Third Circuit Rejects “Reasonable Indication” Opt-Out Standard

In a recent decision, the Third Circuit rejected the “reasonable indication” standard for class action opt-outs.

Cortlin Lannin of Covington explains that the ruling requires class members to follow the specific procedures established by the district court to opt out of the class effectively.

The case, Perrigo Institutional Investor Group v. Papa, arose from a securities class action in which certain appellants failed to opt out properly, and only discovered this failure during settlement discussions in related litigation.

The appellants urged the court to recognize their separate lawsuit as a sufficient indication of their intent to opt out, despite the fact that it did not comply with the district court’s procedures.

The Third Circuit declined, concluding the standard would conflict with Rule 23 and complicate the administration of class actions.

The dispute stemmed from the appellants’ reliance on parallel litigation as evidence of their exclusion from the class. When settlement negotiations revealed their class membership remained intact, they appealed.

They argued that the court should follow the “reasonable indication” approach adopted by the Second and Tenth Circuits, which accepts informal but clear manifestations of intent to opt out.

The Third Circuit found Rule 23 unambiguously authorizes district courts to set the exclusive methods for opting out, and does not require them to honor informal indications of intent.

It noted that adopting the “reasonable indication” standard would undermine Rule 23(e)(4), which allows courts to offer a renewed opt-out opportunity only in limited post-settlement circumstances.

The decision aligns the Third Circuit with the Seventh Circuit, deepening the circuit split on the issue. Attorneys should monitor whether the divergence draws the Supreme Court’s review. The governing standard will materially affect management and finality of class actions.