William Whitlock v. FSL Management , 2016 FED App. 5086P ( 2016 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 16a0287p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
WILLIAM WHITLOCK; DAVID SKYRM; KRISTIN ┐
MOORE; HOLLY GOODMAN; GARY MUNCY; │
MICHAEL BROWN, │
Plaintiffs-Appellees, │
│
> No. 16-5086
│
v.
│
│
FSL MANAGEMENT, LLC; ENTERTAINMENT │
CONCEPTS INVESTORS SERVICES, LLC; CORDISH │
OPERATING VENTURES, LLC; ENTERTAINMENT │
CONSULTING SERVICES, LLC; FSH MANAGEMENT, │
LLC, │
Defendants-Appellants. │
┘
Appeal from the United States District Court
for the Western District of Kentucky at Louisville.
No. 3:10-cv-00562—Joseph H. McKinley, Jr., Chief District Judge.
Argued: October 20, 2016
Decided and Filed: December 14, 2016
Before: GUY, BOGGS, and GRIFFIN, Circuit Judges.
_________________
COUNSEL
ARGUED: Clark C. Johnson, STITES & HARBISON PLLC, Louisville, Kentucky, for
Appellants. Michele D. Henry, CRAIG HENRY PLC, Louisville, Kentucky, for Appellees. ON
BRIEF: Clark C. Johnson, Chadwick A. McTighe, Jeffrey S. Moad, STITES & HARBISON
PLLC, Louisville, Kentucky, for Appellants. Michele D. Henry, CRAIG HENRY PLC,
Louisville, Kentucky, for Appellees.
1
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 2
_________________
OPINION
_________________
BOGGS, Circuit Judge. This appeal arises out of a class certification and a court-
approved class-action settlement. The defendants-appellants, who were parties to the settlement,
challenge both of these determinations, arguing that because the underlying Kentucky state-law
cause of action does not support class relief, the district court was required to reject the
settlement and decertify the class. Whatever the substance of Kentucky state law, a point which
this court need not decide here, we hold that it does not affect the ability of the district court to
enforce a binding settlement agreement. For this reason, we affirm the decision of the district
court and uphold the disputed settlement agreement.
I
A
In 2010, plaintiffs William Whitlock, David Skyrm, James Middleton, and Kristin Moore
brought suit in Kentucky state court against the defendants, FSL Management, LLC,
Entertainment Concepts Investors, LLC, and Cordish Operating Ventures, LLC. The plaintiffs
were former employees of various establishments that operate in “Fourth Street Live,” an
entertainment district located in downtown Louisville, KY that was managed by the defendants.
The plaintiffs individually alleged violations of the Kentucky Wage and Hour Act, KRS
§ 337.385, against the defendants for their policies regarding off-the-clock work and mandatory
tip-pooling. Citing proper diversity jurisdiction, defendants removed the action to federal court,
whereupon the plaintiffs amended their complaint to include an additional defendant and to seek
relief as a class. The court granted leave for the plaintiffs to amend their complaint, and the
litigation proceeded as a class-action suit.
In 2012, the district court granted class certification to the plaintiffs, finding that they had
both met the requirements of Rule 23(a) and fell within one of the enumerated subcategories of
Rule 23(b). The defendants successfully stayed the class-action litigation while they pursued
interlocutory review in this court, but their petition for review was denied. In re FSL Mgmt.,
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 3
LLC, No. 12-0509 (6th Cir. Jan 31, 2013). In April 2013, the defendants filed a motion in the
district court to reconsider its prior order certifying the class. Specifically, the defendants argued
that the Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), coupled
with its decision to vacate two related class-certification orders, see In re Whirlpool Corp. Front-
Loading Washer Products Liability Lit., 678 F.3d 409 (6th Cir. 2012), vacated and remanded,
133 S. Ct. 1722 (Apr. 1, 2013); Ross v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir. 2012), vacated
and remanded, 133 S. Ct. 1722 (Apr. 1, 2013), supported reconsideration of the plaintiffs’ class
certification. The district court denied the motion to reconsider class certification, and the parties
subsequently began settlement discussions.
