Class Actions: Ninth Circuit Panel Allows Judge to Prohibit Precertification Settlement Negotiations

Financial Services Law

Taking the cautious view of a district court’s judicial discretion, the U.S. Court of Appeals for the Ninth Circuit declined to grant a writ of mandamus seeking to overturn a case management order that prohibited precertification class settlement discussions.

What happened

Under a long-standing procedure imposed by U.S. District Judge William Alsup of the Northern District of California, parties in putative class actions are prohibited from conducting settlement negotiations until after the issue of class certification has been decided.

In May 2018, James Porath sued Logitech Inc. for false advertising, accusing the company of making deceptive claims about its Z200 speakers. When the litigation began, Judge Alsup issued his traditional standing order that the parties could not enter settlement negotiations until after the issue of class certification was decided. If the parties believed they could reach a deal before that point, they were required to file a motion to appoint interim class counsel, Judge Alsup ordered.

The parties started talking about a deal, and, seeing an end in sight, Porath filed a motion to appoint interim class counsel. But Judge Alsup denied the motion in August, effectively directing the parties to continue litigating the case.

Logitech responded by filing a petition for writ of mandamus to the federal appellate panel, asking the Ninth Circuit to direct the district court to withdraw the standing order prohibiting them from negotiating settlement prior to class certification.

Whether to grant a writ of mandamus involves a three-part test, the panel explained, focusing on the third factor: clear error. While Logitech argued that the order clearly violated both the Federal Rules of Civil Procedure (specifically, Rule 23, which governs class actions) as well as the First Amendment, the Ninth Circuit disagreed.

Rule 23 does contemplate the simultaneous certification of a class and settlement—albeit with permissive and not mandatory language—the court said, but it also provides district courts “with wide discretion.”

“Given the discretion afforded district courts by Rule 23 and its lack of mandatory class settlement language, we cannot say the order’s prohibition on class negotiations before certification is clear error,” the panel wrote.

The Supreme Court has recognized that class actions present “opportunities for abuse” and that district courts have “both the duty and the broad authority to exercise control over” such cases. Judge Alsup didn’t make any specific findings of abuse or consider narrower means of protecting the parties, but that didn’t mean the order had to be reversed, the court said.

“Courts can reject class settlements after they have been negotiated, and it is unclear why that approach was not taken here,” the panel wrote. “That the order appears to be neither drawn as narrowly as possible, nor based on a specific record showing the abuses particular to this case, however, does not amount to clear error.”

Turning to First Amendment concerns, even if the order involved serious restraints on expression, “it is unclear whether the expression is protected by the First Amendment,” the court said.

“Discussing and agreeing to class settlement—or petitioning for such a settlement—may not be protected speech because Logitech does not have a right to negotiate with absent, unrepresented, potential class members before there is class or interim class counsel. The order is not clearly erroneous under the First Amendment, and we decline to issue a mandamus order.”

To read the memorandum in In re Logitech, Inc., click here.

Why it matters

Judge Alsup’s standing order is itself not news; his court has enforced its no-contact provisions in other cases. What is important here is that a three-judge panel of the Ninth Circuit was not sufficiently troubled by it to force the district court to draw a more narrow order. But will the Ninth Circuit’s unpublished opinion encourage other courts to enter similar orders? That is harder to say. If yes, the trend could put a damper on early settlement talks between parties and potentially increase the length—and cost—of litigation for both sides.