A Roadmap for Addressing Objections to Class Settlement

Earlier this year, the Fourth Circuit published an updated roadmap for addressing objections to class settlement. The decision, 1988 Trust for Allen Children Dated 8/8/88 v. Banner Life Insurance Co., 28 F.4th 513 (4th Cir. 2022), will be an important resource for parties hoping to bypass objections en route to settlement. It will also be an important guidepost for class members pursuing objections with hopes of slowing down settlement traffic.

Allen Trust clarifies—for the first time in the Fourth Circuit—the burden of proof that applies when a class member objects to settlement. This novel guidance isn’t the only reason for litigators to keep Allen Trust in their glove box. The opinion provides a comprehensive and careful explication of the standards and procedures that apply when class members object to settlement, including the circumstances under which objectors are entitled to discovery.

For context, Allen Trust arose from a dispute about insurance fees. The plaintiffs, on behalf of a putative class of life insurance policyholders, alleged that their insurers fraudulently increased their cost-of-insurance charges. The parties eventually reached a settlement, and the district court issued preliminary rulings certifying the settlement class and approving the terms of the settlement.

After the parties gave notice of their proposed settlement, a class member objected, alleging that the settlement failed to take into account the unique features of its slightly different life insurance policy. In an unusual move, the district court allowed the objector to take discovery. But after limited depositions and interrogatories, the district court overruled the objection, certified the class and approved the settlement. The objector appealed, giving the Fourth Circuit an opportunity to clarify its class settlement analysis.

First, the Fourth Circuit addressed “the burden of proof, or lack thereof,” on an objector. The Court acknowledged that, in its previous opinions, it had not clearly identified who bears the burden when a class member objects to settlement. The Court clarified that the parties seeking settlement bear the ultimate burden of showing that: (1) the class satisfies the requirements of Rule 23; (2) the settlement is fair, reasonable, and adequate; and (3) the objection lacks merit. The showing necessary to carry this burden will vary based on the strength of the objection.

The appellate court clarified that objectors can’t exactly freewheel through the process. They still must state the grounds for the objection with specificity, including by explaining whether their concerns apply only to the objector, to some subset of the class, or to the class as a whole. The trial court may reject an objection for lack of specificity, so objectors and parties to the settlement alike should consider whether the objection is sufficient to satisfy this preliminary requirement.

Next, the Court discussed the circumstances under which an objector is entitled to conduct its own discovery. It is “extremely unusual,” the Court observed, for a trial court to grant such a request. The objector has no absolute right to discovery, and typically it is unnecessary because of the substantial discovery conducted in the underlying litigation. The district court has broad discretion, however, to grant discovery to an objector if it will assist in determining whether the settlement is fair.

The Court next addressed the proprietary of class certification, an issue it reviews for abuse of discretion. The opinion includes a helpful refresher on the requirements of Rule 23: numerosity, commonality, typicality, adequacy and—for Rule 23(b)(3) classes—predominance. We will not rehash the finer points of those familiar requirements here, but one aspect of the Allen Trust decision sheds light on how this analysis applies in the context of settlement objections. Here, the objector argued that the class failed the predominance requirement because, by virtue of its different policy terms, the objector’s injury occurred in a unique manner and at a different time. The Court rejected this argument, concluding that common questions still predominated because the magnitude of the injury was the same for all class members.

Finally, the Court considered whether the proposed settlement was fair, reasonable, and adequate as required by Rule 23(e)(2). The Court also reviews this issue for abuse of discretion. The niceties of this inquiry are beyond the scope of this post, but be aware that the substance and strength of the objector’s opposition are relevant for purposes of this phase of the class settlement analysis. The district court will consider the degree of opposition and whether the proposed settlement addresses the objector’s concerns. In Allen Trust, for example, the Court approved the settlement as fair, reasonable, and adequate in part because there was only one objector whose injury was speculative.

As objections become a more common feature on the road to class settlement, litigators should keep Allen Trust handy as a guide for raising or overcoming them. The opinion solidifies previously uncertain principles relating to settlement objections and consolidates the key procedures and legal standards. Overall, Allen Trust serves as an important reminder that class settlement approval is not a given. Those class members who oppose settlement have a legitimate opportunity to steer the proposal off course. The parties seeking settlement must be prepared to navigate the detours and find a clear route to resolution.