Rule 23.Class actions

Reporter’s Notes—2019 Amendment: Rule 23(g) is added to provide for the disbursement of residual funds that remain after satisfaction of all claims under a class action judgment or settlement. With the new rule, Vermont now joins 23 states and Puerto Rico that, as of July 2018, had adopted similar provisions by court rule or statute—most since 2011. See ABA Res. Ctr. for Access to Justice Initiatives, Legislation and Court Rules Providing for Legal Aid to Receive Class Action Residuals (2017), https://www.americanbar.org/content/dam/aba/administrative/legal_aid_indigent_defendants/ATJReports/ls_sclaid_ atj_cypres.pdf [https://perma.cc/CV3T-995K]. In support of this effort, the American Bar Association at its August 2016 annual meeting resolved that states should adopt measures “authorizing the award of class action residual funds to nonprofit organizations that improve access to civil justice for persons living in poverty” after reasonable efforts to compensate class members, unless such efforts are not feasible. ABA Resolution/Report 104 (August 2016) [hereinafter ABA Rep. 104], https://www.americanbar.org/content/dam/aba/administrative/legal_aid_indigent_defendants/ATJReports/ls_atj_cyp res.pdf [https://perma.cc/EXN4-AVDE]. Rule 23(g)(1) defines “residual funds” as those remaining under an order or judgment after payment of all approved claims, expenses, and disbursements. As ABA Rep. 104 states, “Residual funds are often a result of the inability to locate class members or class members failing or declining to file claims or cash settlement checks. Such funds are also generated when it is ‘economically or administratively infeasible to distribute funds to class members if, for example, the cost of distributing individually to all class members exceeds the amount to be distributed,’ ” (quoting In re Baby Prods. Antitrust Litig., 708 F.3d 163, 169 (3d Cir. 2013)). The final sentence of paragraph (1) makes clear that a settlement need not create residual funds—for example, because the total settlement amount is allocated in specific sums payable to identified class members and for other identified disbursements. Nothing in Rule 23(g) is intended to affect the obligations of any party to a class action under the State’s unclaimed property statutes, set forth in 27 V.S.A. ch.14. See 27 V.S.A. §§ 1241(13) (Definitions), 1242(a) (Presumptions of abandonment), and 1259(a) (Periods of limitation). Accordingly, “residual funds” subject to this rule do not include any unclaimed property that must be reported to the State Treasurer under 27 V.S.A. ch. 14. Rule 23(g)(2) provides a formula for the distribution of residual funds. As ABA Rep. 104 notes, “The fundamental purpose of every class action is to offer access to justice for a group of people who on their own would not realistically be able to obtain the protections of the justice system.” ABA Report 104 further notes that courts have used the equitable cy pres doctrine as a basis for making allocations of class action residual funds in ways consistent with the claims or interests involved in the action, citing Principles of the Law of Aggregate Litigation § 3.07 (Am. Law Inst.). Thus, cy pres decisions have included “recognized organizations that provide access to justice for low-income, underserved, and disadvantaged people,” and recently adopted state residual class action rules and statutes have codified those principles. ABA Rep. 104. Rule 23(g)(2)(A) provides that when there are residual funds, the judgment or other appropriate order or agreement must require that “at least fifty percent” of those funds will be disbursed to Vermont Legal Aid (VLA) for provision of legal services to the indigent. Subparagraph (2)(A) further would permit a disbursement to VLA of more than fifty percent of the residual funds in the discretion of the court or parties. It is appropriate to make VLA the primary beneficiary of the rule because it is the sole statewide provider of legal services and is entirely dependent on politically vulnerable state and federal appropriations, the annually variable results of IOLTA proceeds, and annual giving through the Vermont Bar Foundation (VBF). Rule 23(g)(2)(B) is also mandatory but gives the court or parties discretion to provide in the judgment or other instrument that any remaining balance may be distributed either to the VBF for its access-to-justice programs or to a nonprofit or nonprofits with programs beneficial to the class or others that are consistent with “the underlying causes of action.” Presumably, appropriate VBF programs would be those included in its noncompetitive grants program, as well as grantees awarded competitive grants with access-to-justice goals. Disbursement to other nonprofits would require a nexus with the underlying claim—for example, awards to one or more humane societies in an action against a meat-processing company brought by a class of domestic animal owners claiming inhumane treatment in the corralling and slaughtering of animals.

Reporter’s Notes—2018 Amendment: Rule 23(f) is amended to extend its 10-day time period to 14 days consistent with the simultaneous “day is a day” amendments to V.R.C.P. 6.

