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Good v. West Virginia-American Water Co.

United States District Court, S.D. West Virginia, Charleston

July 6, 2017

CRYSTAL GOOD, individually and as parent and next friend of minor children M.T.S., N.T.K., and A.M.S., and MELISSA JOHNSON, individually and as parent of her unborn child, MARY LACY and JOAN GREEN and JAMILA AISHA OLIVER, WENDY RENEE RUIZ and KIMBERLY OGIER and ROY J. McNEAL and GEORGIA HAMRA and MADDIE FIELDS and BRENDA BAISDEN, d/b/a FRIENDLY FACES DAYCARE, and ALADDIN RESTAURANT, INC., and R. G. GUNNOE FARMS LLC, and DUNBAR PLAZA, INC., d/b/a DUNBAR PLAZA HOTEL, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
WEST VIRGINIA-AMERICAN WATER COMPANY, d/b/a WEST VIRGINIA AMERICAN WATER, and AMERICAN WATER WORKS SERVICE COMPANY, INC., and AMERICAN WATER WORKS COMPANY, INC., and EASTMAN CHEMICAL COMPANY and GARY SOUTHERN and DENNIS P. FARRELL, Defendants.

          MEMORANDUM OPINION AND ORDER

          John T. Copenhaver, Jr. United States District Judge.

         Pending is the parties' Joint Motion for Preliminary Approval of Class Settlement, Conditional Class Certification, Directing Notice to the Class, and Entry of Scheduling Order, filed April 27, 2017 (ECF No. 1136). Also pending is plaintiffs' Motion for Award of Attorneys' Fees, Reimbursement of Costs and Incentive Awards, filed May 8, 2017 (ECF No. 1140). After reviewing the procedural history of this case and the terms of the proposed Settlement Agreement, the court will turn first to the motion for certification and preliminary approval and then to the motion for attorneys' fees and costs.

         FACTS AND PROCEDURAL HISTORY

         A. Background

         On January 9, 2014, over 224, 000 residents in Charleston, West Virginia, and the surrounding area suffered an interruption in their water supply. The interruption was caused by a spill into the Elk River of a mixture composed primarily of a chemical known as Crude MCHM. Crude MCHM consists primarily of the chemical 4-methylcyclohexane methanol. The mixture was prepared and owned by, and being stored in a facility owned and operated by, Freedom Industries, Inc. (“Freedom Industries”). Freedom Industries called the mixture that spilled into the Elk River “Shurflot 944” and marketed it to coal companies for coal cleaning purposes. Shurflot 944 mixed Crude MCHM with other elements, present in relatively small proportion. The mixture containing Crude MCHM infiltrated and contaminated the water treatment plant in Charleston, known as the Kanawha Valley Treatment Plant, which draws its water from the Elk River.

         Following the spill, individuals and businesses asserting claims against various defendants commenced dozens of civil actions in federal and state courts. This action was filed in federal court on January 14, 2014, and later consolidated with several other cases. See Good v. Am. Water Works Co., 2:14-CV-01374, 2014 WL 2481821, at *1 (S.D. W.Va. June 3, 2014). Other similar litigation, including putative class actions against the same defendants, was filed in state court, and some of it was removed to this court, consolidated, and then remanded to state court. Desimone Hosp. Servs., LLC v. W.Va.-Am. Water Co., 2:14-CV-14845, 2015 WL 9244434, at *5 (S.D. W.Va. Dec. 17, 2015). Following remand, the state court consolidated the various cases before the West Virginia Mass. Litigation Panel (“MLP”) in the case captioned In re Water Contamination Litigation, Civil Action No. 16-C-6000, which has been stayed.

         Plaintiffs filed a First Amended Consolidated Class Action Complaint in this case on December 9, 2014. Plaintiffs' class action allegations stated that they intended to represent “[a]ll persons and businesses supplied with, using, or exposed to water contaminated with Crude MCHM and provided by West Virginia-American Water Company in Logan, Clay, Lincoln, Roane, Jackson, Boone, Putnam, and Kanawha Counties and the Culloden area of Cabell County, West Virginia as of January 9, 2014.” First Am. Consolidated Class Action Compl. ¶ 123. Plaintiffs brought suit against West Virginia-American Water Company (“WV American Water”), American Water Works Service Company, Inc., and American Water Works Company, Inc. (collectively, “the water company defendants, ” although at times referred to simply as WV American Water), as well as Eastman Chemical Company (“Eastman”), Gary Southern, and Dennis P. Farrell.

