The Third Circuit recently rejected the so-called “reasonable indication” opt-out standard, which refers to whether a class member can opt out of a class action by merely providing a “reasonable indication” of their intent to do so, regardless of whether this indication adheres to the letter of the procedures established by the district court. See Perrigo Institutional Investor Group v. Papa, No. 24-2861, 2025 WL 2315977 (3rd Cir. Aug. 12, 2025).
Appellants inadvertently failed to opt out of class membership in a securities-related class action. This failure came to light on the eve of settlement in parallel litigation, which was premised on the erroneous assumption that Appellants had properly opted out. On appeal, Appellants urged the Third Circuit to adopt the “reasonable indication” standard and conclude the separate litigation was sufficient evidence of their intention to opt out of the class. The Third Circuit declined to do so, reasoning that it was contrary to the text of Rule 23 and that it would complicate administrability of class membership opt-outs.
Focusing first on the text of Rule 23, the court found that the Rule clearly authorizes the district court to determine when and how class members may opt out and that nothing in the rule requires a district court to accept a request in any form, “whether through a ‘reasonable indication of a desire to opt out’ or otherwise.” As such, the proper procedure for opting out of the class are only those set by the district court. The court went on to analyze Rule 23(e)(4), which applies to class settlements and provides that a district court “may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.” The court reasoned the “reasonable indication” standard would render this provision “insignificant, if not wholly superfluous” as it would allow class members to opt out at any point.
The Third Circuit also identified practical reasons to reject a “reasonable indication” standard. With large classes, the court was concerned the “reasonable indication” standard could open district courts up to a flood of difficult questions, including when individual parties opted out or whether their indication was sufficient to opt out at all. In addition, fluidity of class membership would affect district courts’ assessment of settlements, as a district court must know who makes up a class in order to determine whether a proposed settlement is fair. Finally, the court perceived a risk of gamesmanship where class members could bring their own suit, then choose to recover separately or through the class action depending on what is most advantageous to them.
The Third Circuit’s decision adds to a circuit split on this issue, as it joins the Seventh Circuit in rejecting the “reasonable indication” standard, whereas the Second and Tenth Circuits adopted the standard many years ago. It seems possible this split could at some point attract the Supreme Court’s attention given the substantial practical implications of which standard applies for assessing disputed opt-outs.