In May 2014, the parties reached an agreement as to the financial component of the
settlement. It would take them almost another year, however, until the parties could reach an
agreement regarding the settlement’s non-monetary terms. Emails between the parties suggest a
final agreement was reached as to all of the settlement’s terms sometime around March 19 and
March 20, 2015. On March 20, 2015, the parties filed a joint status report with the district court
declaring that they had “agreed to the terms of a settlement agreement and anticipate filing the
formal settlement documents . . . by April 17, 2015.”
Soon after this joint status report had been filed with the court, the defendants became
aware of a February 27, 2015 decision by the Kentucky Court of Appeals, McCann v. Sullivan
University Systems, Inc., No. 2014-CA-000392-ME, 2015 Ky. App. Unpub. LEXIS 862 (Ky.
App. Feb. 27, 2015). McCann held that KRS § 337.385, the same provision under which the
plaintiffs had brought suit in this case, could not support class-action claims. Id. at *9. On
March 26, 2015, the plaintiffs in McCann filed a motion for discretionary review with the
Kentucky Supreme Court. McCann v. Sullivan Univ. Sys. Inc., 2015-SC-000144. Buoyed by
this discovery, the defendants filed a motion with the district court on April 15, 2015, seeking to
stay approval of the settlement agreement in light of McCann. When the court denied this
motion and granted preliminary approval of the settlement, the defendants again brought an
appeal to this court. In an order dated October 27, 2015, we denied their second appeal as
untimely, reasoning that the defendants had not challenged an appealable class-certification order
in accordance with Rule 23(f). In our denial, we made it clear that while their appeal was
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 4
untimely, the defendants remained free to move the district court “to decertify the class on the
basis of new developments.” In re FSL Mgmt., LLC, No. 15-0504 (6th Cir. Oct. 27, 2015)
(order).
Following our advice, the defendants filed a motion with the district court, pursuant to
Fed. R. Civ. P. 23(c)(1)(C), to decertify the class based on the rule and the Kentucky Court of
Appeals decision in McCann. The plaintiffs urged the district court to maintain certification and
grant final approval to the proposed class settlement. On December 22, 2015, the district court
filed a memorandum opinion and order denying the defendants’ motion to decertify the class,
and granting final approval of the plaintiffs’ proposed class action settlement. In its opinion, the
district court concluded that, regardless of the present meaning of KRS § 337.385,1 it was bound
to maintain class certification and enforce the settlement agreement as “a binding contract under
Kentucky law.” In so doing, the court below rejected the defendants’ two arguments: 1) that
both Rule 23 of the Federal Rules of Civil Procedure and the Rules Enabling Act require
decertifying the class in light of KRS § 337.385’s prohibition against class-action litigation; and
2) that Rule 23(e) requires the district court to refuse to enforce the class-action settlement in
light of the same state statutory prohibition. Defendants raise both in this appeal.
II
As a preliminary issue, we must first decide whether KRS § 337.385 prohibits class-
action litigation. Although the district court did not definitively decide this point, we review the
application of state law de novo. Matilla v. South Kentucky Rural Elec. Co-op. Corp., 240 F.
App’x 35, 38 (6th Cir. 2007).
A
When a federal court is required to apply state law, we are required to do so in
accordance with the controlling decisions of that state’s highest court. See Allstate Ins. Co. v.
1
The district court suggested that the defendants had made a plausible case about the meaning of KRS
§ 337.385, but chose not to reach the issue. “[H]ad the parties . . . not reached a settlement in this matter, the Court
would stay the action pending resolution of this issue by the Kentucky Supreme Court, instead of decertifying the
class as argued by the Defendants.” Whitlock v. FSL Mgmt., LLC, No. 3:10CV-00562-JHM, 2015 WL 9413142, at
*3 (W.D. Ky. Dec. 22, 2015).
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 5
Thrifty Rent-A-Car Sys., Inc., 249 F.3d 450, 453–54 (6th Cir. 2001). If the state’s highest court
has not yet addressed the issue, “we must predict how that court would rule, by looking to ‘all
available data.’” Prestige Cas. Co. v. Michigan Mut. Ins. Co., 99 F.3d 1340, 1348 (6th Cir.
