On September 24, 2020, a divided panel of the Sixth Circuit rejected a trial court’s novel attempt to use Rule 23 to create a class for negotiation purposes only.   In re: Nat’l Prescription Opiate Litig., ___ F.3d ___, 2020 WL 5701916 (6th Cir. Sept. 24, 2020). Unlike the classes that Rule 23 expressly contemplates to litigate claims or effectuate an already negotiated settlement, the “negotiation class” that District Judge Dan Polster certified in September of 2019 was created to permit participating parties to attempt to negotiate a possible classwide settlement of thousands of federal lawsuits that cities and counties have filed against various opioid manufacturers, distributors, and pharmacies.

The Judicial Panel on Multidistrict Litigation consolidated over 1,300 public-entity lawsuits for pretrial purposes before Judge Polster in the Northern District of Ohio. The plaintiffs, mostly cities and counties, allege that over 350,000 individuals in the United States have died from opioid overdoses since 1996 and that the manufacturers, distributors, and pharmacies have acted in concert to mislead medical professionals into prescribing opiates to patients who often become addicted to them. 2020 WL 5701916, at *1. The cities and counties seek reimbursement for the money they are spending to address the opioid crisis.  Id.

The negotiation class idea was conceived to address an obstacle defendants sometimes face when attempting to negotiate some type of global settlement in a Rule 23(b)(3) class action: they do not know how many class members will opt out of a settlement class and pursue individual litigation. 2020 WL 5701916, at *2. In circumstances like the National Prescription Opiate Litigation, where well over a thousand putative class members have already filed their own lawsuits, the risk of significant opt-outs is greater and might make negotiating a global settlement more difficult. Under the negotiation class approach, a class is identified—here it was all 34,458 cities and counties in the United States—and potential class members are asked upfront if they would like to opt out of the class. Those that remain in the class agree to be bound by whatever settlement the negotiation class representatives reach with whichever defendants chose to attempt to negotiate a classwide settlement. Although Rule 23(e)(4) permits a court to provide a second opportunity for class members to opt out after a settlement is reached, Judge Polster understandably indicated his inclination that there likely would not be a second chance to opt out—presumably because that would defeat the purpose of the negotiation class. 2020 WL 5701916, at *2.

The framework Judge Polster approved in Nat’l Prescription Opiate Litig. gave potential class members a detailed county-level formula that showed how any settlement would be allocated among class members. Also, class members would ultimately vote on whether any proposed settlement would be accepted by the class, and no settlement could be accepted unless it received a “yes” vote of 75% of the class—tallied separately in each of six different ways representing different slices of the class. 2020 WL 5701916, at *2. Judge Polster recognized that negotiation class members would not know the amount of any prospective settlement when they had to decide whether to opt out, but he explained that this is no different than litigation class members who must decide to stay or opt out when a class is certified while the case is being litigated. In each circumstance, the class member does not know whether a settlement will be reached or what the amount of any settlement would be. In both circumstances, if there is a settlement, Rule 23(e)(4) permits (but does not require) the court to provide a second opportunity to opt out. 2020 WL 5701916, at *2; Nat’l Prescription Opiate Litig., 332 F.R.D. 532, 540 (N.D. Ohio 2019) (lower court decision).

The Sixth Circuit majority took issue with some aspects of Judge Polster’s assessment of Rule 23(b)(3)’s predominance requirement and his conclusion that certain of the issues raised in many of the pending lawsuits warranted “issue certification” under Rule 23(c)(4), see 2020 WL 5701916, at *7-8, but the majority’s principal objection to the negotiation class was its conclusion that Rule 23 does not authorize this novel approach. Id. at *5-7, *8-9. The court first noted that “Rule 23 is replete with references to litigation and settlement classes[,]” but it “does not mention certification for purposes of ‘negotiation’ or anything along those lines.” Id. at *5. It then rejected the argument that nothing in Rule 23 prohibits a negotiation class as failing to recognize the Supreme Court’s guidance in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 363 (2011), that trial courts may not invent a procedure with “no basis in the Rule’s text[.]” 2020 WL 5701916, at *5. And it rejected the argument that the courts had approved settlement classes long before Rule 23 was amended to refer to them (in 2018) as failing to appreciate that earlier versions of Rule 23(e) referred to court approval of “compromised” class actions—which, the majority explained, implicitly authorized certification of a class for purposes of presenting a privately negotiated settlement to a court and proposed class. 2020 WL 5701916, at *6. In sum, the majority concluded that the negotiation class could not be permitted because it was “wholly untethered from Rule 23[.]”  Id. at *5.

In her dissenting opinion, Judge Karen Nelson Moore took a broader view of how the Federal Rules of Civil Procedure should be interpreted. She argued that the federal rules “were not written and have never been interpreted to manacle district courts that innovate within the Rules’ textual borders.” 2020 WL 5701916, at *9. While recognizing Justice Kagan’s famous statement that “we are all textualists now[,]” id. at *11 & n.8, the dissent said that “courts should contemplate a liberal reading [of the Federal Rules] that fulfills the Rules’ broader design and that does justice for the parties”—because, unlike statutes, where interpretation requires a court to decide what a different branch of government meant by the words it used, the Federal Rules are promulgated by the Supreme Court. Id. at *9. “This, in large measure, eliminates judicial threats to separation-of-powers and emancipates courts from traditional concerns surrounding statutory interpretation, such as deference to Congress.” Id. at *9. Giving multiple examples of cases in which the Supreme Court expanded upon, or added to, what the Federal Rules state, the dissent argued that appellate courts should “encourage liberal constructions of the Federal Rules of Civil Procedure” in multidistrict litigation, rather than constrict the district courts’ ability to develop creative procedures in large-scale, complex proceedings. Id. at *10-11. Indeed, even within the text of Rule 23, the dissent concluded there is a sufficient basis in Rule 23(e)’s reference to “a class proposed to be certified for purposes of settlement” to authorize the creation of a negotiation class because, in the dissent’s words, “negotiation is part and parcel of any class certified for settlement purposes.” 2020 WL 5701916, at *12.

The availability of the negotiation class as an option may be less important in the types of class actions where the number of opt-outs is generally very low (e.g., consumer protection cases). But particularly in large multidistrict litigation, where hundreds or thousands of class members have filed their own lawsuits and it cannot be assumed that opt-outs will be few, the negotiation class could facilitate settlements. Given the importance of the issue in the Nat’l Prescription Opiate multidistrict litigation, it seems likely that the proponents of the negotiation class will seek en banc review in the Sixth Circuit.