What Will It Take To Reform New York’s Class Action Procedures?
9.23.2021
New York’s class action procedures are antiquated. It’s time—past time, really—to update them. New York State traditionally was the leader in the United States in developing class action procedures. Contrary to a popular misconception that class actions are a 20th century device, New York’s first class action statute was enacted as an amendment to the Field Code in 1849,[1] drawing on Justice Story’s writings on equity practices and English Chancery Court antecedents dating back to the 17th century.[2] Until the 1938 adoption of a predecessor to the current Federal Rule 23, the New York approach was a model for state statutes, “the American standard provision for class actions.”[3] A revision developed in New York in the 1950s, oddly both enacted and repealed in the same year in its home state,[4] was the basis for the first modern federal class action statute, Federal Rule 23 as adopted in 1966.[5]
New York enacted its current Article 9 for class actions in 1975.[6] While Rule 23 of the Federal Rules of Civil Procedure has been amended several times since its adoption in 1966, with major amendments in 2003 and again in 2018, CPLR Article 9 has not been updated since enactment.
Every year since 2016, the Office of Court Administration (OCA) has encouraged the Legislature to amend New York’s class action procedures,[7] and in 2016, 2017, and 2019 bills were introduced. The 2019 bill, A.8034, is summarized in Part 1 below.[8] The Office of Court Administration noted its importance because New York State’s class action procedures “were last revised in 1975 and should be amended to reflect the significant improvements to the administration of class actions now available to litigants in federal courts but not in New York’s courts.”[9] But even if the OCA bill is passed, CPLR Article 9 would benefit from additional amendments to Federal Rule 23 promulgated by the Supreme Court in 2018, after the OCA bill was written, discussed in Part 2 below. Part 3 notes the role played by the judicial conference in getting Article 9 enacted in 1975 and suggests that doing so again is consistent with its statutory mandate.
Maintaining New York’s outdated and often confusing class action procedures has led to, among other things, (i) New York courts missing opportunities to entertain complex class actions due to forum shopping in the federal courts, (ii) wasteful briefing because of artificial deadlines for certification motions not suitable for contemporary practice, (iii) arbitrary decisions regarding class counsel due to lack of statutory guidance,[10] and (iv) difficulty in concluding settlements because of a rule requiring notice even where a class has not been certified and no non-party would be bound. With nearly half a century having passed since the enactment of Article 9, modernizing the administration of class actions by the New York courts is long overdue.
Summary of the 2019 OCA Bill
The OCA bill, introduced as A.8034 in the Assembly and S.6334-A in the Senate, proposed the following amendments, listed here in the order in which changes would be made to Article 9.
CPLR 901(b) on Class Recovery of Statutory Penalties
CPLR 901(b) precludes class certification for actions demanding a statutory penalty or minimum measure of recovery. The rule is unique among state class action statutes. Before 2010, the rule had been applied by federal courts as a substantive rule of law, but the U.S. Supreme Court then held that CPLR 901(b) is a procedural rule that does not govern actions in federal courts, a decision that has encouraged forum shopping and the diversion of class claims to federal courts.[11] Recent state court decisions also have led to uncertainty in the law over (i) what constitutes a penalty and (ii) whether it can be waived to permit class certification.[12] To discourage forum shopping and to provide for greater certainty in administration of the law, section 1 of the OCA bill proposes removing the current CPLR 901(b).
Class Actions Against Governmental Entities
A common law doctrine predating the enactment of Article 9 disfavors class actions against governmental entities. This judicially developed rule, once again unique to New York, has been steadily eroded over the past 15 years. The most recent decisions of the Court of Appeals and Appellate Division evaluate motions for class certification in such cases under the general criteria laid out in Article 9 without considering whether governmental operations are involved.[13] Section 1 of the OCA bill proposes a new CPLR 901(b) to rescind the common law rule.
