Thu, Feb 1, 2018

What is the Class Action Fairness Act?

CAFA requires defendants to notify state and federal regulators of any proposed settlement in federal courts and to provide regulators with at least 90 days to review the proposed settlement before final approval can be granted.

It’s been years since the Class Action Fairness Act (CAFA), which significantly expanded federal diversity jurisdiction over class and mass actions, was at the top of everyone’s mind but the requirements do still exist.

CAFA, as defined in 28 U.S.C. § 1711 – 1715, requires all defendants to notify state and federal regulators where any class member may reside of any proposed class action settlement that is in federal courts within 10 days of filing of preliminary approval. If the location of the class members is unable to be determined, defendants should give notice to regulators in all fifty states and U.S. territories, as well as to any applicable state regulators. Defendants who are unable to meet the 10-day requirement are met with stark consequences. CAFA does not affect settlements in state courts, only cases settled in federal courts.

A class member who can prove that regulators were not notified of the settlement can opt to not be bound by the settlement and the case can unravel. Additionally, a court cannot enter an order to give final approval until 90 days after the CAFA notice is given. Thus, defense counsel must begin preparing this notice while settlement negotiations are still ongoing.

CAFA was implemented to protect class members from being involved in a settlement that may be deemed unfair or inconsistent with regulatory policies, and to protect consumers from class action abuse, particularly settlements that generate large attorney fees which can consume the value of the settlement. The requirement deliberately invites state and federal officials to intervene in the settlement process. The content of the notice must include:

  • A copy of the complaint and all exhibits 
  • Notice of any scheduled hearings in the class action 
  • A copy of the proposed notice to class members 
  • The proposed or final settlement agreement 
  • Any simultaneous agreement between plaintiffs’ counsel and the settling defendants 
  • The proposed dismissal 
  • The names of class members who reside in each state and the share of claims of such members to the settlement (if able to be attained) and/or the estimates of the number of class members who reside in each state and the share of claims of such members to the settlement 
  • Any written opinion relative to the settlement 

The required information is often problematic for defendants to gather. As soon as a settlement is reached, defendants should begin gathering the documents listed above, and work to compile a class list. It is imperative to work with other defendants on the case to create a common form of notice, a class member database, and a plan for the service of the notice. Each settling defendant is responsible for providing a CAFA notice. The main goal for defendants involved with class actions subject to CAFA is to plan ahead and to not miss the 10-day deadline.

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