August 18, 2011
Second Circuit Reverses Class Certification and Settlement After Remand from SCOTUS
We covered earlier last year’s Supreme Court’s decision in Reed Elsevier, Inc. v. Muchnick, which rejected the argument that a failure to comply with 17 U.S.C. § 411(a)’s registration requirement deprived a federal court of subject-matter jurisdiction over copyright infringement claims. That opened the door for the Second Circuit to consider the certification and settlement of a class action based on the unauthorized electronic reproduction of work by freelance authors.
Yesterday, the Second Circuit reversed the district court’s certification of the class and approval of the settlement. The case is In re: Literary Works in Electronic Databases Copyright Litigation, 2011 WL 3606725, and Judge Walker’s majority opinion begins:
Plaintiffs in this consolidated class action allege copyright infringements arising from defendant publishers’ unauthorized electronic reproductions of plaintiff authors’ written works. The United States District Court for the Southern District of New York (George B. Daniels, Judge) certified the class for settlement purposes and approved a settlement agreement (“Settlement”) over the objection of ten class members (“objectors”). In this appeal, objectors contend that (1) approval of the Settlement was impermissible because it released claims beyond the factual predicate of the case, (2) class certification was improper because subgroups within the class have conflicting interests, and (3) the district court committed procedural errors in certifying the class and approving the Settlement. Although we reject objectors’ arguments regarding the release, we conclude that the district court abused its discretion in certifying the class and approving the Settlement, because the named plaintiffs failed to adequately represent the interests of all class members. We do not reach the procedural challenges, which are moot in light of our class certification holding.
Judge Straub issued a partial dissent, which begins:
The majority observes that the Settlement in this case “was the product of an intense, protracted, adversarial mediation” with “highly respected and capable” mediators that provided assurance that the “‘proceedings were free of collusion and undue pressure.’” Maj. Op. at [22-23] (quoting D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2001)). While conceding this point, however, as well as that the Settlement offered “some ‘structural assurance of fair and adequate representation,’” Maj. Op. at  (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 627 (1997)), the majority holds that the District Court abused its discretion in certifying the class because not “enough” was done to “satisfy [Federal] Rule [of Civil Procedure] 23(a)(4),” Maj. Op. at . I disagree. I respectfully dissent because it is my view that the named plaintiffs adequately represent the interests of all class members as required by Rule 23(a)(4) and that the District Court was well within its discretion to certify the class and approve the Settlement. I do concur with the majority that the Settlement’s release provision is permissible.
(Hat Tip: Howard Bashman)