         Plaintiffs asserted that the water company defendants and Eastman could have prevented the incident with better precautions, regulatory compliance, and use of reasonable care. Some class members operated businesses that lost revenue due to the interruption. Others claimed physical injuries, asserting that exposure to Crude MCHM in the environment through human pathways caused bodily injury and necessitated medical monitoring. Still others were alleged to have incurred costs for property damage, water replacement, travel, and other associated expenses.

         On October 8, 2015, the court granted plaintiffs' class certification motion and certified an issues class under Fed.R.Civ.P. 23(c)(4) respecting fault and comparative fault issues defined by the court. Good v. Am. Water Works Co., Inc., 310 F.R.D. 274, 299 (S.D. W.Va. 2015). The certified class included residents and businesses served by WV American Water and all persons who were hourly wage earners working for businesses served by WV American Water, all of whom are also included within the proposed settlement class. Id. at 299-300.

         In late October 2016, on the eve of the Phase I fault trial in this court, the parties participated in extended settlement negotiations. These negotiations resulted in settlements with Eastman and WV American Water that were memorialized in Term Sheets lodged with the court on October 25 and October 31, 2016, respectively (ECF Nos. 1096, 1108).

         After extensive negotiations, the parties submitted the pending Settlement Agreement for preliminary approval on April 27, 2017 as a resolution of all claims - both claims at issue in this case and claims at issue in the various state court actions filed against defendants in relation to the Freedom Industries spill. Class Counsel in this case allied themselves with state MLP counsel to reach a global settlement, and consequently intend that the proposed settlement will remunerate both federal and state counsel, their clients, and all other proposed class members. The parties represent that the settlement of this action may affect a class composed of over 224, 000 class members in some 105, 000 households and over 7, 000 businesses and governmental entities. Pls.' Mem. in Supp. Joint Mot. Prelim. Approval 19 (ECF No. 1137) [hereinafter “Mot. for Prelim. Approval”].

         The parties' proposed settlement has a two-tier common fund from which the Settlement Administrator will pay monies to class-member claimants through a claims submission process. The first tier, dubbed the guaranteed fund, consists of $101 million supplied separately by funds from each of Eastman and WV American Water.[1] The guaranteed fund is intended to pay “Simple Claims” that do not require documentary support or proof of causation. The parties have estimated amounts for each type of Simple Claim, although those amounts are subject to change depending on the number of Simple Claims actually paid out of the funds. After attorney fees and costs are paid, the guaranteed fund will be used to pay Simple Claims, to pay checks mailed to WV American Water's residential customers who did not submit claims, to pay claimants who submit claims through an “Individual Review Claim” process with more stringent proof and causation requirements, and, if the guaranteed fund is not exhausted, to make additional payments to Residential Simple Claimants, in that order. It is likely that all or almost all of the guaranteed fund will be paid out to class members through this process.

         The second tier, dubbed the contingent fund, consists of $50 million supplied entirely by WV American Water to pay Individual Review Claims only if the guaranteed fund is exhausted. The Settlement Agreement requires the Settlement Administrator to seek permission from the court before issuing either Simple Claim or Individual Review Claim payments.

         B. Settlement Class

         The Settlement Agreement defines the Settlement Class in this matter as follows:

1) All natural persons, including adults and minors (including in utero), who resided in residential dwellings that were supplied tap water by West Virginia American's Kanawha Valley Water Treatment Plant (“KVTP”) on January 9, 2014.
2) All businesses, and non-profit and governmental entities, that operated in real property locations that were supplied tap water by the KVTP on January 9, 2014.
3) All natural persons who were regularly employed as hourly wage earners for businesses that operated in real property locations that were supplied tap water by West Virginia American's KVTP on January 9, 2014.[2]

         C. Settlement Agreement Terms

         1. Types of Claims

         The settlement contemplates payment of four types of claims: Residential Claims, Business Claims, Wage Earner Claims, and Medical Claims.[3] In order to submit any type of claim, a claimant must be a member of the defined class. Within each category, however, various distinctions exist that may affect the amount of money a claimant can receive.

         a. Residential Claims

         Residential Claims are claims by residents of homes and multiunit residences within the area affected by the incident who were customers of WV American Water. The residents have claims for damages arising from physical damage to their property caused by the presence of contaminated water within their pipes. Residents may also have claims that arise from expenses incurred in buying bottled water, throwing out and replacing food, repairing or replacing appliances affected with contaminated water, seeking alternate lodging, and other extra expenses.

