In a crucial ruling, the Second Circuit has declared that a fairness presumption no longer automatically applies to class settlements that have been negotiated at arm’s length. This change presents a shift in the approach, set to influence how courts evaluate the fairness of proposed class settlements.
Previously, district courts examining settlements negotiated at arm’s length, operated under an umbrella of fairness presumption. However, the Second Circuit’s decision means that this will no longer be the case. The recent ruling is built on the requirement of Federal Rule 23(e)(2), which warrants that a district court should take into account numerous considerations, including but not limited to, the terms of any proposed award of attorneys’ fees and expenses.
The case in point, Moses v. New York Times Company, serves as an example of this newly employed standard. The court’s review now implicated as a “backstop that prevents unscrupulous counsel from quickly settling a class’s claims to cut a check”, dives into a deeper assessment of fairness before greenlighting the settlement.
This mandate from the Second Circuit could significantly impact the way legal professionals across corporations and law firms approach class settlements. By eliminating the presumption of fairness in arm’s length negotiations, the valuation of settlements will require more rigorous examination and could potentially impose a higher level of transparency on legal practitioners.
Cautious of the ethical implications associated with settlements, legal professionals must now scrutinize their approaches and strategies to stay in line with the new standards. It’s now more important than ever to ensure that legal practitioners fully understand and remain updated on these shifting conditions to class settlements.
Authored by Kilpatrick Townsend & Stockton LLP, the decision is also expected to serve as a rule of thumb for many impending case evaluations and, consequently, charts a new course for legal professionals across the country.