Schloss v. GoSmith, Inc.

Nature of the Order

This was a notice and order providing guidance for putative class actions—cases in which a proposed representative seeks to litigate on behalf of a potential group of people—and proposed class settlements. It also established a protocol requirement for interviews with absent putative class members. The order did not rule on the merits of Schloss’s claims or approve a proposed settlement.

Settlement Guidance

The court identified factors that counsel should address when seeking preliminary or final approval of a class settlement:

- Adequacy of representation: A proposed class representative must satisfy the standards in Federal Rule of Civil Procedure 23, including the requirement that the representative adequately protect absent class members. The court required an affirmative showing in a sworn record and said counsel’s adequacy does not substitute for the representative’s adequacy. - Due diligence: The representative and counsel must investigate the strengths and weaknesses of the claims, including the best-case dollar value of the relief. The order stated that this usually requires discovery. - Value for absent class members: A settlement providing less than a full recovery requires justification for the discount, supported by specific evidence and a class-wide damages study or a strong substitute in sworn form. The order also addressed settlements involving a financially distressed defendant, coupons, and different groups within the class. - Release: The release should be limited to claims certified for class treatment. Claims should be identified specifically rather than through vague language covering claims that “could have been brought.” Any broader release would require justification. - Reversion: A provision returning unclaimed settlement funds to the defendant was identified as a warning sign, particularly when class members must submit claims. - Claim procedure: The court questioned whether requiring claims would create too much burden or cause notices to be discarded. Where feasible, it favored calculating checks from the defendant’s records and treating cashing a check as acceptance of the release and settlement terms. - Attorney fees: The order said settlements should not fix attorney fees by agreement and that the judge should decide the allocation between the class and counsel. - Opt-out rights: The ability of absent class members to leave the settlement does not eliminate the court’s independent duty to assess whether the settlement is reasonable and adequate. - Incentive payments: Any payment to the named plaintiff would require clear justification in a sworn record. - Notice: The court addressed notice language, delivery methods, undeliverable notices, and whether people who receive no notice or benefit should be bound by a release. It stated that the release should generally extend only to people who receive money for it.

Timing of Class Settlement Discussions

As a general rule, the order required plaintiff’s counsel not to engage in class settlement discussions until after class certification. The stated reasons included allowing the parties to know which claims and class members were actually covered and allowing counsel to negotiate with a certification order in place. The order also connected this timing rule to the need for investigation and discovery.

The order recognized exceptions. Rule 23 permits pre-certification settlement-class procedures in some circumstances, including when a defendant may soon lack funds to pay a settlement. In such circumstances, counsel could seek appointment as interim counsel and authorization to negotiate for a specified putative class. Full settlement discussions about an individual claim remained permitted at any time.

Interviews of Putative Class Members

The order addressed communications with absent putative class members about the merits of the case. It required both sides to promptly meet and confer about an interview protocol. Their initial joint case-management statement had to describe the agreed protocol or explain why one was unnecessary. The parties could not interview absent putative class members unless the court approved the proposed protocol or otherwise granted permission.

Disposition

The court issued the guidance and requirements described above and ordered, “IT IS SO ORDERED.” The order did not grant or deny a motion, resolve liability, decide class certification, or approve a settlement.