         To be entitled to file a Residential Claim, a person must have been a resident of the affected area on January 9, 2014. Residents include both renters and homeowners. Relatedly, a person may file a Residential Claim whether their water was supplied under a contract between them and WV American Water or a contract their landlord had with WV American Water. Consequently, a resident that lived in a multi-unit apartment building is entitled to recover under the same terms as a resident that lived in a single family home, even if the apartment resident was not a direct customer of the water company.

         Under the Settlement Agreement, only one Residential Claim may be filed per household. “Household” includes all residents of a single family home or unit within a multi-unit residential building as of January 9, 2014, whether related or unrelated. The individual making the claim is generally responsible for distributing it to other household members, although the Settlement Administrator may also issue separate payments to individual household members.

         To file a Residential Claim, a resident may submit a Simple Claim Form or an Individual Review Claim Form. On the Individual Review Claim Form, the resident is required to state the amount of damage suffered because of the incident, with documentation to support the claim for damages. The Settlement Administrator will review claims submitted using the Individual Review Claim Form and accompanying documentation to determine if the resident is entitled to the full amount sought, or some lesser amount.

         Alternatively, a resident my file a claim using the Simple Claim Form. The Simple Claim Form requires the resident, on behalf of the household, to sign an attestation that he or she suffered property damage, including the presence of contaminated water in his or her pipes, due to the incident, but does not require the resident to itemize his or her damage or provide documentation. Residents submitting claims using the Simple Claim Form will receive a fixed payment based on the size of their household in January 2014. Based on the parties' estimates, a resident submitting a Residential Claim using the Simple Claim Form will receive a base payment of $525, plus $170 for each additional resident of the household. For example, a resident submitting a claim on behalf of a household of four people would be entitled to receive $1, 035 ($525 base $170 x 3 additional residents). Residents must evaluate whether they can prove more extensive damages than the estimated amount before determining whether to submit an Individual Review Claim Form or a Simple Claim Form. If a resident submits an Individual Review Claim Form and the Settlement Administrator determines that the resident would be entitled to a greater amount with the Simple Claim Form, the Settlement Administrator will notify the resident and provide the opportunity to resubmit the claim using the Simple Claim Form.[4]

         b. Business Claims

         Business Claims are claims made by or on behalf of a business that conducted operations at real property supplied with tap water by the KVTP on January 9, 2014. Businesses may have claims that arise from physical damage to their property caused by the presence of contaminated water within their pipes, repair/replacement costs for affected appliances and equipment, lost profits, lost revenue, lost inventory, and reasonable extra expenses.

         The Settlement Agreement distinguishes between three types of businesses that may file claims: commercial businesses that were shut down or partially shut down by government order during the incident; lodging (hospitality) businesses; and “other” eligible business locations, including government and non-profits. Commercial businesses that were “shut down or partially shut down” are those that: 1) were conducted at a location where the business possessed a West Virginia Business Registration Certificate for the location; and 2) respecting that location, were subject to a regulation requiring them to cease operations or a direct order or instruction from a regulatory agency to cease operations as a result of the incident, extending from January 9 to as long as January 18, 2014, when the cessation order was lifted for the last affected area. This category excludes non-profit and governmental entities.[5]

         Lodging businesses are those that provide traveler accommodation and have the characteristics for classification under the North American Industry Classification System prefix “721.” This category excludes RV parks and campgrounds. Other eligible business locations include all other businesses located at real property supplied with tap water by the KVTP on January 9, 2014. This category includes non-profit and governmental entities.

