Opinion ID: 578613
Heading Depth: 2
Heading Rank: 1

Heading: Settlements and the Standard of Review

Text: 25 Typically, settlement rests solely in the discretion of the parties, and the judicial system plays no role. See Mengler, Consent Decree Paradigms: Models Without Meaning, 29 B.C.L.Rev. 291, 291-92 (1988) (Mengler); see also Fed.R.Civ.P. 41(a)(1) (dismissals by plaintiffs by stipulation of parties). Certain settlements require judicial approval, however, see, e.g., Fed.R.Civ.P. 23(e) (class actions); Fed.R.Civ.P. 23.1 (shareholder derivative suits), and on other occasions parties are unwilling to drop litigation unless a court invokes its equitable powers to enforce their agreement. See, e.g., Mengler at 291-92 & n. 1 (Sometimes parties to a suit for damages, rather than dismissing and settling privately, will file their settlement with the court.) (citation omitted). A consent decree is no more than a settlement that contains an injunction. Laycock, Consent Decrees Without Consent: The Rights of Nonconsenting Third Parties, 1987 U.Chi.Legal F. 103, 103 (Laycock); Mengler at 292. 26 In a class action settlement, the normal focus is on the fairness, reasonableness and adequacy of the settlement to the plaintiff class. See Mengler at 291; see generally Manual for Complex Litigation § 1.46, at 52-66 (5th ed. 1981) (discussing precautions that should be taken to protect plaintiffs before approval of a class action settlement). 3 Where the rights of third parties are affected, however, their interests too must be considered. See Williams v. Vukovich, 720 F.2d 909, 921 (6th Cir.1983) (In making the reasonableness determination the court is under the mandatory duty to consider the fairness of the decree to those affected.); see also Donovan v. Robbins, 752 F.2d 1170, 1176 (7th Cir.1985) (Even if no third party complains, the judge has to consider whether the decree he is being asked to sign is lawful and reasonable as every judicial act must be.) (citation omitted); cf. Laycock at 121 (proposing that courts join persons whom a consent decree significantly affects but who are not present); Mengler at 337-42 (same). In other words, where the rights of one who is not a party to a settlement are at stake, the fairness of the settlement to the settling parties is not enough to earn the judicial stamp of approval. 27 Moreover, if third parties complain to a judge that a decree will be inequitable because it will harm them unjustly, he cannot just brush their complaints aside. Donovan, 752 F.2d at 1176 (citations omitted). In fact, section 1.46 of the Manual for Complex Litigation specifically suggests that courts reviewing class action settlements consider the views of the non-participating parties and counsel. Manual for Complex Litigation (Second) § 1.46, at 53. 28 A court can endorse a settlement only if the compromise is fair, reasonable and adequate. Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983). Courts make this examination on a case-by-case basis. Whether to approve a settlement normally rests in the discretion of a district judge. See Newman v. Stein, 464 F.2d 689, 692-93 (2d Cir.), cert. denied, 409 U.S. 1039, 93 S.Ct. 521, 34 L.Ed.2d 488 (1972). However, as Judge Friendly wrote, there are times when a higher degree of judicial scrutiny is required. Weinberger, 698 F.2d at 73. Because our decision on the validity of the settlement before us rests on the determination of novel issues of ERISA law, we review the district court's decision de novo. Cf. State of New York v. Lyng, 829 F.2d 346, 349 (2d Cir.1987) (Because ... we have a complete factual record before us, and the question presented relates solely to a question of law, we undertake plenary review of the merits of this preliminary injunction motion.).