Class Action Perspectives
For Better or Worse: The New CAFA Notice Requirements
The Class Action Fairness Act of 2005 (“CAFA”)1 contains a so-called “Consumers Bill of Rights” that includes extensive new requirements mandating that each defendant provide notice of a proposed class action settlement to “appropriate” federal and state officials.2 Notice must be provided no later than 10 days after the proposed settlement is filed in court. The court cannot grant final approval of the settlement any earlier than 90 days after service of the notice of settlement.
The CAFA notice requirements are intended to protect class members under the theory that government officials will provide some unspecified level of scrutiny of what might otherwise be a collusive settlement in which plaintiffs’ attorneys receive high fees and class members relatively little value. To enforce compliance, CAFA permits class members to “refuse to comply with or choose not to be bound by a settlement agreement or consent decree” if they can demonstrate that appropriate notice has not been provided.3 The probable result of this provision is the inundation of federal and state officials with boxes of often-duplicative documents by defendants anxious to preserve the finality of a court-approved settlement agreement. While the Senate Judiciary Committee Report suggests that good faith compliance or compliance by at least one defendant may provide protection,4 punctilious compliance by all defendants is advised.
What Must Be Included in the Notice?
Section 1715 (b) of CAFA requires that notice be served on the “appropriate” state and federal official no “later than 10 days after a proposed settlement of a class action is filed in court.”5 The notice must contain the following items:
- The complaint and any amended complaints, together with documents that may have been filed with the complaint, unless notice is provided to the official that these documents are available electronically through the Internet;
- Notice of any scheduled hearings;
- The proposed or final notification to class members of the proposed settlement and the existence or non-existence of their right to request exclusion from the class action;
- Proposed or final settlement agreements;
- Agreements between counsel for plaintiffs and defendants;
- Any final judgment or notice of dismissal;
- “[I]f feasible,” the names of the class members who reside in each state and the estimated proportionate share of their claims; if “not feasible,” the notice must include “a reasonable estimate of the number of class members residing in each state and the estimated proportionate share of their claims” in the settlement; and
- Any written judicial opinions regarding class notification, the settlement agreement, judgment or dismissal.
Who Is the Appropriate Federal and State Official?
Typically, the “appropriate federal official” for purposes of CAFA notification is the Attorney General of the United States. However, where a defendant is “a Federal depository institution, State depository institution, a depository institution holding company, a foreign bank, or a non-depository institution” that is a subsidiary of one of the foregoing institutions, notice must be provided to the person “who has the primary Federal regulatory or supervisory responsibility” over the defendant, “if some or all of the matters alleged in the class action are subject to regulation or supervision by that person.”6 More specifically, where a defendant is a state depository institution, notice must be served upon the appropriate federal official, and the bank supervisor of the “State in which the defendant is incorporated or chartered, if some or all of the matters alleged in the class action are subject to regulation or supervision by that person . . .”7
The “appropriate state official” for purposes of CAFA notification is more ambiguous, and requires that notice providers perform continual research on state regulatory institutions. In general, the appropriate state official is “the person in the affected state who has the primary regulatory or supervisory responsibility with respect to the defendant, or who licenses or otherwise authorizes the defendant to conduct business in the state, if some or all of the matters alleged in the class action are subject to regulation by that person.” In the absence of such a person, notice must be given to the state attorney general. In the case of federal depository institutions, notice to the appropriate federal official is required and state notice is waived.
The Senate report provides some guidance for determining what state official should be served with notice. In a case against an insurance company “involving insurance practices, such as how premiums are calculated,” for example, notice should be served on the insurance commissioner in each state where the company is licensed and where class members reside. If class members reside in states where the insurer is not regulated by the state, then notice should be given to those states’ attorneys general.8
Similarly, if a defendant is not licensed or regulated by any state regulatory body – such as a toy manufacturer – notice should be provided to the state attorney general of each state where a class member resides.9
State regulatory and licensing agencies and their functions differ widely from state to state. Some states have a plethora of agencies to regulate everything from insurance to oriental medicine practitioners. Other states have fewer regulatory and licensing agencies. Also, the regulatory agency that regulates the business of a defendant may vary from state to state.
What Services Can a Notice Provider or Settlement Administrator Offer?
Given the potential consequences of inadequate notice, defendants will want to retain a notice provider or an administrator acutely aware of and familiar with the new CAFA notification requirements. A knowledgeable notice provider/administrator can help identify appropriate state officials, and compile the materials and data needed for the notice itself.