1996) (quoting Kingsley Assoc. v. Moll PlastiCrafters, Inc., 65 F.3d 498, 507 (6th Cir. 1995)).
“Relevant data include decisions of the state appellate courts, and those decisions should not be
disregarded unless we are presented with persuasive data that the [state supreme court] would
decide otherwise.” Kinglsey Assoc., 65 F.3d at 507.
We are asked to exercise our powers of divination in this case. Neither party contends
that the Kentucky Supreme Court has rendered a binding decision on this issue. See Appellants’
Br. at 14; Appellees’ Br. at 19. Rather, both parties recognize that the question will be
definitively answered when the Kentucky Supreme Court hands down its decision in McCann v.
Sullivan Univ. Sys., No. 2014-CA-000392-ME, 2015 Ky. App. Unpub. LEXIS 862 (Ky. App.
Feb. 27, 2015), cert. granted, 2015-SC-000144-DG, 2015 Ky. LEXIS 1970 (Ky. Oct. 21, 2015).
Consequently, they each point to a range of cases in order to persuade this court how the
Kentucky Supreme Court will rule. Neither party makes a particularly compelling showing.
But we do not need to decide this issue today. Rather than venture into the wilderness of
undecided Kentucky state law, a practice which is best left to the capable jurists of the Kentucky
Supreme Court, we assume without deciding that the appellants’ view of Kentucky state law is
correct. We nonetheless conclude that a post-settlement change in the law does not alter the
binding nature of the parties’ settlement agreement, nor does it violate Rule 23 of the Federal
Rules of Civil Procedure or the Rules Enabling Act.
III
We review a district court’s decision to certify a class for abuse of discretion. See
Randleman v. Fidelity Nat. Title Ins. Co., 646 F.3d 347, 351 (6th Cir. 2011). “A district court
abuses its discretion ‘when [it] relies on erroneous findings of fact, applies the wrong legal
standard, misapplies the correct legal standard when reaching a conclusion, or makes a clear
error of judgment.’” Beattie v. CenturyTel, Inc., 511 F.3d 554, 560 (6th Cir. 2007) (alteration in
original) (quoting Reeb v. Ohio Dep’t of Rehab. and Corr., 435 F.3d 639, 644 (6th Cir. 2006)).
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 6
A
The appellants first argue that continued certification of the class was improper under the
terms of Rule 23 of the Federal Rules of Civil Procedure. Rule 23 regulates the procedural facets
of class-action claims brought in federal court. It establishes strict requirements for class
certification, obligating prospective class-action plaintiffs to satisfy all of the conditions of Rule
23(a) and come within one provision of Rule 23(b). See Coleman v. General Motors Acceptance
Corp., 296 F.3d 443, 446 (6th Cir. 2002). Rule 23(a) lists four “threshold requirements” that are
applicable to all class actions:
(1) numerosity (a class so large that joinder of all members is impracticable);
(2) commonality (questions of law or fact common to the class); (3) typicality
(named parties’ claims or defenses are typical of the class); and (4) adequacy of
representation (representatives will fairly and adequately protect the interests of
the class).
Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 613 (1997) (internal quotation marks omitted).
Rule 23(b) sets forth three types of class-action suits. The only type relevant to this litigation is
Rule 23(b)(3), which permits a class to be certified where “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(b)(3). This class-action was certified under
both Rule 23(a) and (b)(3).
A district court “retains the ability to monitor the appropriateness of class certification
throughout the proceedings and to modify or decertify a class at any time before final judgment.”
In re Integra Realty Resources, Inc., 354 F.3d 1246, 1261 (10th Cir. 2004). This includes the
duty to decertify the class after a settlement agreement has been reached between the parties, but
where the requirements of class certification had not been met. See Amchem Prods., Inc.,
521 U.S. at 620–28 (holding that courts are “bound to enforce” Rule 23’s certification
requirements, even where it means decertifying a class after they had reached a settlement
agreement and submitted it to the court for approval). The district court chose not to exercise
this power, instead concluding that “the fact that the Defendants voluntarily settled this wage and
hour class action” permitted it to maintain class certification and enforce the settlement. The
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 7
appellants argue that irrespective of the settlement agreement, the prohibition against class-action
litigation in KRS § 337.385(2) required the district court to decertify the class, as the Supreme
Court had done in Amchem. See Appellants’ Br. at 17.
