CPLR 908 Requirement for Class Notice and Court Approval Applies to Not-Yet-Certified Class Actions

On December 12, 2017, the Court of Appeals issued a decision in Desrosiers v. Perry Ellis Menswear, LLC, 2017 NY Slip Op. 08620, holding that the CPLR 908 requirements for class notice and court notice apply even to not-yet-certified class actions.

In Desrosiers, the parties to putative class actions settled before class certification, raising (in different procedural contexts) the question of whether class notification and court approval were required to settle. The Court of Appeals first held that "[t]he text of CPLR 908 is ambiguous with respect to this issue," and then went on to focus on the weight it should give to a 1982 First Department decision holding that CPLR 908 applied to settlements reached before certification. It explained:

In New York, the only appellate-level decision to address this issue as it pertains to CPLR 908 (other than the two decisions on appeal here) is Avena v Ford Motor Co. (85 AD2d 149 [1st Dept 1982]). In that case, the named plaintiffs settled with the defendant before class certification, and the settlement was without prejudice to putative class members. The trial court refused to approve the settlement without first providing notice to the putative class members. The Appellate Division affirmed that determination, concluding that CPLR 908 applied to settlements reached before certification. The First Department reasoned that the potential for abuse by private settlement at this stage is obvious and recognized, and that the named plaintiffs had a fiduciary obligation to disclose relevant facts to putative class members.

This Court has never overruled Avena or addressed this particular issue, and no other department of the Appellate Division has expressed a contrary view. Consequently, for 35 years Avena has been New York's sole appellate judicial interpretation of whether notice to putative class members before certification is required by CPLR 908.

Generally, we have often been reluctant to ascribe persuasive significance to legislative inaction. We have distinguished, however, instances in which the legislative inactivity has continued in the face of a prevailing statutory construction. Thus, when the Legislature, with presumed knowledge of the judicial construction of a statute, forgoes specific invitations and requests to amend its provisions to effect a different result, we have construed that to be some manifestation of legislative approbation of the judicial interpretation, albeit of the lower courts. Stated another way, it is a recognized principle that where a statute has been interpreted by the courts, the continued use of the same language by the Legislature subsequent to the judicial interpretation is indicative that the legislative intent has been correctly ascertained. The underlying concern, of course, is that public policy determined by the Legislature is not to be altered by a court by reason of its notion of what the public policy ought to be.

Granted, the persuasive significance of legislative inaction in this context carries more weight where the legislature has amended the statute after the judicial interpretation but its amendments do not alter the judicial interpretation, or when the judicial interpretation stems from a decision of this Court or unanimous judgment of the intermediate appellate courts. Nevertheless, the fact that the legislature has not amended CPLR 908 in the decades since Avena has been decided is particularly persuasive evidence that the court correctly interpreted the legislature's intent as it existed when CPLR 908 was enacted in light of developments occurring in the years after Avena was decided.

Specifically, in 2003, Federal Rules of Civil Procedure rule 23 (e) was amended to clarify that the district court must approve any settlement, voluntary dismissal, or compromise involving a "certified class," and that the court must provide notice of such to "all class members who would be bound" by the proposal. Thus, under the current federal rule, mandatory approval and notice of a proposed settlement is now required only for certified classes.

That same year, the New York City Bar Association's Council on Judicial Administration recommended several changes to CPLR article 9, including amendments to CPLR 908. The Council opined that, unlike the updated federal rule, CPLR 908 should continue to require judicial approval of settlement at the pre-certification stage, but that notice to putative class members before certification should be discretionary, not mandatory, and should be provided when necessary to protect members of the putative class. Various committees of the City Bar made the same recommendation in 2015. Notwithstanding these repeated proposals, and the legislature's awareness of this issue, the legislature has left CPLR 908 untouched from its original version as enacted in 1975.

Thus, despite criticisms of the Avena decision, the 2003 amendment of the federal rule upon which CPLR 908 was modeled to address this situation, and specific and repeated calls to the legislature to amend the statute, the legislature has not amended CPLR 908, either to state that Avena was not a correct interpretation of its original intent or to express its revised, present intent. Under these circumstances, and in light of the legislative history discussed above, we conclude that the legislature's refusal to amend CPLR 908 in the decades since Avena was decided indicates that the Avena decision correctly ascertained the legislature's intent.

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.

(Internal quotations and citations omitted).

This is a decision not just about class actions but also about how the Court of Appeals, New York's highest court, decides cases where there is no precedent to guide it. Contact Schlam Stone & Dolan partner Richard Dolan at rdolan@schlamstone.com if you or a client have an appeal--or seeks permission to appeal--to the New York Court of Appeals.