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Resolving Intra-Class Conflicts to Satisfy the Adequacy Requirement for Class Certification

Rule 23(a)(4) requires that the representative party in a class action will “fairly and adequately protect the interests of the class.” This requirement encompasses whether: (1) any conflicts of interest exist between the class representatives and the class as whole; and (2) whether the representatives will adequately prosecute the action. Recently, there has been a movement toward resolving any potential conflicts between representatives and the class by creating structural protections, such as formal subclasses, or appointing separate counsel for members who may have divergent interests. Federal district and circuit courts have even labeled this as the “Amchem conflict of interest,” after the U.S. Supreme Court case, Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997).

In Amchem, class certification was sought to achieve a global settlement for both current and future asbestos-related claims, both for claimants who were currently injured, and those who may face future injuries. The Court noted the divergent interests of the class: those currently injured have the goal of “generous immediate payments,” and the exposure-only plaintiffs seek “an ample, inflation-protected fund for the future.” The Court noted the significance of these differences, as the settlement included no adjustment for inflation, and only a few claimants per year could opt out. The Court concluded there was “no structural assurance of fair and adequate representation for the diverse groups.”

Consequently, there was a noticeable reaction to Amchem in the federal courts. First, the Supreme Court reaffirmed Amchem in Ortiz v. Fibreboard Corporation, 527 U.S. 815 (1999). In Ortiz, the Court again recognized “that a class divided between holders of present and future claims … requires division into homogeneous subclasses under Rule 23(c)(4)(B), with separate representation to eliminate conflicting interests of counsel.”

As a result, in In re National Football League Players Concussion Injury Litigation, 821 F.3d 410 (3d. Cir. 2016), the Third Circuit affirmed the district’s court certification of a class of retired football players consisting of two subclasses: (1) those “who have no currently known injuries that would be compensated under the settlement;” and (2) those “who are currently injured and will receive an immediate monetary award under the settlement.” In addition, class counsel appointed lawyers from the Steering Committee to serve as subclass counsel. Thus, while the court acknowledged that the divide between present and future injury plaintiffs is a “recurring fundamental conflict,” structural protections such as the creation of subclasses with their own separate counsel, can be put in place to “assure that differently situated plaintiffs negotiate for their own unique interests.” Therefore, the Third Circuit concluded that the adequacy requirement was satisfied since the subclasses were represented in the settlement negotiations by separate representatives and separate counsel, which was reflected in the terms of the settlement.

The Eleventh Circuit took a similar approach in Juris v. Inamed Corporation, 685 F.3d 1294 (11th Cir. 2012), when faced with similar facts of certifying a class consisting of members with current injuries, as well as potential future injuries. A class member objected to the settlement on the grounds that Amchem requires subclasses to address the two diverging interests. The court clarified, however, that Amchem and Ortiz held that Rule 23(a)(4) calls for some type of adequate structural protection, which includes but doesn’t necessarily require formal subclasses. In fact, plaintiffs with potential future injuries were represented by separate counsel during negotiations. The Eleventh Circuit held that having separate counsel adequately addressed the divergent interests within the class, and “served as the functional equivalents of formally-subclassed groups.”

The Eighth Circuit addressed certification of a class of active and retired city firefighters in Professional Firefighters Association of Omaha, Local 385 v. Zalewski, 678 F.3d 640 (8th Cir. 2012), with a slightly different approach. An objector appealed the settlement, arguing that separate counsel was needed to represent the divergent interests. The court clarified that Amchem and Ortiz did not make appointing separate counsel the only acceptable means of addressing conflicts of interest. Instead, the court distinguished Ortiz from the facts at hand because Ortiz turned on the “conditions for certifying a mandatory settlement class on a limited fund theory” under Rule 23(b)(1)(B) while plaintiffs in Zalewski sought injunctive relief under Rule 23(b)(2). In addition, the Eighth Circuit distinguished the case from Amchem and Ortiz since: (1) retirees had two opportunities to opt out of the class; (2) the class members’ interests there were much more aligned than class members facing present and future injuries; and (3) the district court appointed individual retirees as class representatives and permitted five retired firefighters to intervene with separate counsel and participate in settlement negotiations that focused on protecting the retirees’ interests. Thus, the court affirmed approval of the settlement.

Lastly, the Second Circuit addressed class certification of a non-opt-out class seeking injunctive-relief and an opt-out class seeking monetary-relief in In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 827 F.3d 223 (2d Cir. 2016). The Second Circuit reversed the district court’s certification of these two settlement-only classes. The primary issue was that the interests of the two classes were antagonistic: one class sought to maximize the monetary compensation for past harm, while the other sought to maximize the restraints to prevent future harm. In addition, the injunctive class could not opt out, and certification of a mandatory settlement class “effectively concludes the proceeding save for the final fairness hearing.” Thus, the Second Circuit reversed approval of the settlement.

These cases demonstrate that the manner for addressing class conflicts in order to satisfy Rule 23(a)(4) may vary. This analysis is fact-based, but there is a need to at least address these conflicts when deciding whether to create subclasses or appoint separate counsel.