It Pays to Over-Think Class Definitions and Release Provisions in Class Action Settlement Agreements

Limiting exposure to future claims is a crucial aspect of settling class action litigation. A recent opinion out of the Northern District of Georgia serves as a reminder that the definitions of settlement classes and released claims in class action settlement agreements warrant close attention.

First, the background. In 2015, a customer filed a putative class action against LGE Community Credit Union, alleging that LGE improperly assessed overdraft fees based on accounts’ available balances instead of customers’ ledger balances, in violation of LGE’s standard member agreements. The customer alleged class claims for breach of contract, breach of the covenant of good faith and fair dealing, unjust enrichment and violation of the Electronic Fund Transfer Act.

The 2015 case settled. As required by Federal Rule of Civil Procedure 23(e), the district court approved the settlement agreement in a final judgment and order entered on February 12, 2022. The approved settlement agreement defined two settlement classes. The first class included LGE members who were charged overdraft fees on certain transactions “between August 15, 2010 and September 18, 2015.” The second class included LGE members who were charged an overdraft fee in specified circumstances “between December 9, 2009 and September 18, 2015.”

The settlement agreement included a release through which the named plaintiff and all class members released and discharged LGE “from any and all charges, complaints, claims, debts, liabilities, demands, obligations, costs, expenses, actions, and causes of action of every nature, character, and description, whether known or unknown, asserted or unasserted, suspected or unsuspected, fixed or contingent, which Named Plaintiff and Class Members who do not opt out now have, own, or hold against any of the Defendant Releasees that arise out of and/or relate to the facts and claims alleged by Named Plaintiff in this case.”

Despite the settlement, on January 18, 2023, a class member filed another putative class action against LGE in Georgia state court. As in the 2015 federal case, the state-court plaintiff alleged that LGE improperly assessed overdraft fees on members’ accounts in violation of its standard member agreements. The state-court plaintiff, who had declined to opt out of the 2015 settlement, similarly pleaded claims for breach of contract and unjust enrichment.

LGE filed a motion in the Northern District of Georgia seeking to enforce the district court’s final judgment and enjoin the state-court case pursuant to the All Writs Act, which authorizes federal courts to “issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law.” 28 U.S.C. § 1651(a). LGE also argued that the state-court action was barred by the doctrine of res judicata, which prohibits parties from relitigating claims that have been resolved on the merits through a final judgment entered in a previous action.

At first blush, LGE’s case seems open and shut. A class member who did not opt out of the approved settlement agreement brought a claim against LGE based on LGE’s allegedly improper overdraft fees. But there’s more to the story. The plaintiff in the state-court action based his claim on an overdraft fee incurred in December 2018—more than three years after the latest date encompassed by the settlement class definitions. The state-court plaintiff also had a different factual theory for why the overdraft fee he incurred violated LGE’s standard member agreement. Specifically, he alleged that LGE’s practice of charging an overdraft fee when a member’s account balance was positive at the time the transaction was authorized but negative at the time the transaction was settled violated the agreement.

The district court rejected LGE’s attempt to preclude the state-court plaintiff’s claim. It reasoned that LGE’s interpretation of the settlement agreement as “broadly encompass[ing] any claim that a class member had against [LGE] at the time the Settlement Agreement was executed” in 2022 “belie[d] the parties’ intentions in settling” the case. Relying on the plain language of the settlement agreement, the district court reasoned that the parties intended to release only those claims (i) that were based on overdraft charges incurred within a specified time period ending on September 18, 2015; and (ii) that arose from or related to the same facts and claims alleged in the 2015 federal case. The settlement notice reflected this intent, explaining that the settlement applied only to members who “had a checking account with [the credit union] and . . . were charged an overdraft fee between December 9, 2009 and September 18, 2015.”

Based on the settlement agreement and notice, the district court determined that the release provision did not encompass the state-court plaintiff’s claims. That the state-court plaintiff had and could have brought his claim at the time the parties finalized and executed the settlement agreement in February 2022 was not relevant. The district court emphasized that if the parties had wanted to release all claims pending as of the date the settlement agreement was executed, they could have drafted the agreement to accomplish that intent. Unfortunately for LGE, they did not.

When settling class action claims, achieving a comprehensive resolution of outstanding legal issues and minimizing related future litigation should be front of mind. LGE Credit Union serves as a reminder that this focus must carry over into the weeds of drafting. Carefully determining the claims you intend to include in a class action settlement is the first step. Ensuring that the words on the page accomplish that intent through the settlement class definition and scope of release provisions is essential.