Readers of this blog know that we address significant decisions in class or collective action law and procedure because it is an aspect of international practice that is growing in importance. 

In Re American International Group, Inc. Securities Litigation, Dkt. No. 10-4401-cv (2d Cir. 2012), addresses the interplay between the rigorous requirements of class action procedure in the context of certifying a class action and the strong public policy in favor of collective settlements.   The District Court the denied a motion to certify a class for settlement purposes only.  The decision rested on the determination made by the District Court that those proposing the class could not satisfy the “predominance” requirement of Federal Rule of Civil Procedure 23(b)(3).  That requirement is that the Court must find “that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy”. 

Here the District Court found that the predominance requirement was lacking “because the fraud-on-the-market presumption” (available in securities cases to prove reliance, which is a necessary element of a securities law claim) did not apply to the class’s securities law claims — that would mean that individual questions rather than common questions would predominate.

The Second Circuit reversed.  It held that

“under Amchem Products, Inc. v. Windsor, 521 U.S.591, 620 (1997), a securities fraud class’s failure to satisfy the fraud-on-the-market presumption primarily threatens class certification by creating “intractable management problems” at trial. Because settlement eliminates the need for trial, a settlement class ordinarily need not demonstrate that the fraud-on-the-market presumption applies to its claims in order to satisfy the predominance requirement”

In explaining this holding, the Court of Appeals first acknowledged that the District Court’s decision on class certification is reviewed under an abuse of discretion standard (for nonlegal determination), though even here the Circuit said, “we accord a district court noticeably less deference than when we review a grant of class certification”.   Then, citing Amchem, the Court of Appeals reasoned that a district court “[c]onfronted with a request for settlement-only class certification . . . need not inquire whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial.” Id. at 620 (citing Fed R. Civ. P. 23(b)(3)(D)). At the same time, however, the Court of Appeals, like Amchem, stressed that in the settlement context “other specifications of [Rule 23] – those designed to protect absentees by blocking unwarranted or overbroad class definitions – demand undiluted, even heightened, attention.” Id.

The Court of Appeals reversed and returned the case to the District Court for further consideration.