         As with Residential Claims, business claimants may submit either an Individual Review Claim Form, which requires the claimant to provide documentation of damages, or a Simple Claim Form, which provides a fixed compensation per claim. The amount of compensation available under the Simple Claim Form varies based on the type of Business Claim and the business's annual revenue. For the category of commercial businesses that were shut down or partially shut down, there are three tiers of payment. For those businesses with annual revenue above zero up to $250, 000, the parties estimate a fixed payment amount of $6, 250. For businesses with annual revenue greater than $250, 000 up to $1 million, the parties estimate a fixed payment amount of $12, 500. Finally, for a commercial business shut down or partially shut down with annual revenue above $1 million, the parties estimate a fixed payment of $25, 000.

         For lodging business claimants using the Simple Claim Form, the Settlement Agreement also establishes three tiers of payment. For lodging businesses with annual revenue up to $500, 000, the parties estimate a fixed payment of $10, 000. For lodging businesses with annual revenue greater than $500, 000 up to $2 million, the parties estimate a fixed payment of $20, 000. For lodging businesses with annual revenue greater than $2 million, the parties estimate a fixed payment of $40, 000.

         For other eligible business claimants submitting a Simple Claim Form, the parties estimate a fixed payment of $1, 875.

         c. Medical Claims

         Medical Claims are those submitted by or on behalf of class members that suffered illness or injury because of exposure to contaminated water, sought medical treatment for a reaction or illness attributed to the incident, or had existing medical conditions exacerbated by the incident. The Settlement Agreement recognizes three different types of Medical Claims: contemporaneous medical treatment claims, other medical issues claims, and water interruption medical issues claims. All Medical Claims must be submitted using an Individual Review Claim Form with appropriate documentation; there is no Simple Claim Form option. A class member with a Medical Claim may also file a Residential Claim and/or Wage Earner Claim, if eligible.

         Contemporaneous medical treatment claims may be filed by those who (1) were exposed to contaminated tap water between January 9 and February 15, 2014 and (2) sought and received a diagnostic evaluation or treatment, between January 9 and February 15, for a physical injury or condition the claimant believed[6] to have been caused by exposure to the contaminated tap water. Claimants with contemporary medical treatment claims may receive a payment equal to the unreimbursed cost of their documented medical care, up to a maximum of $5, 000, plus an additional payment of $750.

         Other medical issues claims may be filed by or on behalf of class members that suffered illness or death because of exposure to contaminated water. In order to be eligible for an other medical issues claim, a class member must demonstrate with appropriate documentation the following: (1) that the class member sought and received medical care for an illness, injury, or exacerbation of an existing condition; (2) that the condition was diagnosed by a licensed health care provider; (3) that the condition is causally related to exposure to contaminated water from the incident; and (4) that the complained-of condition manifested between January 9 and February 28, 2014. Other medical issues claims do not include physical injuries or illnesses that are subject to contemporaneous treatment claims. Claimants must demonstrate medical expenses in excess of $5, 000. If a claimant fails to demonstrate expenses in excess of $5, 000, the claim must proceed as a contemporaneous treatment claim. For valid other medical issues claims, a claimant may receive a base payment of $50, 000, plus two times medical costs. Claimants sustaining permanent visual impairment may receive a base payment of $150, 000, plus two times medical costs. Claimants sustaining wrongful death may receive a base payment of $350, 000 plus four times medical costs, up to a total maximum cap of $750, 000. Claimants sustaining total occupational disability may receive a base payment of $500, 000 plus five times medical costs, up to a total maximum cap of $1, 000, 000. Claims for permanent visual impairment, wrongful death, or total occupational disability may also be presented as water interruption medical issues claims, with the same base payments and limits.

         Water interruption medical issues claims may be filed by those class members who experienced a delay in treatment for an existing chronic illness because of an interruption in water service resulting from the Freedom Industries spill.[7] In order to be eligible for a water interruption medical issue claim, a class member must demonstrate, with appropriate documentation, (1) that the delay directly caused an aggravation or progression of an illness or condition and (2) that the aggravation or progression of the illness would not have occurred but for the delay. The claimant must also have medical expenses in excess of $5, 000; if medical expenses are less than $5, 000, the claim must proceed as a contemporaneous medical treatment claim.