The appellants fundamentally misread Amchem, however. Although the appellants are
right to note that Amchem stands for the principle that the “dominant concern[s] [of Rule 23(a)
and (b)] persist[] when settlement, rather than trial, is proposed,” Amchem Prods., Inc., 521 U.S.
at 619–21, they fail to recognize the intended beneficiaries of Rule 23’s requirements. Amchem
makes clear that the certification provisions of Rule 23 are designed to “focus court attention on
whether a proposed class has sufficient unity so that absent members can fairly be bound by
decisions of class representatives.” Id. at 621 (emphasis added). Unlike in Amchem, where
certification of the “sprawling” class was challenged by numerous objectors both in and out of
the plaintiff class, id. at 624, the challenge to class certification in this case comes from the
defendants-appellants. As Rule 23 was never designed to protect the interests of parties who
were fairly represented throughout the class-action litigation process, the appellants’ reliance
upon Amchem is misplaced.
But of course this puts the cart before the horse, as the appellants have failed to make any
argument explaining why the prohibition against class-action litigation in KRS § 337.385(2)
disturbs any of the class-certification requirements set forth in Rule 23(a) or (b). In fact, the
appellants seem to hope that this court will fill in the gaps on their behalf. They only summarily
analogize this case to Amchem, concluding that because certification in that case was improper,
“the District Court here should have decertified the class and refused to approve a settlement
because Kentucky substantive law prohibits class actions.” Appellants’ Br. at 17. Appellants’
blanket statement does not survive close scrutiny. Only two of the four threshold requirements
in Rule 23(a), commonality and typicality, even reference substantive law, and neither appear to
be impacted by the appellants’ proposed meaning of KRS § 337.385(2). Common sense reveals
why this is the case: the purported bar against class-action litigation in KRS § 337.385(2) is a
procedural element of the statute. Even if the statute is read to prohibit class-action suits, it in no
way affects the ability of class-plaintiffs to individually bring claims under the statute for alleged
wage and labor violations. So long as the substantive elements of a cause of action under the
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 8
statute remain unchanged, the ability of class plaintiffs to satisfy Rule 23(a)’s commonality and
typicality requirements will similarly remain unaffected.
This subtle distinction is borne out in the sparse, but informative, case law that the
appellants present to this court. Throughout their brief, the appellants cannot cite a single case
that stands for the proposition that a state statutory provision prohibiting class-action suits results
in a failure to meet Rule 23(a) or (b) certification requirements. Rather, the cases that the
appellants do cite suggest that such a provision is fatal not to Rule 23’s certification
requirements, but rather to Rule 23 more generally under the Rules Enabling Act. See, e.g.,
Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010) (controlling op.)2
(discussing a conflict between a New York rule prohibiting class-action suits and Rule 23 solely
with regards to the Rules Enabling Act); Williams v. King Bee Delivery, LLC, No. 5:15-CV-306-
JMH, 2016 U.S. Dist. LEXIS 104001, at *19–*22 (E.D. Ky. Aug. 8, 2016) (holding that KRS
§ 337.385(2) prevents class certification under Rule 23 in federal court because of the Rules
Enabling Act); Anderson v. GCA Servs. Grp. of N.C., Inc., No. 1:15-CV-37-GNS, 2015 U.S.
Dist. LEXIS 119742, at *6–*7 (W.D. Ky. Sept 9, 2015) (same); Green v. Platinum Rests. Mid-
America, LLC, No: 3:14-CV-439-GNS, 2015 U.S. Dist. LEXIS 171647, at *17–*23 (W.D. Ky.
Feb. 24, 2015) (same); Davenport v. Charter Commc’ns, LLC, 35 F. Supp. 3d 1040, 1049–51
(E.D. Mo. 2014) (same).
