e-journal
Judicial Review of Class Action Settlements
Abstract
This article proposes a simple and coherent approach to judicial review of class action
settlements. Specifically, we propose that for questions going to the adequacy
of a settlement, where no warning signals of fraud or collusion are found, the court
should act relatively deferentially by employing a lenient standard of scrutiny and
approving a settlement if it has a rational basis. An intermediate level of scrutiny
should apply when the settlement presents facial issues that implicate the fairness
of the settlement. Such facial issues include the allocation of settlement proceeds
among subgroups in a class, the presence of coupon-type relief, “shotgun” settlements
occurring very early in the litigation, and settlements in overlapping class
actions. In settlements with one or more of these characteristics, if the initial inquiry
raises concerns, the court should demand a well-reasoned explanation for
the choices made. Finally, where the components of a settlement present a direct
conflict between the interests of class counsel and those of the class issues, such
as issues related to attorneys’ fees, courts should employ exacting scrutiny and
require convincing evidence that the proposal is reasonable.
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