Settlement Class

A class that is certified by a court specifically for purposes of approving a negotiated settlement, without the case proceeding to merits discovery or trial as a class. Settlement classes allow defendants to resolve mass litigation efficiently by obtaining binding releases from a broadly defined group of claimants, while plaintiffs' counsel can deliver aggregate recoveries to large constituencies without the burden and risk of full class litigation. Courts scrutinize settlement classes carefully under Rule 23(e) to ensure the settlement is fair, reasonable, and adequate for absent class members — particularly where subclasses with potentially divergent interests are involved. Funders providing capital to settle class action matters must ensure the settlement class definition and notice procedures will withstand appellate review.

Funders assess settlement class risk differently from litigated class risk, because the entire value of the deal depends on a court finding the settlement fair and adequate under Rule 23(e) rather than on litigating the merits — a settlement class that draws objector challenges or fairness-hearing scrutiny can delay or unwind the funder's expected repayment timeline even after the parties have already agreed to terms. Funders reviewing proposed settlement classes pay particular attention to subclass structure, since divergent-interest subclasses are the most common ground for appellate challenge.