When A.8034 was reported out to the Assembly floor on July 22, 2020, a single page Memorandum in Opposition also appeared from a lobbying organization for city and village governments called the New York State Conference of Mayors and Municipal Officials. The NYCOM letter did not address the muddying of the governmental operations rule waters over the last 15 years, and it was not submitted to any of the legislative committees that studied the bill. While NYCOM conceded that “the public must be given a reasonable opportunity for legal recourse against local governments,” it made a strictly defense-oriented argument that the interests of the public “must be balanced against the need to protect taxpayers from excessive, frivolous legal action” and that application of a right of joinder to any such legal recourse would “incentivize and encourage lawsuits. . . .” Since the OCA bill addressed only procedural issues, and not substantive law, it is no more likely to incentivize and encourage frivolous claims than the absence of certification incentivizes and encourages assertion of frivolous defenses. There is no support for NYCOM’s argument and, indeed, no examples are provided.
In those last few days of a COVID-dominated legislative session, the Assembly was passing only bills that had no opposition, so the presence of this letter was enough to prevent A.8034 from being put to a vote in the Assembly. There was no indication of how much weight Assembly members gave to it. The votes reported on the Assembly website of the Assembly Judiciary Committee (21/1 in favor) and the Codes Committee (22/0) suggest that the Assembly saw the need for reform of New York’s class action procedures as outweighing special interests of a lobbyist group for potential defendants.
Timing for Class Certification Motions
CPLR 902 presently requires that a motion for class certification is to be made within 60 days after a responsive pleading. This 60-day rule does not reflect the complexity of contemporary class action practice, where substantial discovery is often necessary on the feasibility and suitability of class certification, as discussed by the Court of Appeals in its recent decision in Maddicks v. Big City Props.[14] In addition, the rule often results in a pro forma motion just to meet the deadline, and in complex cases deprives the court of a substantive supporting brief. Section 2 of the bill adopts the language from Rule 23(c)(1)(A) of the Federal Rules, stating that motions shall be made “at an early practicable time. . . .”
Adequacy of Counsel
The adequacy of class counsel is addressed in the current Article 9 of the CPLR only indirectly, in CPLR 901(a)(4), which states a prerequisite to certification that “the representative parties will fairly and adequately protect the interests of the class.” Federal studies recognized the inadequacy of this language (in Rule 23(a)(4) of the Federal Rules), and in 2003 a new Rule 23(g) was adopted that specified factors to be considered in appointing class counsel. Section 2 of the bill proposes a new CPLR 902(b) to provide guidance comparable to that now provided by Federal Rule 23(g). Such guidance will aid the court, the parties and the attorneys. (As noted below, the 2018 amendments to Federal Rule 23 go further.)
Notice of Dismissal of Complaints Pleading Class Claims but Not Certified
The current CPLR 908 is construed to require notice to the class of dismissal or compromise of a class action even if no class has been certified. In Desrosiers v. Perry Ellis Menswear,[15] the Court of Appeals acknowledged the unnecessary difficulties present by this reading of the rule. Class notice imposes substantial and often unnecessary expenses and, as the dissent in Desrosiers noted, such notice “would essentially inform putative class members that an individual claim – of which they received no prior notice – was being resolved by an agreement that was not binding on them.”[16] While acknowledging criticism of the rule and contrary readings of the same language in other jurisdictions, the majority noted that in New York the rule had been read to require notice since 1982 and referred to the City Bar Report,[17] a 2003 Report of City Bar advocating a change to the rule and the OCA bill as introduced in 2016 that had not been passed.[18] Bowing to “the persuasive significance of legislative inaction,” the Court concluded that this widely recommended change to the notice rule should be accomplished by the Legislature.[19]
Section 3 of the OCA bill proposes more flexible notice provisions, derived from F.R.C.P. 23(e) and (e)(1) and CPLR 904(a). A new CPLR 908(a) would impose an affirmative requirement of notice of settlement where a class has been certified and members of the class would be bound by the proposed settlement. A new CPLR 908(b) – parallel to the discretion to order notice of pendency under CPLR 904(a) – would reserve for trial courts the discretion to order notice in all other circumstances when “necessary to protect the interests of such [class] members.”
