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In private practice, Gorsuch called for greater transparency in class action settlements
Originally Published on FTC:Watch on March 17, 2017. By Leah Nylen.
Before joining the bench, Neil Gorsuch — President Donald Trump's nominee to the Supreme Court — represented objectors in a number of class actions, an experience that led him to advocate for greater transparency in class action settlements.
Speaking at a 2004 workshop hosted by the Federal Trade Commission on class actions, Gorsuch extolled the importance of objectors in class action settlements, saying their involvement can help ensure settlements provide benefits to class members.
"As to objectors, there is, in my mind, there is no question that they can serve a useful role," Gorsuch said, noting that defendants, who simply want to settle the case, have no incentive to ensure class members — as opposed to plaintiffs' counsel — receive adequate compensation. "The problem that the FTC confronts and that legitimate objectors [face] is that they have absolutely no notice of what is going on until after it's often too late."
The workshop focused on ensuring consumers receive adequate compensation in class actions. In the early 2000s, the FTC intervened in a number of class actions to argue that the proposed settlements were flawed or not in the interest of consumers. The FTC also urged the Judicial Conference of the US — which sets the rules for litigation in US federal courts — to amend the notice rules regarding class action settlements. The Judicial Conference never adopted the agency's proposal.
Gorsuch noted his class action work and provided a transcript of the workshop to the Senate Judiciary Committee, the panel that will oversee his confirmation hearing beginning March 20.
In his questionnaire to the Senate, Gorsuch highlighted his participation on behalf of investors objecting to class action settlements as some of his most significant work in private practice. In the late 1990s, Gorsuch represented the California Public Employees Retirement System and the Florida State Board of Administration in a Supreme Court case regarding the right of class members to object to class action settlements. The Supreme Court split 4-4 in that case, a tie that delayed a final decision on the issue.
A few years later, Gorsuch represented the Council of Institutional Investors in another Supreme Court case on a similar issue. The court ruled 6-3 that an unnamed class member who objected to a settlement could file an appeal, effectively vindicating the nonprofit's position as advocated by Gorsuch.
In his comments at the workshop, Gorsuch said that non-party objectors can have a significant impact on whether a settlement is ultimately accepted. Looking at statistics over the past 30 years, about 12 percent of civil litigation is overturned on appeal, Gorsuch said. When non-party objectors are involved in contesting a settlement, the reversal rate jumps to 32 percent, he said.
The FTC's proposal to the Judicial Conference — that it require more notice to federal agencies for a class action settlement related to a case the agencies brought or were investigating — was a step in the right direction, but too modest, Gorsuch said.
Instead, he proposed that courts separate the consideration of settlements from plaintiffs' fee awards. That would change the incentive structure and possibly encourage defendants to take a harder look at how plaintiffs' lawyers are structuring their fees, he said.
"If defendants normally don't care how the … settlement fund is allocated, one way to make them care is if it comes more directly out of their pockets," he said. If plaintiffs' fees are separate, defendants "can scrutinize bills and they have an adversarial incentive to reduce the bill rather than having it all lumped in as part of the overall common fund. … If you put it outside the [settlement] process, defendants have something to say about it."