Reporter’s Notes—2002 Amendment: Rule 23(a) is amended to reflect the abrogation of the District Court Civil Rules and the resulting applicability of the Vermont Rules of Civil Procedure to District Court civil actions. See Reporter’s Notes to simultaneous amendment of Rule 1. Class actions were not permitted in the District Court under the former District Court Civil Rules. Rule 23(f) is added to incorporate Federal Rule 23(f) added by amendment in 1998. The Federal Advisory Committee’s Note states that the appeal is intended to be in the “unfettered discretion” of the appellate court and gives this rationale: . . . . An order denying certification may confront the plaintiff with a situation in which the only sure path to appellate review is by proceeding to final judgment on the merits of an individual claim that, standing alone, is far smaller than the costs of litigation. An order granting certification, on the other hand, may force a defendant to settle rather than incur costs of defending a class action and to run the risk of potentially ruinous liability. These concerns can be met at low cost by establishing in the Court of Appeals a discretionary power to grant interlocutory review in cases that show appeal-worthy certification issues. Permission to appeal may be granted or denied on the basis of any consideration that the Court of Appeals finds persuasive. Permission is most likely to be granted when the certification decision turns on a novel or unsettled question of law, or when, as a practical matter, the decision on certification is likely to be dispositive of the litigation. Authorization for the adoption of Rule 23(f) is found in 12 V.S.A. § 2386, giving the Supreme Court power to hear and make rules for appeals before final judgment on questions of law. Appeals under Rule 23(f) will be taken in accordance with the procedure for appeals by permission of the Supreme Court provided in V.R.A.P. 6(b).

Reporter’s Notes: This rule is identical to Federal Rule 23. The class action was known in Vermont chancery practice but apparently little used. See Darling v. Osborne, 51 Vt. 148 (1878); Stimson v. Lewis, 36 Vt. 91 (1863). See also 12 V.S.A. § 816 (now superseded) (special service on numerous parties in in rem action at law). Cf. 14 V.S.A. § 2401 (governor may appoint agent or attorney to represent a class of beneficiaries whose members are uncertain). Under the rule, class actions are generally available without regard to whether the relief sought is otherwise legal or equitable. The rule is not intended to create new rights of action but provides a procedure to implement existing remedies. Rule 23(a) sets out as prerequisites to the maintenance of a class action numerousness of the class, existence of common questions of law or fact, and adequacy of representation by those actually made parties. Once these basic requirements are met, the action, in order to be maintained, must also fall within one of the three categories delineated in Rule 23(b). The categories of Rule 23(b), like the requirements of Rule 19, are cast in pragmatic terms reflecting the effect of litigation upon the interests of members of the class. Rule 23(b)(1) emphasizes the effect of separate adjudications upon either the party opposing the class or nonparty members of the class. For example, a class action is maintainable when the party opposing the class is under a legal obligation to treat all members of the class alike and could not function if separate and incompatible judgments were obtained, as in the case of a municipal taxpayers’ suit. See Booth v. General Dynamics Corp., 264 F. Supp. 465 (N.D. Ill. 1967). A class action is also appropriate where one-of-a-kind relief is sought, as in the case of proceedings involving the reorganization of an association or corporation. See Supreme Tribe of Ben-Hur v. Cauble, 255 U.S. 356 (1921). In sum, a class action is proper under Rule 23(b)(1) in a situation where, were fewer parties involved, their joinder might be required if feasible under Rule 19. Rule 23(b)(2) permits an action when the opposing party’s conduct affects all members of the class identically, making a single injunction or declaratory judgment appropriate for the class as a whole. While the principal intent of this provision in the federal rule was to make class actions freely available in civil rights matters, this category of action might also lie in other cases such as an action against a merchant who fixed prices in favor of one group brought by a group not so favored. See federal Advisory Committee’s Note to 1966 Amendment to Rule 23, 3A Barron & Holtzoff, Federal Practice and Procedure 255 (Supp. 1969). Rule 23(b)(3) permits a class action when considerations of economy, convenience, and uniformity of decision may be thereby served without sacrificing procedural fairness. The rule sets out factors which the court must weigh in determining the propriety of an action on this basis. Since promulgation of the federal rule, its principal use has been in securities fraud cases. Presumably, the likelihood of different issues as to damages and defenses would make a class action inappropriate in the case of a single tort, such as a negligently caused airplane accident giving rise to numerous individual personal injury or death claims. In such circumstances, consolidation of separate actions for trial under Rule 42 would probably be a more effective means of dealing efficiently with the common questions of liability involved. See federal Advisory Committee’s Note, supra. Rule 23(c)(2) requires notice to all members of the class in an action brought under Rule 23(b)(3) and gives them the opportunity to exclude themselves from the class if they wish. Members of classes under other categories may receive notice in the court’s discretion under Rule 23(d)(2), but they cannot opt out because the very purpose of the action is to obtain a judgment that binds all in the class. Rule 23(c)(3) requires that the judgment describe those whom it purports to bind. The rule does not of its own force make the judgment binding. That effect depends on the independent application of principles of res judicata that are beyond the scope of the rulemaking power. If the procedural requirements of the rule have been complied with, however, the conditions of fairness necessary to the application of those principles will exist, and the judgment will bind all members of the class that have not opted out. Rule 23(d) gives the court broad power to make procedural orders designed to assure both efficient handling of a complex proceeding and basic fairness to the interests of all concerned. Rule 23(e) is intended to assure that the representatives of the class do not settle the action if there are other members who genuinely wish to pursue their claims or defenses.