Notably, the OCA bill retains the longstanding New York rule requiring judicial approval of cases pleaded as class action, a rule designed to prevent abuse of the class action device. This is contrary to the federal approach adopted in 2003, which removed the requirement of judicial approval of pre-certification settlements.
Authorization of Attorneys’ Fees
Section 4 of the OCA bill added to CPLR 909 the phrase “to the extent not otherwise limited by law” to confirm that where a specific statute authorizes or imposes limits on a fee award to be paid by a defendant, the standards of that more specific statute govern eligibility for and the amount of any award. This provision was added by OCA’s Civil Practice Advisory Committee prior to OCA endorsing the bill.
2018 Amendments to Federal Rule 23 Should Be Considered for Adding to CPLR Article 9
If passed, the OCA bill would bring New York class action practice up to where the Federal Rules were after amendments in 2003. Amendments to Federal Rule 23 promulgated in 2018 highlight additional needed changes. As the Advisory Committee noted, most of the 2018 amendments were to Rule 23(e) and “address issues related to settlement. . . .”
Criteria for Approving a Class Action Settlement
The current CPLR 908 provides only that class action settlements must be “approved by the court.” Following the lead of the 2003 amendments to Federal Rule 23(e), the OCA bill proposes a new CPLR 908(d) to require a finding, after notice and a hearing, that the settlement is fair, reasonable, and adequate. But the 2018 amendments to Federal Rule 23(e)(2) set forth specific criteria for the supervising court to consider in making that finding, including that:
- Representation was adequate;
- Negotiations were at arm’s length;
- The relief is adequate, considering
a) Trial risks,
b) Effectiveness of the proposed method of distribution of the relief,
c) The terms of award for attorneys’ fees, including timing of payment,
d) And side agreements made in connection with the proposed settlement; and - Whether the treatment of class members relative to each other is equitable.
The Advisory Committee on Federal Rule 23 noted that different courts had lists of factors to consider, and stated that the new Rule 23(e) “is not intended to displace any factor, but rather to focus the court and the lawyers on the core concerns of procedure and substance that should guide the decision. . . .”[20]
Similarly, incorporating these criteria into the CPLR would not displace any criteria New York courts have applied in the past, but would benefit judges by providing more explicit statutory guidance.
Criteria for Giving Class Notice
The current CPLR 908 provides simply that “[n]otice of the proposed dismissal, discontinuance, or compromise shall be given to all members of the class in such manner as the court directs.” The OCA Bill would amend the rule by providing a new CPLR 908(a) requiring class notice of settlements only to “class members who would be bound by” the settlement, a standard derived from Federal Rule 23(e)(1)(B) as amended in 2003. However, as amended in 2018 the Federal Rule adds that the court is to approve notice only where the parties have made a preliminary showing “supporting the conclusion that the proposed settlement will likely earn final approval after notice and an opportunity to object.”[21]
While under existing law and under the OCA bill the court’s substantive review of the settlement to confirm that it is fair, reasonable, and adequate comes only after notice is provided to the class,[22] New York trial judges once again would benefit from statutory guidance on considering the proposed settlement prior to approving notice to the class.
Two other changes made by the 2018 amendment to Federal Rule 23 seem unnecessary in New York. Federal Rule 23 requires court consent to the withdrawal of objections only if payment is involved, but the OCA bill follows longstanding New York policy of requiring court approval for the withdrawal of any objection. The 2018 Amendments to the Federal Rules are also designed to recognize contemporary methods of giving notice to class members, but New York’s rule was already more liberal than the Federal Rule, providing that notice “shall be given to the class in such manner as the court directs.”[23]
Should the Judicial Conference Take a Leadership Role in Class Action Reform?
