The following article appeared in the March 2004 edition of ISS's SCAS Alert:

Hold the Presses: Class Action Notices in Plain English
By Bruce Carton, Executive Director

The Federal Rules of Civil Procedure—the rules governing litigation practice in federal courts—are usually of little interest to non-lawyers. A recent amendment to these rules that went into effect on Dec. 1, 2003, however, is already providing a significant benefit to investors who are eligible to participate in securities class action settlements.

For decades, settlement notices advising class members of the terms of a settlement and of their options have been written in typical legalese—dense, lengthy paragraphs filled with legal jargon and complex procedural instructions. As of Dec. 1, 2003, however, Federal Rule 23(c)(2) requires, for the first time, that class settlement notices “must concisely and clearly state in plain, easily understood language” certain information about the nature and terms of a class action and how it might affect potential class members’ rights. A review of recent settlement notices in the SCAS database indicates that, for the most part, attorneys are changing their notices to comply with the new rule. The vast majority of settlement notices issued in securities settlements since Dec. 1, 2003, are written in clear, simple language not previously seen in such documents.

The involvement of the Federal Judicial Center (FJC), the research and education agency of the federal judicial system, has made the task of crafting plain language settlement notices, which customarily falls to plaintiffs’ lawyers, much easier. At the request of the U.S. judicial branch's Advisory Committee on the Federal Rules of Civil Procedure, the FJC developed form notices for use in securities class action settlements after years of “psycholinguistic” research, focus groups, and testing of nonlawyers’ comprehension of different notices. The FJC’s research ultimately showed that people who read the FJC’s form plain language notice exhibited significantly higher comprehension than those who received even the best examples of non-“plain language” notices.

“Psycholinguistics” aside, even a cursory comparison of the old and new breeds of settlement notices demonstrates that the latter are far simpler and easier to read. For example, the February 13, 2004, settlement notice issued in In re: PSS World Medical, Inc. Securities Litigation, which is based heavily on the final FJC model notice, begins with the bolded, double-spaced announcement that

“If you bought PSS World Medical, Inc. Common Stock during the period from October 26, 1999 through October 3, 2000, you could get a payment from a class action settlement.”

A simple chart also appears on the first page summarizing the reader’s rights and options:

To see the sharp contrast with past practices, compare this notice with the opening salvo from the In re: Cutter and Buck Securities Litigation settlement notice issued in September 2003:

TO: ALL PERSONS THAT PURCHASED OR OTHERWISE ACQUIRED CUTTER & BUCK, INC. ("CBUK") COMMON STOCK OR OPTIONS BETWEEN JUNE 1, 2000 AND AUGUST 12, 2002, INCLUSIVE (THE "CLASS" AS MORE PARTICULARLY DEFINED BELOW):

PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. YOUR RIGHTS MAY BE AFFECTED BY PROCEEDINGS IN THIS ACTION. PLEASE NOTE THAT IF YOU ARE A MEMBER OF THE CLASS YOU MAY BE ENTITLED TO SHARE IN THE PROCEEDS OF THE SETTLEMENT FUND DESCRIBED IN THIS NOTICE. TO CLAIM YOUR SHARE OF THIS FUND, YOU MUST SUBMIT A VALID PROOF OF CLAIM AND RELEASE POSTMARKED ON OR BEFORE JANUARY 12, 2004.

This Notice has been sent to you pursuant to Rule 23 of the Federal Rules of Civil Procedure and an Order of the United States District Court for the Western District of Washington (the "Court"). The purpose of this Notice is to inform you of the settlement ("Settlement") of a class action (the "Class Action") pursuant to an agreement (the "Stipulation") to resolve the claims in the Class Action and a related derivative action (the "Derivative Action") (collectively, the "Actions"), and of the hearing to be held by the Court to consider the fairness, reasonableness, and adequacy of the Settlement. This Notice describes the rights you may have in connection with the Settlement and what steps you may take in relation to the Settlement and the Class Action.

Following the FJC model, the rest of the PSS World Medical notice is organized not by subtitles written in legalese, but rather in a basic “Q&A” format. Thus, a subsection that once might typically have been titled “Statement Respecting the Fees and Expenses Application” now states, “How will the lawyers be paid?” Other basic questions covered include:

o “Why did I get this notice package?”
o “Why is there a settlement?”
o “How much will my payment be?”
o “How can I get a payment?”
o “When would I get my payment?”
o “How do I tell the Court that I don’t like the settlement?” and
o “What happens if I do nothing at all?”

Similarly, the recently issued settlement notice in In re: Medi-Hut Co., Inc. Securities Litigation, which is substantially based on an earlier draft of the FJC model, follows the Q&A format and also provides a simple chart summarizing the readers’ options. Presumably addressing a past source of investor confusion, this notice curiously begins by stating:

“This is not a lawsuit against you. You are not being sued. This is a notice of proposed class action settlement. In the following notice, you are being asked to decide whether you would like to participate in this class action.”

Whether the Medi-Hut notice goes overboard by providing the reader with definitions for things like formatting bullet points (defined as “black dots”) is debatable. Overall, however, the plain language notices used in Medi-Hut, PSS World Medical and many other recent settlement notices are far more comprehensible and less daunting than their predecessors. And that’s something that investors should appreciate.

Tuesday, January 13, 2004

January 2004 SCAS Alert Available

The January 2004 edition of the Securities Class Action Services Alert is now available here.

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Friday, December 12, 2003

December 2003 SCAS Alert Available

The December 2003 edition of the Securities Class Action Services Alert is now available here.

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Monday, September 1, 2003

September 2003 SCAS Alert Available

The September 2003 edition of the Securities Class Action Services Alert is available here.

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