         Finally, class member residents of the affected area who were pregnant on January 9, 2014, were exposed to contaminated water, and who do not submit any other type of Medical Claim may also file a Pregnancy Claim. Persons submitting valid Pregnancy Claims may receive a single payment of $1, 500.

         d. Wage Earner Claims

         Wage Earner Claims are those submitted by or on behalf of individuals who were hourly employees at business locations that shut down because of the incident and lost wages because of the shutdown. All Wage Earner Claims must be submitted using an Individual Review Claim Form with appropriate documentation; there is no Simple Claim Form option or fixed payment. Only documented lost wages may be reimbursed. A resident with a wage earner claim may also file a Residential Claim and/or Medical Claim, if eligible. Under the Settlement Agreement, the aggregate payment of Wage Earner Claims is capped at $4 million. As with other claims, in the event Wage Earner Claims exceed $4 million, the payment to each claimant will be reduced, pro rata.

         Wage Earner Claims may be filed by class members that resided within the affected area on January 9, 2014, or by those living outside the area. To be eligible to file a Wage Earner Claim, a class member (1) must have been employed as an hourly employee at an eligible business location that was shut down or partially shut down and (2) must have been scheduled to work during the period in which the business was shut down or partially shut down. Regarding businesses that were partially shut down, the claimant must have been scheduled to work at the portion of the business that was partially shut down.

         2. Settlement Funds and Payment Distribution

         Under the Settlement Agreement, defendants have agreed to pay a sum of money ranging between $101 million and $151 million. The amount of money paid will depend on the type of claims and the total value of claims filed. The money will come from four separate funds: the Eastman Fund, the WV American Water Guaranteed Fund, the WV American Water Contingent Fund, and the two Individual Settlement Funds. The type of claim filed, and the order in which a claim is processed relative to other claims, determines the fund from which the Settlement Administrator will pay a claim.

         The Eastman Fund consists of $25 million. The Eastman Fund will first be used to pay Residential and Business Claims that attest to property damage[8] submitted using the Simple Claim Form. If the claims made with the Simple Claim Form do not exhaust the Eastman Fund, the fund will next be used to pay any claims alleging property damage or physical injury submitted using the Individual Review Claim Form. The Eastman Fund will not be used to pay Wage Earner Claims.

         After the Eastman Fund is exhausted, claims are next paid from the Individual Settlement Funds. The Individual Settlement Funds consist of the money collected, if any, from the settlements of Gary Southern and Dennis Farrell. The Individual Settlement Funds will be used to pay Residential Claims submitted under the Simple Claim Form option.

         After the Individual Settlement Funds are exhausted, the Settlement Administrator will pay claims using the WV American Water Guaranteed Fund (“AW Guaranteed Fund”). The AW Guaranteed Fund consists of $76 million paid by WV American Water. The fund is first used to pay Residential and Business claims submitted using the Simple Claim Form. If money remains in the AW Guaranteed Fund after Simple Claims have been paid, the fund will then be used to pay claims under the “Check Distribution” method.[9] Finally, if money remains in the AW Guaranteed Fund after the payment of Simple Claim Form claims and the distribution of checks, the fund will be used to pay claims submitted with the Individual Review Claim Form.

         If the $101 million in the Eastman Guaranteed Fund and AW Guaranteed Fund is not enough to satisfy all claims, then the WV American Water Contingent Fund (“AW Contingent Fund”) will be used to pay remaining claims submitted with the Individual Review Claim Form.[10] The AW Contingent Fund consists of an amount of money, up to a maximum of $50 million, funded by the WV American Water only in the event that additional funds beyond the guaranteed funds just discussed are required to satisfy claims. WV American Water will contribute to the fund only to the extent required to satisfy remaining claims submitted using the Individual Review Claim Form.

         3. Attorneys' Fees, Costs, and Awards

         The Settlement Agreement also governs the payment of attorneys' fees, costs, and incentive awards. With respect to attorneys' fees, the parties propose that the current Class Counsel in this case be designated Lead Settlement Class Counsel and that the firms who serve as Lead Counsel in the state MLP cases be designated Settlement Class Counsel. The proposed Settlement Agreement awards attorneys' fees to both Class Counsel and state MLP counsel (together, “counsel” or “Settlement Class Counsel”) as follows:

• Settlement Class Counsel will conjointly receive 30% of the combined Eastman and AW Guaranteed Funds (the combination of which the court refers to as “the guaranteed fund”), without regard to whether claimants exhaust the remainder of the guaranteed fund. The proposed total fee on the $101 million guaranteed fund is therefore $30, 300, 000, [11] but, as will be noted, additional contingent attorney fees may be levied on Individual Review claims paid out of the guaranteed fund.
• Settlement Class Counsel will receive 25% of the aggregate amounts paid out of the AW Contingent Fund, which pays only Individual Review Claims. If the entire $50 million AW Contingent Fund were to be exhausted, though it is unlikely, this would amount to an additional $12, 500, 000.
• Attorneys may not seek fees for assisting with filing Simple Claims.
• For some reason, Settlement Class Counsel will also receive 25% of the aggregate Individual Review Claim amounts paid out of the Eastman Fund. This 25% fee would be in addition to the 30% fee paid at the outset from the guaranteed fund, which of course includes the $25 million Eastman Fund. Consequently, this combination of fees makes for at least a 55% fee on Individual Review Claims paid out of the Eastman Fund.
• Finally, any attorneys - whether Settlement Class Counsel or not - representing claimants in the Individual Review process under a contract of representation may earn a contingency fee on such claims that is not constrained by the Settlement Agreement, unless an attorney entered into such a contract on or after October 31, 2016, in which case the fee is limited to 15% of the recovery. But no such 15% limitation applies to contracts entered into before October 31st, which will be the decided majority of such contracts.
• The only other limit placed on contingent attorneys' fees on an Individual Review award in the Settlement Agreement is that, in an instance where an attorney is limited to 15% of an award because he or she entered into a contract on or after October 31, 2016, the “net payment” to the claimant must exceed the relevant Simple Claim amount (assuming there is a corresponding Simple Claim). Joint Mot. for Prelim. Approval Ex. A § 13.2 [hereinafter “Settlement Agreement”]. The term “net payment” is undefined but presumably means the payment to the claimant after the attorneys' contingency fee has been deducted.

         With respect to administrative costs, counsel have not submitted estimates or analysis of these costs in conjunction with their motion for attorneys' fees and costs. In a letter[12]independently sent to the court, counsel estimate administrative costs to be $1, 973, 500 for the Settlement Administrator, SmithCochranHicks PLLC (“SCH”), and $681, 591 for the Notice Administrator[13] totaling $2, 655, 091. The Notice Administrator has directly provided notice cost estimates to the parties. Costs for settlement administration, on the other hand, appear to be estimates based on an itemized fee schedule reflecting each administrative processing function that SCH will perform. The parties calculated the total settlement administration costs for SCH by multiplying the fee estimate for each processing function by the number of anticipated claims requiring that function. They appear to assume that 37, 000 simple residential claims will be processed, 5, 000 simple business claims will be processed, 57, 000 residential checks will be mailed, and approximately 3, 100 Individual Review Claims (residential, business, and medical) will be processed.

         With respect to litigation costs, counsel represent that these costs now total $2, 377, 376.93. Counsel have provided data in support of this figure that itemizes costs, including court reporter costs for depositions, travel costs for out-of-state attorneys and others, legal research costs, mediation costs, and the costs of retained experts. This figure will presumably rise somewhat due to the accretion of additional post-settlement duties. These costs include expenses from both federal and state lawyers and firms. The parties also propose $15, 000 incentive awards for the fourteen class representatives in this case and $10, 000 incentive awards for ten named plaintiffs in the state court case captioned In re Water Contamination Litigation, No. 16-C-6000.

         DISCUSSION

         I. Rule 23 Certification and Approval

         a. Applicable Law

         The court's ultimate role in overseeing class action settlements is to ensure that any settlement proposed by the parties is “fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). After assessing the fairness of a proposed settlement, “[t]he trial judge must then make a determination as to whether or not to approve the settlement, or he may make suggestions to the parties for modifications of the proposal. Approval must then be given or withheld.” Cotton v. Hinton, 559 F.2d 1326, 1331 (5th Cir. 1977). See also Evans v. Jeff D., 475 U.S. 717, 727 (1986) (district court “might have advised petitioners and respondents that it would not approve their proposal unless one or more of its provisions was deleted or modified”).

