On The Case

Can judges bar class action settlement talks before certification? Debate heats up

(Reuters) - How can federal judges best protect the interests of class members who may not even know their rights are at stake? And can they look out for absent class members without compromising defendants’ rights and federal policies encouraging settlements?

An important policy debate about those questions heated up this weekend, when U.S. District Judge William Alsup of San Francisco refused to stay a consumer class action accusing the computer peripherals company Logitech of falsely advertising the number of drivers in certain of its speakers. Logitech and the plaintiffs' lawyers who filed the class action want to settle. But Judge Alsup, as you may recall, has a standing order barring prospective class counsel from entering settlement negotiations with defendants until he has certified a class. Absent extraordinary circumstance, the judge won’t appoint class counsel or entertain settlement proposals until he has determined the class is warranted.

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Logitech contends Judge Alsup has erected litigation roadblocks that not only violate the First Amendment by imposing a prior restraint on speech but also contravene the federal court system’s rules encouraging settlement. Its lawyers at Mayer Brown filed a mandamus petition at the 9th U.S. Circuit Court of Appeals that challenges Judge Alsup’s rule on both constitutional and policy grounds. Logitech asked the judge to delay discovery until the 9th Circuit rules on its mandamus petition. Judge Alsup, in a terse order issued Saturday, refused.

If this sounds vaguely familiar, that’s because Logitech previously filed a similar mandamus petition last fall, as I reported at the time. In December, a 9th Circuit panel denied mandamus because Logitech hadn’t raised its constitutional concerns with Judge Alsup before heading to the appeals court. The panel, however, left open the door to a renewed challenge after Judge Alsup weighed in.

The ensuing debate this month between Logitech and Judge Alsup, which culminated last week in Logitech’s new mandamus petition, fleshes out both the judge’s rationale and Logitech’s arguments against it. Given the frequency of class action settlements before class certification rulings – and the widespread judicial acquiescence to such settlements – it’s worth taking a look at why Logitech believes defendants must be allowed to pursue precertification negotiations and why Judge Alsup disagrees.

I’ve previously described Logitech’s First Amendment position: It contends that Judge Alsup’s rule is an overly broad prior restraint on speech that cannot withstand the strict scrutiny test, which requires such restraints to be narrowly tailored to serve a compelling government interest. Logitech also said Judge Alsup’s policy interferes with its right to petition the court for approval of a proposed settlement. The company’s Jan. 8 motion for reconsideration added policy arguments to its constitutional concerns.

It pointed to the newly amended Rule 23 of the Federal Rules of Civil Procedure, which, according to Logitech, expressly recognizes that parties in class actions may settle cases before classes are certified. The revised rule governing class actions, Logitech said, ensures that judges overseeing the cases have two chances to scrutinize proposed precertification settlements, before granting preliminary and final approval. Judge Alsup’s order effectively barring such settlements, according to Logitech, conflicts with Rule 23.

Similarly, according to Logitech’s motion, Judge Alsup is out of sync with his district’s procedural guidelines. The Northern District of California, which updated its class action settlement guidelines in November and December, specifically anticipates that class actions settle before class certification proceedings and offers guidelines for how judges should evaluate such settlements when they’re proposed. Logitech contends Judge Alsup’s prohibition on settlement talks is at odds with districtwide guidance.

The judge answered all of Logitech’s contentions in a succinct Jan. 18 opinion denying the motion for reconsideration. First, Alsup explained why he adopted his rule directing class action plaintiffs and defendants not to talk about settlement until the class is certified. Certification, he said, determines which class claims are valid and imposes a duty on class counsel to pursue them. Delaying settlement talks, according to Judge Alsup, “avoids the awkward situation in which counsel waste time on a proposed settlement of issues that should not be litigated or settled on a classwide basis. And, it avoids the creation of an artificial ceiling for the value of a case before we determine which issues deserve class treatment. It also avoids overbroad releases by absent class members of claims that should not be released.” Without the leverage of a class certification decision, the judge said, absent class members may not recover as much as they’re entitled to.

All fair points. But what about the rights of defendants? The judge said his rule doesn’t stop class action defendants from talking to plaintiffs’ lawyers about settling individual claims but simply delays discussion of settling claims of people who aren’t represented until class counsel is appointed. “To the extent a limited restriction exists, the interests are overwhelmingly outweighed by the interest of the court in effectuating orderly case management and the interests of the absent class members whose rights are also at risk,” the judge said.

Judge Alsup acknowledged that Rule 23 amendments anticipate precertification settlements, but said that the federal rule calls for plaintiffs’ lawyers to seek appointment as interim class counsel to negotiate such deals. The judge said his own order also allows plaintiffs’ lawyers to ask to be named interim class counsel. In fact, the plaintiffs’ firm that filed the Logitech class action, Edelson, made that motion. Alsup said he exercised his discretion – as Rule 23 permits – to deny the motion. “Whether or not to appoint interim counsel is an issue of discretion for the district court,” the judge wrote. “Logitech merely disagrees with the exercise of discretion by the district judge in this case.”

Judge Alsup’s opinion didn’t directly address Logitech’s argument about his district’s guidelines but said the 9th Circuit has emphasized that trial judges must engage in “rigorous analysis” of class action settlements. To support the point, he cited a 2018 decision, ABS Entertainment v. CBS, in which the appeals court invalidated a local rule in the Central District of California that required prospective class action plaintiffs to move for class certification within 90 days of filing a suit. Class actions shouldn’t be rushed, the judge suggested. “A settlement should be negotiated only after adequate and reasonable investigation and discovery by class counsel,” Alsup wrote.

Logitech’s new mandamus petition, filed Friday, argues that Judge Alsup’s order produces a “perverse result.” The entire court system, from the Northern District to the U.S. Supreme Court, is supposed to encourage parties to settle. Judge Alsup’s order barring precertification settlement talks “replaces this speedy and efficient solution to disputes with additional litigation — litigation that serves little purpose, given that the parties agree about the need for class adjudication and the proper scope of class relief.”

For a counterpoint to Logitech’s petition, I talked to Fordham law professor Howard Erichson, who got star billing in Judge Alsup’s opinion denying Logitech’s motion for reconsideration. Erichson said Logitech’s constitutional arguments are a diversion. The 9th Circuit, he said, should look at what Judge Alsup’s order accomplishes: It protects prospective class members from losing their claims before they’re even parties in a case. Logitech argues that “both sides” want to settle and have roughly agreed on terms but Erichson said that’s a misframing: Logitech and named plaintiffs may want to settle, but no one yet has the right to speak for everyone else in the prospective class.

“These settlements have become so commonplace,” Erichson said. “We’ve become blind to what is so outrageous.”

The law prof admitted that the Rules Committee that worked for years on the just-enacted amendments to Rule 23 did not share his qualms about precertification settlements. I asked whether the litigation over Judge Alsup’s rule might inspire other judges to adopt similar restrictions on precertification settlements. Is anyone out there pushing for such prohibitions?

“Besides me?” Erichson said. “I don’t know.”