In sum, though the appellants are right to suggest that Amchem requires a district court to
evaluate whether the requirements of class certification have been met even where the parties
have reached a settlement agreement, they have failed to show that their proposed meaning of
KRS § 337.385(2) operates to prevent the plaintiffs from satisfying Rule 23’s certification
requirements. Therefore, to the extent that the district court concluded that continued
2
This is an unusual case. While Justice Scalia delivered the opinion for a five-justice majority with respect
to Parts I (procedural history) and II-A (finding a conflict between Rule 23 and the New York rule), the court
splintered on the remaining issues. Justice Scalia wrote a four-justice plurality opinion explaining that Rule 23
always superseded state class-action rules in federal court. Justice Ginsburg wrote a four-justice plurality opinion
taking the opposite position. Justice Stevens wrote an opinion concurring in the judgment, but also agreeing with
Justice Ginsburg that there are some instances where state procedural rules function as part of the state’s definition
of substantive rights and remedies and thus must be applied in federal court. As Justice Stevens’s opinion is the
narrowest in support of the judgment, it technically controls. See Marks v. United States, 430 U.S. 188, 193 (1977).
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 9
certification of the class was proper under Rule 23 of the Federal Rules of Civil Procedure, it did
not abuse its discretion.
B
The appellants also argue that the Rules Enabling Act required the district court to
decertify the class. The Rules Enabling Act provides that court-created procedural rules, such as
Rule 23 of the Federal Rules of Civil Procedure, “shall not abridge, enlarge, or modify any
substantive right.” 28 U.S.C. § 2072(b). Here, the appellants argue that continued certification
of the class under Rule 23 operates to modify the scope of the state substantive right defined in
KRS § 337.385(2).
Had the plaintiffs-appellees sought to litigate this case on the merits rather than settle, the
appellants might have a strong case. They argue that permitting certification of a class-action
suit pursuant to Rule 23 directly conflicts with the statutory prohibition against class-action
litigation in KRS § 337.385(2). Further, they argue that because this prohibition “is procedural
in the ordinary use of the term but . . . so intertwined with a state right or remedy that it functions
to define the scope of the state-created right,” Shady Grove, 559 U.S. at 422, permitting class
certification under Rule 23 would “modify [that] substantive right” in violation of the Rules
Enabling Act. 28 U.S.C. § 2072(b). In Shady Grove, the Court dealt with a similar conflict
between Rule 23 and a New York rule that prohibited certain class-action suits. In a uniquely
splintered opinion, see supra n.2, the Court held that while the Rules Enabling Act was not
violated in that case (because the New York rule was merely procedural), it would be violated
where the rule was effectively part of the state substantive right. Shady Grove, 559 U.S. at 422.
In making this distinction, Justice Stevens emphasized that the rule in that case “expressly and
unambiguously applie[d] not only to claims based on New York law but also to claims based on
federal law or the law of any other State.” Id. at 432. Here, the prohibition on class-action
litigation only applies to claims brought under the Kentucky Wage and Hour Act, and it appears
within the same statutory provision that creates the private cause of action. KRS § 337.385(2).
Thus, as three district courts have concluded, we assume without deciding that the Kentucky
statute’s purported prohibition against class-action litigation is substantive for the purposes of the
Rules Enabling Act. See Williams, 2016 U.S. Dist. LEXIS 104001, at *19–22 (holding that KRS
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 10
§ 337.385(2) prevents class certification under Rule 23 in federal court because of the Rules
Enabling Act); Green, 2015 U.S. Dist. LEXIS 171647, at *17–23 (same); Davenport, 35 F.
Supp. 3d at 1049–51 (same).
This does not settle the matter, however. Those cases involved parties that had not yet
reached an agreement to settle their claims. Although a district court is duty bound to decertify a
class, where necessary, until final judgment, see supra Part III.A, the Rules Enabling Act is not
fatal to class certification where, as here, class certification is sought to enforce a settlement
agreement. “[T]he proposed settlement could not violate the Rules Enabling Act since a ‘court’s
approval of a voluntary settlement, by nature a compromise of rights, does not affect substantive
state rights.’” Sullivan v. DB Investments, Inc., 667 F.3d 273, 312 (3d Cir. 2011) (quoting In re
Prudential Ins. Co. Am. Sales Practice Litig., 962 F. Supp. 450, 561 (D.N.J. 1997), aff’d sub
nom. In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283 (3d Cir.