The New York Assembly website reported in 2020 that the OCA bill was reported out to the Assembly floor by the Rules Committee, after approval by its Judiciary, Codes and Rules Committees with only one dissenting vote. The Senate website did not report the votes taken, but indicated that the bill was given three readings in the Judiciary Committee and then reported to the Rules Committee. After this substantial support in the Legislature, and after being proposed by OCA for five successive years, and supported by a 40-page Report of the New York City Bar and careful vetting by OCA’s Advisory Committee on Civil Practice, the NYSBA, NYCLA and the New York State Trial Lawyers, the OCA bill was tabled based on a one-page letter from a lobbying organization.
NYCOM’s letter created a straw man out of a balanced bill addressing issues of judicial administration, to which it then moved to set fire as plaintiff’s bill designed to “mak[e] it easier for litigants to sue New York’s cities, town, villages, and counties . . .” The OCA bill was the result of several years of detailed study, earning the endorsements described above. NYCOM provided no legal analysis and cited no cases as examples of frivolous litigation against any of its unnamed clients. This casual and unsigned letter, expressing strictly a non-analytical defense position, provides no justification for disregarding the years of work that have gone into the OCA bill.
Given this sequence of events, the question then becomes: How are New York’s class action procedures to be brought into the 21st century? Class actions have been an element of judicial administration since 1849, with a history that extends back to 17th century Chancery Court practice.[24] New York, after being a leader for a century, now has among the most antiquated procedural rules for class actions in the country, and the efforts of OCA’s Advisory Committee on Civil Practice and various bar groups seem insufficient.
As the Court of Appeals has noted, after prior attempts failed (including one reform bill that was passed and repealed in the same year[25]) in 1975 it was “the Judicial Conference [that] proposed a new class action statute . . . designed ‘to set up a flexible, functional scheme whereby class actions could qualify without the present undesirable and socially detrimental restrictions.’”[26] The Judicial Conference is established by § 214 of the Judiciary Law, and consists of the chief judge of the Court of Appeals, the presiding justice of each of the four Appellate Divisions of the Supreme Court, and a selection of trial court justices, with the chair and the ranking member of each of the Judiciary Committees of the Assembly and the Senate as ex officio members. The statutory mandate of the Judicial Conference was consistent with its statutory mandate to “study and recommend changes in Laws, statutes and rules relating to civil . . . law practice which, in its opinion, will promote simplicity in procedure, the just determination of cases, and the elimination of unjustifiable expense and delay. . . . Jud. L. § 214-a(1).”
Addressing class action reform is as much a part of the Judicial Conference’s mandate today as it was in 1975. As suggested by the court in Sperry, it may be the time for the Judicial Conference to stress to the Legislature the importance of reforming class action procedures.
Richard J. Schager, Jr. practices corporate and insurance law and commercial litigation at Stamell & Schager in New York City. He co-chaired working groups of the New York City Bar Association that prepared reports in 2015 and 2003 proposing reforms to CPLR Article 9, which were cited by the Court of Appeals in the Desrosiers decision and are discussed in the text. He sits on NYSBA’s Committee on Civil Practice Law and Rules and City Bar’s Council on Judicial Administration.
[1] Laws 1849, c. 438 § 119. The early rule read:
[A]nd when the question is one of a common or general interest of many persons, or when the parties are very numerous and it may be impracticable to bring them all before the Court, one or more may sue or defend for the benefit of the whole.
[2] A. Homburger, State Class Actions and the Federal Rule, 71 Col. L. Rev. 609, 611-13 (citing J.Story, Commentaries on Equity Pleadings § 97 (1838)) (“Homburger, State Class Actions”). This article is the de facto legislative history of CPLR Article 9, cited in both the Tenth (1972) and Twelfth (1975) Annual Reports of the Judicial Conference to the Legislature. See Report of the Administrative Board of the Judicial Conference of the State of New York, Legis. Doc. No. 90, at 206 (1975).