         Settlement negotiations, even when they are arms-length, often involve only the attorneys who have been litigating the case. “While [those attorneys'] representation is no doubt vigorous in most cases, on occasion the negotiating parties may find that their individual interests can best be served by a settlement which is not in the best interests of the class as a whole.” Armstrong v. Bd. of Sch. Dirs. of City of Milwaukee, 616 F.2d 305, 313 (7th Cir. 1980) overruled on other grounds by Felzen v. Andreas, 134 F.3d 873, 876 (7th Cir. 1998). Consequently, Rule 23(e) is concerned particularly with “the protection of class members whose rights may not have been given adequate consideration during the settlement negotiations.” In re Jiffy Lube Sec. Litig., 927 F.2d 155, 158 (4th Cir. 1991). See also Berry v. Schulman, 807 F.3d 600, 612 (4th Cir. 2015), cert. denied sub nom. Schulman v. LexisNexis Risk & Info. Analytics Grp., Inc., 137 S.Ct. 77 (2016).

         Courts often employ a two-stage review process of proposed settlement agreements, consisting of a preliminary and a final approval stage. See, e.g., Armstrong, 616 F.2d at 313. The preliminary approval stage requires analysis of Rules 23(a) and 23(b), governing certification, as well as the fairness and adequacy of the settlement under Rule 23(e).

[At preliminary approval, ] counsel submit the proposed terms of settlement and the judge makes a preliminary fairness evaluation. . . . The judge should make a preliminary determination that the proposed class satisfies the criteria set out in Rule 23(a) and at least one of the subsections of Rule 23(b). . . . The judge must make a preliminary determination on the fairness, reasonableness, and adequacy of the settlement terms [under Rule 23(e)] and must direct the preparation of notice of the certification, proposed settlement, and date of the final fairness hearing.

Manual for Complex Litigation (Fourth) § 21.632 (2004). Following preliminary approval, the court directs reasonable notice to the class. The second stage, final approval, occurs after the court issues notice, the period for opting out or objecting to the settlement has passed, and the court has conducted a “fairness hearing.” Fed.R.Civ.P. 23(e)(2).

         Rule 23 of the Federal Rules of Civil Procedure governs the two components of a district court's review of class action settlements - certification and approval. In general, a district court's certification decision is “accorded great deference.” Simmons v. Poe, 47 F.3d 1370, 1380 (4th Cir. 1995). Certification, moreover, is equally as important in the settlement context as in the litigation context. See Amchem Prod., Inc. v. Windsor, 521 U.S. 591, 619 (1997) (“Settlement is relevant to a class certification.”).

The safeguards provided by the Rule 23(a) and (b) class-qualifying criteria, we emphasize, are not impractical impediments - checks shorn of utility - in the settlement-class context. . . . [T]he standards set for the protection of absent class members serve to inhibit appraisals of the chancellor's foot kind - class certifications dependent upon the court's gestalt judgment or overarching impression of the settlement's fairness.

Id. at 621. Certification, in other words, provides some measure of objectivity to counterbalance what might become a subjective evaluation by a court.

         Class certification requires the parties to meet the prerequisites of Rule 23(a) and at least one of the three conditions of Rule 23(b). See Id. at 614. First, the parties must demonstrate the following in order to fulfill the requirements of Rule 23(a):

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

Berry, 807 F.3d at 608; Fed.R.Civ.P. 23(a). The Fourth Circuit has summarized these four aspects as “(1) numerosity of parties; (2) commonality of factual and legal issues; (3) typicality of claims and defenses of class representatives; and (4) adequacy of representation.” Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 423 (4th Cir. 2003).

         Additionally, certification can proceed only if the proposed class “fit[s] within one of the three types of classes listed in Rule 23(b).” Berry, 807 F.3d at 608. Rule 23(b)(3), under which plaintiffs have sought certification here, provides that a class action may proceed if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed.R.Civ.P. 23. Courts refer to these two prongs of Rule 23(b)(3) as its predominance and superiority requirements. See, e.g., Gunnells, 348 F.3d at 424. Rule 23(b)(3) also sets forth the following factors relevant to analyzing both predominance and superiority:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.

Fed. R. Civ. P. 23(b)(3).

         In addition to certification, a court must also decide whether to approve a proposed settlement. Approval is governed by Rule 23(e), which provides that “[i]f the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e)(2). Simply put, fairness and adequacy are the two ...


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