves us to the periphery to evaluate the largely ignored settlement notice provision. (3) The provision mandates that notice of every class action settlement within CAFA's purview must be provided to "appropriate" federal and state officials. (4) The relevant federal official is the Attorney General of the United States. (5) As for the states, the relevant official is the one who has "primary regulatory or supervisory responsibility with respect to the defendant, or who licenses or otherwise authorizes the defendant to conduct business in the State," or, by default, the attorney general (AG) of any state in which any class member lives. (6)

Defense counsel shoulders the burden of providing the requisite notice. (7) Appropriate notice must be provided to a state official in every state in which class members reside. (8) The relevant officials must receive copies of the complaint, class notice, proposed settlement, and other pertinent materials. (9) The officials need not respond (or even acknowledge receipt), but a judge's order giving final approval of a proposed settlement may not be issued until ninety days after appropriate notification to state and federal officials--thus giving the officials time to act if they so wish. (10) The consequences of noncompliance are quite drastic: should a defendant fail to comply with the notice provision, a class member can choose not to be bound by the settlement agreement. (11)

Little is known about why this provision was added to CAFA, and the legislative history is scant. Nonetheless, it has been an enduring feature since the legislation was first proposed in 1997. (12) At the most basic level, the provision ensures that "a responsible state and/or federal official receives information about proposed class action settlements and is in a position to react if the settlement appears unfair to some or all class members or inconsistent with applicable regulatory policies" (13) Specialized state regulatory authorities (or the state AG in the absence of a state regulator) are likely to be familiar with the business practices at issue in the litigation, and they are well situated to "voice concerns if they believe that the class action settlement is not in the best interest of their citizens." (14) The overriding purpose seems to have been to prevent lawyers from crafting abusive settlements favoring themselves over consumers or other injured parties. (15) In this vein, the provision provides "a check against inequitable settlements in these cases," which could arise from "collusion between class counsel and defendants to craft settlements that do not benefit the injured parties." (16)

Some legal scholars have begun to ask whether CAFA's settlement notice provision will awaken a "sleeping giant." (17) The scant existing commentary is of two minds. (18) This perhaps reflects the juxtaposition of the lofty goal of aggressive AG monitoring against the fact that the AGs lack a precise mandate for official review, let alone any additional resources for the endeavor. Thus, while the relevant state officials must be given notice, there is no requirement that they take any action whatsoever. (19) Nor are any resources dedicated to the review of class action settlements.

Equally deflating are the views expressed by the state AGs, several of whom do not appear satisfied with their new CAFA-inspired role. A group of fifteen state AGs wrote Congress to contend that the mandated notices "would be unlikely to reveal evidence of collusion, and thus would provide little or no basis for objecting to the settlement." (20) The AGs further asserted that "[w]ithout clear authority in the legislation to more closely examine defendants on issues bearing on the fairness of the proposed settlement (particularly out-of-state defendants over whom subpoena authority may in some circumstances be limited), the notification provision lacks meaning." (21) Finally, they also feared that "[c]lass members could be misled into believing that their interests are being protected by their government representatives, simply because the notice was sent to the Attorney General of the United States, State Attorneys General and other federal and state regulators." (22)

Whether or not the CAFA settlement notice provision will radically--or even perceptibly--alter the class action landscape, it nonetheless provides a useful lens through which to examine the much broader topic of CAFA as regulatory policy. By inviting intervention by a state governmental actor in ex post private litigation under the jurisdiction of the federal courts, this one small provision presents a microcosm of the trenchant federalism, regulatory, and institutional debates spawned by CAFA.


    The subject of CAFA as regulatory policy is immense. As if through a refracting lens, CAFA's image is transformed by the angle from which it is viewed. A series of progressively unfolding dyads provides a useful heuristic for isolating particular aspects of CAFA's regulatory nature.

    In a previous article, Samuel Issacharoff and I proposed a framework to situate CAFA within the broader trend of federalization of substantive law and procedural fora, which we argued was a notable feature of the two-decades-long Rehnquist Court. (23) We set forth a stylized two-by-two matrix, designed to highlight our focus on the federalization trend across two separate dimensions: substantive law (federal or state) and procedural forum (federal or state). (24) Amidst what we perceived as an overall momentum in case law and legislative developments away from state law and state fora toward federal standards and federal fora (depicted by the arrow in Table 1), we located CAFA in a potentially unstable, partially federalized quadrant, characterized by a regulatory mismatch between the source of law governing primary conduct and the forum. CAFA centralizes in federal court cases affecting the national market, but it fails to provide a source of federal law to govern these actions. (25) By probing "an underexplored link between the emergence of predominant federal substantive law overcoming the problems of horizontal coordination among the states, and the correspondingly expanding role of the federal forum in creating a nurturing incubator for that law," (26) our matrix sheds light on the regulatory mismatch that CAFA represents.


    As with all stylized heuristics, however, separate dimensions of the link between CAFA and regulatory policy remain out of focus. One perhaps glaring omission was inattention to the institutional dimension of regulatory policy--namely whether the attempt to control primary conduct of actors is achieved by ex ante regulation by agencies or ex post common-law liability by private actors. This institutional dimension is front and center in a recent article of mine, which sets forth another two-by-two matrix to organize an analysis of federal preemption of state tort law claims. (27) For example, in the context of the regulation of pharmaceutical drug labeling, the central issue in preemption controversies is whether the fairly stringent ex ante scrutiny of prescription drug labels' content prior to the approval of a new drug application should foreclose ex post litigation of failure-to-warn claims brought by private litigants in state or federal court.

    In the particular context of federal preemption of state products liability claims, the ex ante/ex post regulatory mechanism maps by and large onto discrete institutional actors operating at the federal versus state level--regulation by federal agencies in the ex ante context and private litigation of state tort claims in the ex post context. Federal agencies--such as the Food and Drug Administration (FDA), National Highway Transit and Safety Administration (NHTSA), and Consumer Product Safety Commission (CPSC)--generally conduct ex ante product regulation pursuant to federal statutes and regulations. In contrast, most ex post private litigation involves state statutory or common law standards (with the exception of state negligence per se actions based on the violation of a federal statutory standard). This need not be the case, however. In certain areas--for example, insurance and gaming--states have specialized executive departments or commissions. (28) Once again, we can turn the refracting lens, this time to sharpen the distinction between regulatory mechanism and institutional actor.

    It is instructive to superimpose another dimension, the public/private dichotomy, on the ex ante versus ex post dimension of the previous matrix. Considered along this new matrix, government (here, represented by the state AGs; in my prior analysis, by federal agencies--thus implicating the federalism dimension from Table 1 as well) occupies the space of public ex ante regulator, as well as ex post regulator.

    In the latter guise, government assumes myriad roles: it (1) initiates parallel litigation; (33) (2) participates in private litigation, as intervenor, objector, or amicus; (34) and, (3) per CAFA's settlement notice provision, reviews the outcome of private litigation (i.e., settlements). (35) Hence, we see that the AG occupies a hybrid public-private governance role. (36) The settlement notice provision creates a...

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