The Fourth Circuit recently clarified two points of law on which it had not previously spoken: (1) who bears the burden when a class member objects to a proposed settlement as unfair, unreasonable, and inadequate; and (2) whether an objecting class member can be required to release a valueless claim without compensation.  1988 Tr. for Allen Child. Dated 8/8/88 v. Banner Life Ins. Co., 2022 WL 774731 (4th Cir. Mar. 15, 2022).  In a long-running dispute between a life insurance company and a class of its policyholders, policyholder 1988 Trust for Allen Children Dated 8/8/88 (the “Trust”) opted out and objected to the proposed settlement.

After the district court approved the settlement, the Trust complained that the court improperly placed on it the burden to demonstrate that the settlement was unfair, unreasonable, and inadequate.  The Fourth Circuit noted that it had never explained previously who bears this burden.  It then ruled (emphasis added): “the parties propounding the settlement . . . bear[] the initial burden to show that the proposed class meets the Rule 23(a) requirements for certification and that a proposed settlement is fair, reasonable, and adequate[.]”  But this ruling did not help the Trust, because the Court held that that the district court “ke[pt] the ultimate burden on the proponents of the settlement to demonstrate its fairness.”

The Fourth Circuit then rejected another Trust argument—that the district court impermissibly approved the settlement compelling the Trust to release claims without compensation.  The Court of Appeals acknowledged that “a settlement agreement may be inadequate if it forces class members to release valuable claims for nothing in return.”  But the district court found the Trust’s released claim not valuable: “it remains totally subjective and speculative that there ever would be such damages.”  The Fourth Circuit held that, in such circumstances, a classwide settlement can be approved even if it requires some class members to release weak claims for no compensation.  This rule should facilitate resolution of complex class actions by preventing objectors from leveraging worthless claims to frustrate settlement.

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Andrew Leff is an associate in the firm’s Washington, DC office. He is a member of the Litigation and White Collar Defense and Investigation practice groups.

Recently, Andrew was a key associate on a trial team that won total victory against the U.S.

Andrew Leff is an associate in the firm’s Washington, DC office. He is a member of the Litigation and White Collar Defense and Investigation practice groups.

Recently, Andrew was a key associate on a trial team that won total victory against the U.S. Government, as documented in The New York Times, Law360, and elsewhere. Andrew participated at every level of the pre-trial and trial phases, including a deposition of a key Government witness.