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New York Class Actions – Pre-Certification Settlement Does Not Require Notice To The Putative Class

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  • Posted on: Jan 4 2018

On December 12, 2017, the New York Court of Appeals resolved an ambiguity in Rule 908 of the Civil Practice Law and Rules, concerning whether the parties to a putative class action must give notice of a dismissal, discontinuance, or compromise to members of the class before the lower court certifies the action as a class action.

In Desrosiers v. Perry Ellis Menswear, LLC, 2017 NY Slip Op 08620 (here), a divided court held that, where a complaint containing class allegations is dismissed, discontinued, or settled before the action has been certified by the court as a class action, notice of the impending dispositon must be provided to potential class members, even though the disposition is not binding on them.

Desrosiers involved two unrelated actions under CPLR 908.  In the first action, Desrosiers v. Perry Ellis Menswear, LLC, the plaintiff, Geoffrey Desrosiers, brought a class action to recover wages from the defendant, Perry Ellis Menswear, LLC, that Desrosiers claimed should have been paid to him and those similarly situated. Desrosiers worked as an unpaid intern for Perry Ellis. In March 2015, Perry Ellis sent an offer of compromise to Desrosiers, which he accepted. On May 18, 2015, Perry Ellis moved to dismiss the complaint. By that date, the time within which Desrosiers was required to move for class certification pursuant to CPLR 902 had expired. Desrosiers did not oppose dismissal of the complaint, but filed a cross motion seeking leave to provide notice of the proposed dismissal to putative class members pursuant to CPLR 908. Perry Ellis opposed the cross motion, arguing that notice to putative class members was not required because Desrosiers had not moved for class certification within the required time. The Supreme Court dismissed the complaint but denied the cross motion to provide notice to putative class members.

In the second action, Vasquez v. National Sec. Corp., the plaintiff, Christopher Vasquez, brought a class action against the defendant, National Securities Corporation, for alleged minimum wage and overtime violations. Vasquez worked as a financial products salesperson at National Securities and filed a class action on behalf of himself and “all similarly-situated individuals.” The parties agreed to postpone a motion for class certification in order to complete pre-certification discovery. In February 2015, before Vasquez had moved for class certification, NSC made a settlement offer, which Vasquez accepted the following month. NSC thereafter moved to dismiss the complaint. Vasquez cross-moved to provide notice of the proposed dismissal to putative class members pursuant to CPLR 908. NSC opposed the cross motion, asserting that CPLR 908 applies only to certified class actions. The Supreme Court granted the cross motion to provide notice to putative class members and granted NSC’s motion to dismiss the complaint, but directed that the action would not be marked disposed until after notice had been issued.

On appeal, in both cases, the Appellate Division, First Department held that the notice requirement of CPLR 908 applied despite the absence of a certified class.  In Desrosiers, the court held that the notice requirement in CPLR 908 “is not rendered inoperable simply because the time for the individual plaintiff to move for class certification has expired,” and notice to putative class members of the compromise is “particularly important … where the limitations period could run on the putative class members’ cases following discontinuance of the individual plaintiff’s action.”  In Vasquez, the First Department followed its ruling in Avena v. Ford Motor Co., 85 A.D.2d 149 (1st Dept. 1982).  Avena involved the settlement of a putative class action that did not release the claims of absent class members. 85 A.D.2d 149 (1st Dept. 1982). The settling parties contended that because absent class members were preserving all their claims, there was no need to send class members notice or review the compromise and dismissal for fairness. The First Department disagreed, holding that the necessity of notice and review followed from the existence of the class representatives’ fiduciary duties. Though the individual plaintiffs’ recovery, and lawyers’ fee was “in absolute terms … a modest amount” the settlement assured the fiduciaries of these results. Id. at 154. Meanwhile, “the other members of the class, [were] left to struggle for themselves.” Id. Thus, the First Department held that notice was required even in the case of “a without prejudice (to the class) settlement and discontinuance of a purported class action before certification or denial of certification.” Id. at 152. The court emphasized the role of CPLR 908 in preventing abuse of the class action device:

Clearly some control of settlement or discontinuance of a purported class action is necessary. The abuses which have developed incident to the beneficent widened availability of class actions and the potential for abuse in a private settlement even before certification are widely recognized. The requirement of notice to the class makes settlement more difficult, perhaps even impossible in some cases. But of course Rule 908 intends to make settlement of class actions somewhat more difficult as part of the price of preventing abuse. And by the very act of asking for court approval, which would otherwise not be necessary, the parties recognize that such settlements are subject to greater control and thus more difficult than the settlement of a purely individual lawsuit.

Id. at 153.

The First Department further noted the role that objectors would play in any hearing on the settlement’s fairness and the importance of notice in bringing contrary points of view to the court considering a settlement:

In our adversary system of justice the court must rely on adversary attorneys to produce the necessary facts. But here, without some notice to the outside world and to possible other members of the class and their representatives (or at least the appointment of a special guardian), who is to find and present to the court considerations that may cast doubt upon the agreement of the attorneys for defendant and for the named plaintiffs for a settlement without notice?

Id. at 155.

In each case, the First Department granted the defendant leave to appeal to the Court of Appeals, certifying the question whether its order was properly made. The Court of Appeals affirmed the ruling in both cases.

