What were they thinking, anyway?

Eighteen months ago, a group of African American financial advisors brought suit against JPMorgan Chase for alleged race discrimination and retaliation. They sought to assert claims on behalf of a class of 273 individuals.

The parties immediately entered into settlement discussions and reached an agreement to resolve the claims for a total of $24 million. The settlement included changes to company policies relating to recruiting, training, counseling and the posting of promotion opportunities. Of the $24 million amount, $4.5 million was designated to pay for the cost of equitable relief and the establishment of a $1.5 million diversity fund. The remainder, $19.5 million, was to go for attorney fees ($5.5 million), expenses (around $83,000) and payments to the class members under a claim system. The six lead plaintiffs each received $150,000 incentive awards that seem to come (the opinion is not clear) from the $4.5 million fund for equitable relief. We’ll save you the math – the remaining funds available that would actually go to class members works out to an average of around $50,000 per claimant.

Because there were both equitable and legal claims, the court certified the case under both 23(b)(2) (equitable relief) and 23(b)(3). The significance is that claims under Rule 23(b)(3) have a right of opt-out, while claims under 23(b)(2) do not, for the logical reason that equitable relief will typically inure to the benefit of the entire class, whether present or not. It then ordered that the appropriate notices go to the class members. As is typical in these matters, the notice stated that those opting out of the settlement would have no right to object to it.

In any case, there was only one objection (and it didn’t even name what class members might be objecting), a fact that the district court found significant in approving the settlement. Ultimately, 11 class members opted out.

The opt-outs then appealed the settlement to the Seventh Circuit. Senegal v. JPMorgan Chase Bank, N.A., Case No. 19-1141 (7th Cir. Sept. 26, 2019). Why, you might ask? That’s a pretty good question, and one that the court of appeals had as well.

Keep ix mind that these 11 class members had opted out of the settlement – meaning that they would take no part of it and thus would never receive payments from the settlement fund. Also keep in mind that they had not objected to any part of the settlement before the trial court, including in particular the equitable relief, the only portion that would apply to them in light of their opt-outs.

The crux of their argument seemed to be that more of the actual cash dollars should have been allocated to payments to class members rather than to equitable relief. But, as they had opted out, this was irrelevant as to them, as they would receive $0 in any event. Further, taking the money from the equitable relief would harm them as 23(b)(2) class members. Finding that they had no basis to challenge the settlement, the court dismissed the appeal.

The decision in Senegal highlights three issues. First, Rule 23(b)(2) and Rule 23(b)(3), particularly in employment cases, relate to different kinds of relief and have appropriate different rules as a result. A second, corollary issue is that there is a world of difference between objecting to a settlement (i.e., seeking to change its terms) and opting out of it (i.e., taking no part in either the settlement payments nor the release). Parties seeking to change a settlement should object to it, not opt out.

And, third, it raises questions as to what the opt-outs’ strategy was. If they wanted an amount, the settlement fund was paying an average of tens of thousands of dollars per claimant, a substantial sum. By opting out, they received nothing and would not have received anything even if they successfully challenged the fund allocations. The opinion does not disclose, nor could it, whether the appeal was due to buyer’s remorse at a deal not taken, or whether they anticipated some larger payment as a result of opting out for strategic or other reasons.

The bottom line: A class action opt-out may indicate disapproval of a settlement, but it has its own risks and may result in the loss of a significant settlement payment with minimal reward.