Settlement agreement in a class action: what you need to know

You received a notice of a settlement agreement: what to do

1. Read the settlement itself, not just the notice: the notice refers you to the Class Actions Register and to the places where you can read the full text (section 25(d) of the Class Actions Law).
2. Check the deadline: you have 45 days from the day the notice was published to object (section 18(d)) or to ask to opt out of the class (section 18(f)), unless the court set a later date.
3. Decide: if you do not ask to opt out, the settlement applies to you (section 18(f)). If you think you have a cause of action that falls outside the scope of the settlement, it is worth getting advice before the deadline passes. The details on opting out of a class: Joining a class action and opting out of it.

Service page: Class actions and consumer claims lawyer.

How is a class action settlement different from an ordinary settlement agreement?

A settlement agreement in a class action is different from a private agreement: it does not bind only the parties who sat in the room. It binds all the class members. The Class Actions Law, 5766-2006, sets the rules that apply to it in sections 18 and 19.

In an ordinary claim, the plaintiffs can agree with the defendant and settle the damage in any way they choose. In a class action, however, every settlement agreement must be approved by the court, to make sure it is fair and does not harm the interests of class members who have no direct representation in the proceedings.

What does the court examine before it approves the settlement?

Section 19(a) of the Class Actions Law says that the court will not approve a settlement agreement unless it finds that the settlement is appropriate, fair and reasonable, taking into account the interests of the class members. If the motion was filed before the class action was certified, the court must also find that the claim prima facie meets the conditions in sections 3, 4 and 8(a), and that ending the proceedings with a settlement agreement is the efficient and fair way to decide the dispute. A procedural condition is added to this: under section 19(b)(1), the court will not approve a settlement agreement until it has received an opinion from an examiner it appointed, a person with expertise in the field, unless it considered that the opinion is not needed, for special reasons that it will record.

General case law holds that when judging whether a settlement agreement is fair, the broad purposes of the class action as a mechanism for enforcing public rights must be weighed. Not every case in which the defendant offers a class member a settlement for a low amount will be considered fair: the court must make sure that it is not an improper condition.

What happens after the parties to a class action agree on a settlement?

When the plaintiffs and the defendant reach agreement on a settlement, they must go back to the court and give notice that the parties have reached an agreement. The court sets a date for a hearing, at which both parties present the terms of the settlement and argue that it is fair.

Section 18(c) of the Law says that if no reason is found to reject the motion outright, the court will order a notice of its filing to be published under section 25, and to be sent, together with the motion, the settlement and the claim, to the Attorney General, to the Director of Courts and to other bodies. The notice includes the details of the settlement and states the right to object under section 18(d) and the right to opt out under section 18(f). Under section 18(f), a class member who does not want the settlement to apply to them may ask the court to opt out of the class, within the deadline set for filing objections under section 18(d): 45 days from the day the notice was published, or a later date set by the court. If you do not ask to opt out, the settlement applies to you.

How and where is a settlement agreement in a class action published?

A notice to the class members is published on a motion to approve a settlement agreement that was not rejected outright (sections 18(c) and 25(a)(3) of the Class Actions Law), and also on a decision to approve the settlement (section 25(a)(4)). The court approves the wording of the notice in advance. The notice includes the main points of the settlement and a reference to the Class Actions Register and to the places where the full text can be read (section 25(d)). The court decides how the notice is published, taking into account, among other things, the cost, the efficiency and the ability to locate the class members, and it may place the publication and its costs on the parties (section 25(e) and (f)). The motion and the approved settlement are recorded in the register, which is open to the public on the Courts Administration website (sections 18(c), 19(e) and 28(a)). The 45 days for objecting or asking to opt out of the settlement are counted from the day of publication, unless the court set a later date (section 18(d) and (f)).

Types of settlement: monetary, non-monetary, and combinations of the two

A settlement agreement in a class action can take several forms. The most common is a monetary settlement, in which the defendant pays a sum of money to compensate the class members. The sum is divided among all the class members, usually on a pro rata basis (for example, if the defendant paid NIS 1 million to 100,000 class members, each receives a base amount of NIS 10, but someone who proved greater damage may receive more).

A second type is the “non-monetary” settlement, in which the defendant undertakes to fix the defect, to update its policy or to improve the product. An example: a drug company that developed a drug with side effects that were not brought to the public’s attention may agree (in a settlement agreement) to publish warnings about the side effects and to refund customers who bought the product. A settlement of this kind is relevant when the class’s damage is mainly a loss of trust or exposure to risk, and not necessarily direct financial damage.

A third type is a “hybrid” settlement, which combines a monetary payment with non-monetary measures. For example, a bank that charged unlawful management fees may agree both to refund the charges and to change its fee procedure for the future.

Who decides how much the representative counsel gets in a class action settlement?

Section 23(a) of the Class Actions Law says that the court will set the attorneys’ fees of the representative counsel, and that the counsel will not receive attorneys’ fees above the amount the court set. The settlement agreement itself may not include a provision on attorneys’ fees; the parties may only submit an agreed recommendation, and the court decides (section 18(g)(2)). In practice, the attorneys’ fees that lawyers receive in class actions are approved by the court, which checks that they are reasonable and not excessive. The Law sets no fixed percentage. Section 23(b) lists the considerations: the benefit the class action brought to the class members; the complexity of the proceedings, the effort, the risk and the expenses; the degree of public importance; the way the representative counsel conducted the proceedings; and the gap between the remedies sought and the remedies awarded.

The complexity of the proceedings and the risk the counsel took are express considerations in section 23(b)(2), alongside the benefit to the class members (section 23(b)(1)).

The settlement was approved: what happens now?

When the court approves a settlement agreement, its terms become legally binding and fully effective. The defendant must pay the sum of money within the period set in the settlement, carry out any non-monetary action it agreed to, and provide information on the class members who are entitled to compensation.

The court may set the way entitlement is proved and the compensation is distributed, and may appoint an administrator for this purpose (see section 20(b)(1)). The administrator’s pay and expenses, and how they are paid, are set by the Minister (same section), and the provisions of section 20 also apply to a decision to approve a settlement agreement (section 19(d2)).

Does a settlement also cover future claims? It depends

One of the critical parts of any settlement agreement is the “full settlement” clause. Section 24 of the Law says that a judgment in a class action is res judicata for all the class members on whose behalf the class action was conducted, unless the Law expressly provides otherwise. The scope is not set automatically: under section 19(c)(2)(f), the approval decision must list the causes of action and the remedies for which it is res judicata toward the class members. And under section 19(d)(2), if the decision includes a condition on opting out of the settlement, it is not res judicata toward a class member who notified the court that they do not want the settlement to apply to them.

The rule is not absolute: claims based on causes of action that were not expressly mentioned in the class action may be preserved. If you think you have a cause of action that falls outside the scope of the settlement, legal advice before you opt out is essential. Under section 18(g)(1), a settlement agreement will not include causes of action, parties or class members that were not included in the certification motion or in the decision certifying the class action.

Not happy with the settlement? What can you do?

The Law does not give every class member a right to appeal the approval of the settlement. What the Law does give a class member is the right to object under section 18(d) and the right to opt out under section 18(f), both at the stage before approval.

An objection is not swallowed up by the decision: section 19(c)(2)(b) requires the court to address in its decision the objections that were filed and its ruling on them. For comparison, the Law sets an express right to appeal a decision to certify a class action, and even that is only with leave (section 8(d)).