1998)). Rather, “a district court’s certification of a settlement simply recognizes the parties’
deliberate decision to bind themselves according to mutually agreed-upon terms without
engaging in any substantive adjudication of the underlying causes of action.” Sullivan, 667 F.3d
at 312. As certification of the settlement class does not amount to “a finding that the plaintiffs
are actually entitled to relief under substantive state law,” id. at 313, it cannot be the case that
certification acts to “abridge, enlarge, or modify any substantive right” created by state law.
28 U.S.C. § 2072(b). Therefore, certification of the settlement class in this case does not
implicate the Rules Enabling Act, even where we assume that the appellants’ reading of KRS
§ 337.385(2) is correct and that it constitutes a substantive provision of the Kentucky statute.
IV
The appellants also argue that, irrespective of the propriety of class certification, the
district court erred when it approved the settlement agreement under Rule 23(e) of the Federal
Rules of Civil Procedure. Just as with the district court’s decision to maintain class certification,
we review a district court’s decision to approve a class-action settlement agreement for abuse of
discretion. Vassalle v. Midland Funding LLC, 708 F.3d 747, 754 (6th Cir. 2013).
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 11
A
Rule 23(e) establishes additional rules for the settlement, dismissal, or compromise of
class claims. It requires that class-action claims “may be settled, voluntarily dismissed, or
compromised only with the court’s approval.” Fed. R. Civ. P. 23(e) (emphasis added).
Approval is only warranted where the court determines, inter alia, that the proposed class
settlement would be “fair, reasonable, and adequate.” Id. Factors that guide this inquiry include:
(1) the risk of fraud or collusion; (2) the complexity, expense and likely duration
of the litigation; (3) the amount of discovery engaged in by the parties; (4) the
likelihood of success on the merits; (5) the opinions of class counsel and class
representatives; (6) the reaction of absent class members; and (7) the public
interest.
UAW v. GMC, 497 F.3d 615, 631 (6th Cir. 2007). Courts have also used Rule 23(e) to consider
“legitimate concerns about federal-state relations.” Georgevich v. Strauss, 772 F.2d 1078, 1085
(3d Cir. 1985).
The appellants argue that these factors require that the court refuse to enforce a proposed
settlement under Rule 23(e) where, as here, substantive state law prohibits class-actions.
Specifically, the appellants argue that approval of the proposed settlement violated Rule
23(e)(2)'s “fairness” requirement because the proposed settlement contravened Kentucky public
policy. See Appellants’ Br. at 17–20. To this end, the appellants cite to a range of cases
involving consent decrees, which the appellants argue include a “fairness” requirement
analogous to the kind in Rule 23(e). In these cases, courts have evaluated the public-interest
component of the “fairness” inquiry by “consider[ing] whether the decree is ‘consistent with the
public objectives sought to be attained by [the legislature].’” United States v. Lexington-Fayette
Urban Cty. Gov’t, 591 F.3d 484, 489 (6th Cir. 2010) (quoting Williams v. Vukovich, 720 F.2d
909, 923 (6th Cir. 1983) (citation omitted)). Thus, where “a change in law eliminates the rights
and duties the consent decree is designed to enforce, then it should not be enforced simply
because the parties agreed to it.” Brown v. Tenn. Dep’t of Fin. & Admin., 561 F.3d 542, 546 (6th
Cir. 2009) (citation omitted). The appellants argue that the “new” meaning of KRS § 337.385(2)
constitutes a change in law, and that just as with consent decrees, the court has an obligation
under Rule 23(e) to refuse to enforce the proposed settlement agreement.