Identifying the State Agencies
The notice provider/administrator must be able to properly identify the appropriate official in each state who should receive notice of the class action. While the defendant will be the final arbiter of the agencies by which it is regulated, the notice provider/administrator should have a database of each state’s regulatory and licensing agencies and the purview of those agencies. This research will not only allow the defendant to target the appropriate agencies, but it will also allow the defendant to prove to the court that it used due diligence in complying with the law. In the event of a later challenge by a class member, this due diligence may allow the defendant to uphold the binding effect of the settlement.
Compiling the Notice Materials
Unfortunately, the defendant is not only required to notify the proper state and federal officials regarding the settlement, but, as outlined above, the defendant must provide a plethora of information regarding the class action itself. While it seems that this would result in sending mounds of paper to potentially 5310 or more individuals nationwide, some simple solutions can make this daunting task less burdensome. The notice provider/administrator should be able to compile all of the relevant documents into a single compact disc that can be sent with a simple cover letter by overnight courier or registered mail to all of the necessary parties. All of the defendants can sign the cover letter, thereby meeting the requirement that each defendant provide notice with a single mailing to each official.
Estimating Class Size in Each State
In most consumer cases it will be extremely difficult to provide the actual number, let alone the names, of class members by state as required under CAFA. This provision will be especially challenging to defendants who cannot determine where their products were sold or purchased in the stream of commerce. For example, a defendant who manufactures a product that thereafter filters through wholesalers and resellers nationwide may have no way of knowing where the ultimate consumers are located.
While estimating the number of class members in each state may not be feasible in every case, census and survey data does exist to allow a notice provider to establish reasonable estimates of the number of class members in some matters. Paid media notice experts rely on industry-accredited consumer surveys that provide product consumption information by demographic selectors. By analyzing syndicated data available from MediaMark Research, Inc. (“MRI”) or Simmons Market Research Bureau, notice experts can determine the geographic dispersal of consumers by individual brands or types of products and services.
MRI, for example, conducts studies consisting of personal interviews with consumers nationwide in two waves annually, each lasting six months and consisting of 13,000 interviews. Two full years of data drawn from over 50,000 respondents is produced annually by the study. Consumer information is recorded on 500 product or service categories, 6,000 brands, and various lifestyle activities.
MRI is traditionally used by leading national advertisers and over 450 advertising agencies -- including 90 of the top 100 in the United States -- as the basis for the majority of the media and marketing plans written for advertised brands. This same data can be used to calculate estimates of the number of consumers of certain products in individual or clustered states. MRI reports state-level data for 17 individual states. The data on the remaining 31 continental states is reported in 10 groups of 2 to 4 geographically related states. These results can be used to determine a number of characteristics, such as an estimated number of Marlboro cigarettes consumed or the number of people who drink Pepsi in a given state.
MRI, however, does not provide adequate data in those cases when the subject matter is not surveyed. Without readily available data, defendants may need to bear the additional expense of an economist, actuary or accountant to work with the notice provider in calculating the information required by CAFA’s requirement of an estimate of the number of class members in each state. Although defendants have the primary responsibility for providing this information, the committee notes indicate that the intent of CAFA is that plaintiffs have the responsibility of explaining to the court why this information cannot be provided, if that is the case.
Defendants and plaintiffs would be well advised to ensure that the notice provider/administrator and other experts preserve records of their research for an appropriate period, and are available to testify in the event of a later challenge to the finality of the settlement.
By Katherine Kinsella, President, Kinsella Media, LLC, Oct. 2002
1Pub. L. No. 109-2, 119 Stat. 4 (2005). Codified as 28 U.S.C. Sections 1332(d), 1453, and 1711-1715.
2U.S.C. § 1711
3U.S.C. § 1715(e)
4S. REP. NO. 109-14 at 35 (2005) (“The Committee wishes to make clear that this provision is intended to address situations in which defendants have simply defaulted on their notification obligations under this provision; it is not intended to allow settlement class members to walk away from an approved settlement based on a technical noncompliance (e.g., notification of the wrong person, failure of the official to receive notice that was sent), particularly where good faith efforts to comply occurred.”)
5U.S.C. § 1715(c)(2)
628 U.S.C. § 1715(a)(1)(B). The Senate report provides an example: if “a national bank were sued over its lending practices, notice would have to be provided to the Comptroller of the Currency. If it were sued in a nationwide lawsuit regarding the food in its cafeterias, notice would be provided to the Attorney General.” S. REP. NO. 109-14 at 33-34 (2005).
9S. REP. NO. 109-14 at 34 (2005)
10This includes all 50 state attorneys general, the attorneys general for the District of Columbia and Puerto Rico and the United States Attorney General.