[3] Homburger, State Class Actions, at 613.
[4] Laws 1962, c. 301 & 318.
[5] A. Homburger, Private Suits in the Public Interest in the United States of America, 23 Buff. L. Rev. 344, 357 (1974) (hereinafter, “Homburger, Public Interest Suits”).
[6] Laws 1975, c. 207 & c. 474. Sperry v. Crompton, 8 N.Y.3d 204, 210 (2007) describes the role of the Judicial Conference.
[7] The proposed legislation was based on a Report of the New York City Bar (the “City Bar Report”) available at: http://www2.nycbar.org/pdf/report/uploads/20072985-ClassActionsProposedAmendsArt9CPLRJudicialAdminLitigationStateCourtsReportFINAL11515.pdf.
[8] A.8034 was introduced by Assembly Member and then Judiciary Committee Chair Jeffrey Dinowitz. The bill was introduced in the Senate as S.6334-A by Senator and Judiciary Committee Chair Brad Hoylman.
[9] The OCA Memorandum is attached to Assembly Bill A.8034.
[10] Ackerman v. Price Waterhouse, 252 A.D.2d 179, 201-02 (1st Dep’t 1998) (First Department found counsel qualified and skilled and certified a class, reversing a trial court that had sanctioned the same counsel for making the motion).
[11] Shady Grove Orthopedic Associates, PA. v. Allstate Insurance Company, 559 U.S. 393, 397 (2010). Shady Grove was described as a “game changer” in T. Dickerson, State Class Actions: Game Changer, N.Y. LAW J., Apr. 6, 2010.
[12] Borden v. 400 East 55th St. Assocs., 24 N.Y.3d 382 (2014); Sperry v. Crompton Corp., 8 N.Y.3d 204, 212 (2007).
[13] City of New York v. Maul, 14 N.Y.3d 499, 509 (2010); Hurrell-Haring v. State, 81 A.D.3d 69, 75 (3d Dep’t 2011) (citing Maul, reversing application of the government operations rule, holding that a class action was superior to other methods of adjudication); Watts v. Wing, 308 A.D.2d 391, 392 (1st Dep’t 2003) (government operations rule inapplicable where an individual precedent “would be of no assistance to the remaining plaintiffs.”
[14] 34 N.Y.3d 116 (2019). In Maddicks the Court of Appeals held that the class action provisions of a complaint should not be addressed on a motion to dismiss, but rather on a certification motion with supporting affidavits and evidence, and that plaintiffs should have an opportunity to move for fact-based subclasses or for certification on specific issues under CPLR 906. 34 N.Y.3d at 126. See R. Schager, Court of Appeals Holds Class Certification Should be Denied on Certification Motion and not a Motion to Dismiss, N.Y. Law J., Nov. 26, 2019 (noting different legal standards for motions to dismiss and to certify a class).
[15] 30 N.Y.3d 488 (Ct. App. 2017).
[16] Id. at 503 (Stein, J., dissenting).
[17] See n. 7 above.
[18] The 1982 precedent is Avena v. Ford Motor Co., 85 A.D.2d 149 (1st Dep’t 1982). See R. Schager, Judicial Approval, Class Notice Required for Settlement of Uncertified Class Actions, N.Y. Law J., January 24, 2018 (comparing state and federal rules).
[19] Desrosiers, 30 N.Y.3d at 497–99.
[20] Adv. Comm. Note re Fed. R. Civ. P. 23(e)(2).
[21] Fed. R. Civ. P. 23, Advisory Committee Note to Rule 23(e)(1).
[22] Second clause of CPLR 908 as it now exists and CPLR 908(a) & (d) in the OCA bill.
[23] CPLR 904(b).
[24] See n. 2 above.
[25] See n. 4 above.
[26] Sperry v. Crompton, 8 N.Y.3d 204, 210 (2007) (emphasis added).