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 12
The appellees argue, and the district court agreed, that nothing in Rule 23(e) prevents the
district court from enforcing an agreed-upon settlement against defendants who were properly
represented throughout settlement negotiations. The district court primarily relied upon the
Third Circuit’s decision in Ehrheart v. Verizon Wireless, 609 F.3d 590 (3d Cir. 2010), a case in
which the facts bear a startling resemblance to our present controversy. In Ehrheart, a group of
plaintiffs brought suit against Verizon Wireless for alleged violations of the Fair and Accurate
Credit Transaction Act (FACTA). Id. at 592. After successfully obtaining class certification, the
parties began settlement negotiations that culminated in a proposed settlement agreement that
was given preliminary approval by the district court. Ibid. After preliminary approval had been
obtained, but before final approval had been given, Congress passed legislation that amended
FACTA and eliminated the plaintiffs’ underlying cause of action. Ibid. Verizon swiftly filed a
motion to vacate the district court’s preliminary approval of the parties’ proposed settlement, and
award judgment to Verizon on the pleadings. Ibid.While the district court granted both of Verizon’s motions, the Third Circuit reversed.
It reasoned that while Rule 23(e) imposed a duty upon the district court to evaluate proposed
class-action settlements, “[t]he purpose of Rule 23 is to protect the unnamed members of the
class from unjust or unfair settlements,” not the parties to the settlement who were represented
by “experienced counsel.” Id. at 592–94. Furthermore, the Third Circuit rejected the notion that
its obligation to evaluate the settlement under Rule 23(e) was antecedent to the enforcement of a
binding settlement agreement. “The requirement that a district court review and approve a class
action settlement before it binds all class members does not affect the binding nature of the
parties’ underlying agreement.” Id. at 593 (citing In re Syncor ERISA Litig., 516 F.3d 1095,
1100 (9th Cir. 2008)). In fact, the use of Rule 23(e) in such a way runs afoul of the “particularly
muscular” presumption in favor of settlement in class-action litigation. Id. at 593–95. Stated
more plainly, “the decision to settle a case is a considered one. . . . We will not relieve a party of
that decision because hindsight reveals that its decision was, given later changes in the law,
probably wrong.” Id. at 595–96.
We agree with the Third Circuit and hold that Rule 23(e) does not bar a district court
from enforcing a class-action settlement agreement after a post-settlement change in substantive
No. 16-5086 Whitlock, et al. v FSL Management, et al. Page 13
law. The appellants’ argument is a false analogy. Consent decrees differ from class-action
settlements in numerous respects. To begin with, consent decrees are a prospective form of
relief involving continuous court oversight. They are designed to be a flexible remedy, easily
modifiable when the facts or law as to the parties change. See United States v. Swift & Co.,
286 U.S. 106, 115 (1932) (“The consent is to be read as directed towards events as they then
were. It was not an abandonment of the right to exact revision in the future, if revision should
become necessary in adaptation to events to be.”). Settlements, conversely, are designed to
conclude litigable disputes. Finality, not modifiability, is the rule, and settlements are commonly
treated as contractual agreements between the parties by the courts. See Cantrell Supply, Inc. v.
Liberty Mut. Ins. Co., 94 S.W.3d 381, 384 (Ky. App. 2002) (“An agreement to settle legal claims
is essentially a contract subject to the rules of contract interpretation.”). Moreover, as the Third
Circuit recognized, the court-approval mechanism contained in Rule 23(e) is designed to protect
absent class members and other non-parties to the litigation, not the defendants who misread the
law and agreed to an unfavorable settlement offer. Even if we agreed with the appellants’
consent-decree analogy and found class-action settlements to be modifiable in response to
changes in substantive law, it would be perverse to the aims of Rule 23(e) to employ it in such a
way as to rescue a litigating party from a bargain poorly struck. For these reasons, we hold that
the district court did not abuse its discretion when it enforced the parties’ settlement agreement.
V
The appellants seek to reverse the district court’s order to maintain class certification and
enforce the proposed class settlement. They are not entitled to that relief because even if we
assume that their proposed interpretation of Kentucky state law is correct, they fail to show that
the district court abused its discretion. For this reason, we AFFIRM the decision of the district
court to maintain class certification and to approve the parties’ settlement agreement.