The court took the opportunity to provide guidance to courts and class-action litigants on considering the fairness of a class settlement under the 2018 amendments to Rule 23(e) in Ponzio v. Pinon, 87 F.4th 487 (11th Cir. Nov. 27, 2023). The Eleventh Circuit affirmed approval of the settlement, concluding that the district court appropriately analyzed and rejected the objectors’ claim that the class settlement unfairly left 80% of class members with no benefit.
The objections in Ponzio stemmed from a classic battle between two groups of plaintiffs’ counsel who filed competing class actions against the same defendant on behalf of different named plaintiffs. Both cases alleged that a certain color of paint (“590 Mars Red”) used by Mercedes Benz USA and Daimler AG would deteriorate on some cars by bubbling and peeling. The case that led to the Eleventh Circuit appeal was filed by Ms. Pinon and othersnamed plaintiffs in the United States District Court for the Northern District of Georgia. These plaintiffs brought federal and state law claims for the design, manufacturing, marketing and sale of defective vehicles. They sought certification of a nationwide class of vehicle owners and lessors whose vehicles were painted in 590 Mars Red that had with this “latent defect.”
Two weeks prior, another group of plaintiffs, including Mr. Ponzio, represented by different counsel, had brought similar claims in the United Stated Court for the District of New Jersey. Whatever cooperation originally may have existed between the Pinon lawyers and the Ponzio lawyers quickly fell apart.
In the Georgia case, the defendants settled with the plaintiffs and moved for preliminary approval. The settlement offered money to reimburse class members for some portion of previous and future repairs. A key component of the settlement was that the amount of the reimbursement would decrease as the age and mileage of the vehicle increased, starting at 100% and decreasing to zero for cars that were over 15 years old or had over 150,000 miles at the time of the repair. The settlement put no limit on the total amount the defendants would have to pay to the class.
The district court granted preliminary approval, and class notice was sent out. The notice produced ten opt outs and four objections, lodged by eleven individuals. The New Jersey plaintiffs moved to intervene and appeared at the fairness hearing, along with one other objector. The New Jersey plaintiffs’ primary objections were that the settlement did not include any compensation for diminished value and further that 80% of class members would not be compensated at all. The district could overruled the objections and granted final approval, specifically rejecting the contention that 80% of the class would receive no benefit.
The Eleventh Circuit affirmed approval and similarly rejecting the 80% figure as unsupported by the evidence. The court first noted that the 2018 amendment to Rule 23(e), which specified factors to be considered in approval of class settlements, did not erase the factors the court had set out almost forty years ago in Bennett v. Behring Corp. That is, along with the four core factors specified in Rule 23(e), the district court should consider the following Bennett factors:
(1) the likelihood of success at trial; (2) the range of possible recovery; (3) the point on or below the range of possible recovery at which a settlement is fair, adequate and reasonable; (4) the complexity, expense and duration of litigation; (5) the substance and amount of opposition to the settlement; and (6) the stage of proceedings at which the settlement was achieved.
Bennett, 737 F.2d 982, 986 (11th Cir. 1984).
At the end of the day, the district court acts “as a fiduciary for the class.” With that in mind, the court held that the 2018 amendment to Rule 23(e)(2) was not meant “to displace” the factors previously identified by courts in reviewing class action settlement agreements, but “rather to focus the court and the lawyers on the core concerns of procedure and substance that should guide the decision whether to approve the proposal.” While the four core concerns set out in Rule 23(e)(2) “provide the primary considerations in evaluating proposed agreements,” the Bennett factors can inform the analysis for those core concerns.
The court also “took the opportunity to set out some parameters” as to the burden that must be carried by objectors to a proposed class action settlement. While the proponents of a class action settlement have the burden to develop a record establishing that a settlement is “fair, reasonable, and adequate,” the objectors also have their own obligation. That is, Rule 23(e)(5)(A) requires objectors to “state with specificity” the grounds for an objection, meaning the objections “must provide sufficient specifics to enable the parties to respond to them and the court to evaluate them.” And objections based on facts and evidence cannot be conclusory. Then, only once proper objections are lodged, the burden shifts back to the proponents of the settlement, who must show “that the matters raised do not affect the fairness, reasonableness, or adequacy of the agreement.”
Turning to the objections raised by the New Jersey plaintiffs, the court concluded that the district court properly used its discretion in finding that the objectors did not meet this burden. First the court analyzed in detail the objectors’ contention that 80% would receive no benefit whatsoever. The objectors’ rationale had shifted throughout the proceedings, and their calculation was significantly flawed. Among other things, they ignored portions of the settlement and relied on faulty assumptions. For example, the mathematical equation they used to arrive at 80% included two variables that they conceded could not even be determined. Depending on those variables, the percent of class members not eligible for relief could range from 0.0003% to 80.03%. The objectors’ other arguments were rejected in large part because they were based on the faulty 80% number.
Overall, the district court properly applied the Rule 23(e)(2) core considerations and the Bennett factors. The class representatives and class counsel were adequate. The negotiations were arms-length and not a reverse auction: the settlement was the product of mediation by a former judge, who submitted declaration saying affirming as much and also that the topics of attorneys’ fees and incentive awards had not been discussed until after the class relief was settled. Finally, the settlement was not a coupon settlement, because the defendants would make direct cash payments.