The Court of Appeals Ruling

The Court found the language in CPLR 908 to be ambiguous, noting that the phrase “class action” had multiple meanings and no clear legislative intent on which to rely:

The text of CPLR 908 is ambiguous with respect to this issue. Defendants argue that the statute’s reference to a “class action” means a “certified class action,” but the legislature did not use those words, or a phrase such as “maintained as a class action,” which appears in CPLR 905 and 909. Plaintiffs assert that an action is a “class action” within the meaning of the statute from the moment the complaint containing class allegations is filed, but the statutory text does not make that clear.

Similarly, the statute’s instruction that notice of a proposed dismissal, discontinuance, or compromise must be provided to “all members of the class” is inconclusive. Defendants contend that there are no “members of the class” until class certification is granted pursuant to CPLR 902 and the class is defined pursuant to CPLR 903. Yet the legislature did not state that notice should be provided to “all members of the certified class,” or “all members of the class who would be bound” by the proposed termination, or some other phrase that would have made the legislature’s intent clear.

“[T]urning to other principles of statutory interpretation and sources beyond the statutory text itself to discern the intent of the legislature,” such as the former version of Rule 23 of the Federal Rules of Civil Procedure, on which CPLR Article 9 was modeled, and which “was virtually indistinguishable from the current text of CPLR 908,” the Court determined that these sources supported the requirement of a pre-certification class notice of settlement, dismissal or discontinuance.

The majority also drew a distinction between CPLR 908 and the current version of Rule 23(e). Rule 23 was amended to provide that a district court is required to approve settlements only in cases where there is a “certified class” and that notice must be given only to class members “who would be bound” by the settlement. In contrast, CPLR 908 has not been so amended, despite proposals by the New York City Bar Association and scholarly criticisms of the rule.

The Court further considered the First Department’s decision in Avena, “the only appellate-level decision to address this issue.” It put a lot of emphasis and weight on the fact that “no other department of the Appellate Division ha[d] expressed a contrary view” of CPLR 908, the Court “never overruled Avena or addressed” the issue, and the legislature had not “amended CPLR 908 in the decades since Avena ha[d] been decided.” The majority further found that the legislature’s refusal to amend CPLR 908 since Avena indicated that the First Department had correctly ascertained the legislature’s intent.

Finally, the majority pointed to policy considerations, including ensuring that settlements are free from collusion and that absent class members are not prejudiced. The majority dismissed any concerns about practical difficulties that could arise from this decision, claiming that they were best addressed by the legislature, not the courts.

Any practical difficulties and policy concerns that may arise from Avena’s interpretation of CPLR 908 are best addressed by the legislature, especially considering that there are also policy reasons in favor of applying CPLR 908 in the pre-certification context, such as ensuring that the settlement between the named plaintiff and the defendant is free from collusion and that absent putative class members will not be prejudiced. The balancing of these concerns is for the legislature, not this Court, to resolve.

Citations omitted.

The dissent took the majority to task for what it described as an unwarranted reading of the rule in light of the overall context of the class action provisions in Article 9 of the CPLR. In their view, the fact that the plaintiffs had never moved for, let alone received, a ruling certifying the action as a class action meant that the case was not a class action at all. “In each of the actions here,” they said, “plaintiffs did not comply with the requirements under article 9 of the CPLR that are necessary to transform the purported class action into an actual class action, with members of a class bound by the disposition of the litigation.”

Responding in particular to the plaintiff’s contention that a case becomes a “class action” from the moment it is filed putatively as such, the dissent said:

There is nothing talismanic about styling a complaint as a class action. Indeed, any plaintiff may merely allege that a claim is being brought “on behalf of all others similarly situated.” However, under article 9 of the CPLR, the court, not a would-be class representative, has the power to determine whether an action “brought as a class action” may be maintained as such, and may do so only upon a showing that the prerequisites set forth in CPLR 901 have been satisfied.


As the dissent observed, “[t]here is nothing talismanic about styling a complaint as a class action.” Notwithstanding, the filing of a class action complaint can impact the rights of the plaintiff and putative class members, especially before the filing of a certification motion. For example, absent class members may have statute of repose issues depending upon the claims asserted in the class action complaint. California Public Employees’ Retirement Sys. v. ANZ Sec., Inc., 137 S. Ct. 2042 (2017) (“CalPERS”).

In CalPERS, the Supreme Court held that the class action “tolling” principle set forth in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), does not apply to the three-year statute of repose under the Securities Act of 1933. This Blog discussed the CalPERS decision here. Although the Supreme Court specifically addressed the statute of repose set forth in the Securities Act, the Court’s reasoning indicates that tolling under American Pipe does not apply to a statutory repose period, unless the particular statute “itself contains an express exception.” Id. at 2050; see also id. at 2050 (“In light of the purpose of a statute of repose, the provision is in general not subject to tolling.”), 2051 (“statutes of repose are not subject to equitable tolling”), 2055 (“Because § 13’s 3-year time bar is a statute of repose, it displaces the traditional power of courts to modify statutory time limits in the name of equity.”).

The majority’s ruling also ensures that, notwithstanding the costs of providing notice to absent class members, which may be an impediment to pre-certification dispositions, absent class members will be provided with an opportunity to present arguments as to the fairness and reasonableness of the settlement that might not be made by the parties.

Whether the legislature takes up the issue remains to be seen. This Blog will update any developments on the legislative front, and post commentary about decisions of interest involving CPLR 908.

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