Fourth Circuit Upholds (B)(2) Settlement Covering 200 Million People

Since the Supreme Court’s decision in Wal-Mart, courts have been struggling to breathe life into Rule 23(b)(2) when monetary damages are a possibility. Wal-Mart held that back pay constituted the kind of individualized monetary relief that was hardly “incidental” to claims of injunctive relief, upon which (b)(2) classes are essentially founded. In Berry v. LexisNexis Risk and Information Analytics Group, Inc., No. 14-2006 (4th Cir. Dec. 4, 2015), the Fourth Circuit grappled with this issue, albeit in the context of a nonmonetary (b)(2) settlement that, by its terms, continued to allow class members to pursue certain claims for monetary relief.

Courts are rarely in love with voiding settlement agreements, and this sentiment is reflected early in Judge Harris’s opinion, when she notes that the parties’ settlement is “the culmination of years of litigation and negotiations” between class counsel and the defendants. The settlement at issue arose in the context of a Fair Credit Reporting Act (“FCRA”) dispute over Lexis’s sale of personal data reports to debt collectors. In the settlement, Lexis agreed to “make sweeping changes in its product offerings,” and class members would release “statutory damages claims” under the FCRA, while remaining free to “seek actual damages individually under the FCRA.” The size of the class was huge: estimated at 200,000,000 people.

The Objectors, who wanted to opt out of the class and press their own, individual claims for statutory damages that the settlement forced them to give up, mounted a series of challenges to the settlement, all of which the Fourth Circuit rejected. Utilizing a deferential “abuse of discretion” standard of review, the court confronted head-on the Objectors’ contention that it was unfair for them to be forced to give up claims of monetary relief in the context of a Rule 23(b)(2) settlement. Objectors essentially argued that the statutory damages waived under the settlement agreement “predominated” over the injunctive relief awarded and were not the kind of “incidental” and “non-individualized” relief that Wal-Mart still allows.

The Fourth Circuit rejected this argument, principally by adopting a functional analysis of the type of monetary claims released and pooh-poohing the viability of plaintiffs’ damages claims. According to the appellate panel, the statutory damages were a “simple function of Lexis’s policies” applicable to the “entire class.” This was by contrast, the Court observed, to the individuals’ claims of actual damages, which were “individual” and “personal,” but were also not released by the parties’ settlement.

The Court remarked on another oddity of the settlement. Although the settlement was premised on programmatic injunctive relief, the claims in the lawsuit did not seek that relief – the FCRA does not provide a private right of action for injunctive relief. But the Court held that was “beside the point” and that the defendant was “free to agree to a settlement enforcing a contractual obligation that could not be imposed without its consent.” The Court acknowledged other precedent holding that the unavailability of equitable relief precluded certification of a (b)(2) class, but distinguished that authority because it was outside of the “settlement context.”

Judge Harris also confronted the Objectors’ due process challenge to the release of their individual statutory damages claims, elaborating on the meaning and context of damages claims that were “incidental” to injunctive or declaratory relief. The key, she said, was not so much the size of the monetary claims but whether the damages were “in the nature of a ‘group remedy, ’” i.e., “flowing ‘directly from liability to the class as a whole.’” The Fourth Circuit squarely put itself in the camp of allowing damages claims that are “non-individualized” and “incidental” to injunctive relief. The reasoning of the Court seems to suggest that if claimed monetary damages are “non-individualized,” they are per force “incidental” – indeed, it is unclear from the Court’s opinion when “non-individualized” relief will ever be “non-incidental” to a (b)(2) class.

The Berry decision seems heavily influenced by the settlement context of the case, expressly observing that the Objectors’ position would “discourage settlement.” So the contours of “incidental” monetary relief will need to be fleshed out yet again in the context of a (b)(2) class certification motion outside of that context. And, although this (b)(2) settlement did force 200,000,000 people to give up claims for monetary damages without their consent, the court made clear it had a dim view of the chances of success on those claims, noting that it was “generous” when the district court termed those claims as “speculative at best.” In fact, the Court observes that “there was never any realistic possibility of class-wide monetary relief.”

At the end of the opinion, the Court deals with what is in fact the monetary portion of the settlement – $5.3 million in attorney’s fees. The appellate court acknowledged that the district court’s explanation of its fee award was contained in but a single paragraph, but found that to be sufficient while cautioning district court judges of the need to make their findings in this regard more fulsome.