The Weinstein Case and the Complexities of the Class Action Settlement

On June 30, the New York Attorney General’s Office announced that they had reached a settlement of nearly $19 million with Harvey Weinstein, Bob Weinstein, The Weinstein Company, and company board members and executives, hailing it as a major victory on behalf of victims of Weinstein’s sexual misconduct. However, just two weeks later, following a 20-minute hearing, the court outright rejected approval of the settlement. Many observers new to the class action process were surprised at this turn of events. If the parties agreed to a settlement, why should the court step in to derail it? But for those familiar with class actions, the decision by U.S. District Judge Alvin Hellerstein is not a shock. Because class actions are claims brought by the named parties on behalf of themselves as well as other similarly situated parties, the court plays an integral role in protecting the rights of these “absent” class members who are not actively participating in the case, but whose rights could be impacted by its outcome. Without this court oversight, the named plaintiffs, defendants, and their attorneys could theoretically settle the case in a manner that is highly favorable to the few parties actively involved in the process without providing favorable terms for the rest of the class members, leaving those class members to release their claims against the defendants in exchange for inadequate relief.

In the Weinstein matter, Judge Hellerstein expressed skepticism that the case was appropriate for class treatment. In order to represent a class, one of the most important factors the plaintiffs must show is that their claims and defenses are typical of those of the rest of the class members. Judge Hellerstein, as well as several potential class members who objected to the settlement, argued that this was not the case here, where the class encompassed anyone with a “sexual misconduct” claim against Harvey Weinstein, which was defined as everything ranging from rape, sexual assault and sex trafficking to humiliation or discrimination based on sex. The Judge noted in the hearing that the settlement was not fair, because “not every woman was captured in the same way. Some gave up their bodies because of blandishments, some subjected their bodies by force, and some may have done it willingly. And yet [the] settlement creates an equality among all of those people.”

The parties intended to handle this discrepancy in the victim’s experiences by having each class member submit a claim form to a court-appointed special master describing the claimant’s experience with Weinstein, the impact of that experience, and damages the claimant suffered. The special master would then determine the damages to which the victim was entitled, ranging from $7,500 to $150,000. To be eligible for a more significant award, claimants would be required to submit supporting documentation of their claims and be interviewed by the special master. Those women would be entitled to between $7,500 and $750,000, dependent on the special master’s determination.

Another aspect of the settlement with which the court took issue was the fact that the settlement included money that would be set aside to pay for Weinstein and The Weinstein Company’s legal defense costs.

Beyond Judge Hellerstein’s objections to the settlement, several class members objected as well. Because of the impact a class settlement can have on class members who did not participate in the settlement process, these absent class members are provided with a copy of the settlement agreement and an opportunity to object to its terms. Here, several class members objected to a range of issues in the proposed settlement, including that they believed it forced many of Weinstein’s victims to settle, even if they disagreed with its terms. They also objected because the agreement did not obtain an admission of guilt from Weinstein.

The notion that the agreement “forces” class members to settle arises out of the procedure through which class members are sometimes able to “opt out” of a class action settlement. This means that if a class member does not wish to be included in the settlement, certain types of class action settlements will allow her to opt out and continue to pursue individual claims against the defendants. In the case of the proposed Weinstein settlement, however, only class members with claims arising prior to June 2005 will have the ability to opt out. Class members whose claims arise after June 2005 (with the exception of a few individuals with ongoing claims against defendants who were carved out from the settlement subject to other terms) would have been forced to release their claims against all defendants if the settlement was approved.

The parties who reached the settlement maintain that this was the best possible result for the class, in that it provides monetary relief for Weinstein’s victims despite the fact that The Weinstein Company has filed for bankruptcy and Harvey Weinstein is incarcerated and facing additional criminal charges. They also note that without a settlement, whatever money Weinstein has to compensate his victims would be depleted by the first few to bring claims against him. A class settlement, they say, would ensure recovery for everyone who wants to participate. Lastly, bringing these types of claims on an individual basis is not only time-consuming and costly, but it also can be extremely emotionally taxing on the victims—meaning many would prefer to simply submit a claim form in order to receive compensation, albeit less compensation than if they were to pursue Weinstein individually.

Those of us on the inside of class action settlement negotiations understand that class counsel must strike a delicate balance. Unlike with individual settlements, class action settlements must represent the interests of the absent class members in addition to individual clients. In deciding whether to accept a settlement offer, class counsel must keep in mind both the risk that class members could end up with nothing if the case does not settle as well as the question of whether the settlement goes far enough in securing relief for the class. It is not entirely surprising when class members object to a settlement in which they were not part of the process, as they may not have access to the same information or understanding of the potential weaknesses in their claims.

Now that the court has rejected the parties’ initial settlement, it will be interesting to see whether class counsel attempts to regroup and propose a new settlement, or instead decides to go forward with individual claims, which may yield more on an individual basis, but mean fewer individual claims and a lower payout from the defendants in the long run.

 

This article is intended as a general discussion of these issues only and is not to be considered legal advice or relied upon.  For more information, please contact RPJ Attorney Jill Kahn Marshall who counsels both companies and individuals on employment matters. Ms. Marshall is admitted to practice law in New York and Massachusetts. Attorney Advertising.