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Class Action Defense Issues–Silvercreek v. Bank of America: Fifth Circuit Affirms Order Denying Leave To Extend Time To Opt Out Of Class Action Settlement Against BofA Because Notice Of Class Action Settlement Properly Served On Party

Class Member Failed to Timely Opt Out of Class Action Settlement, and District Court did not Err in Refusing to Extend Opt-Out Deadline because Party Received Notices of Class Action Settlement and Evidence did not Establish Excusable Neglect in Failing to Timely Opt Out Fifth Circuit Holds

Two class action lawsuits were filed against Bank of America and Banc of America Securities (collectively BofA) based on the collapse of Enron; each class action was consolidated with In re Enron Corp. Sec. Litig, Newby v. Enron Corp., No. H-01-3624, and the Regents of the University of California were designated as Lead Plaintiffs. Silvercreek Management, Inc. v. Banc of America Securities, LLC, 534 F.3d 469, 2008 WL 2640097, *1 (5th Cir. 2008). BofA eventually agreed to a $69 million class action settlement with the Regents, and notices, motions and orders were served on members of the class, including Silvercreek Management. Id. Silvercreek did not attend the hearing on preliminary approval of the class action settlement, at which the district court certified the litigation as a Rule 23(b)(3) class action and gave preliminary approval to the proposed settlement. Id. The court order set March 28 as the opt-out date; Silvercreek received the order but did not timely opt out. Id., at 1-2. The federal court gave final approval to the class action settlement on April 11, 2005, id., at 2. On April 27, Silvercreek filed a request to opt out of the class action settlement and filed a motion with the district court to extend the opt-out deadline. Id. The district court denied the motion, finding that Silvercreek “had not shown excusable neglect.” Id. Silvercreek appealed, and the Fifth Circuit affirmed.

The Fifth Circuit explained that the standard for establishing excusable neglect is set forth in Pioneer Investment Servs. Co. v. Brunswick Assocs. LP, 507 U.S. 380, 395 (1993), which instructs courts to consider “prejudice to the opposing party, length of the delay, and reason for the delay in determining whether the claimant’s neglect was excusable and the delay was made in good faith.” Silvercreek, at 2. The Circuit Court rejected Silvercreek’s claim that these factors must be applied “rigorously” in each case; rather, the court may “hold a party accountable for the acts and omissions of its counsel,” and the district court’s determination of excusable neglect will not lightly be disturbed. Id., at 2 (citations omitted). The Court concluded that Silvercreek’s counsel should have inquired into the deadline for opting out of the class action settlement, and that its failure to do so was not excusable. Id., at 3. This is particularly true in light of the fact that filings available on the relevant website “explicitly mention the opt-out date.” Id. The Fifth Circuit concluded at page *3, “The district court did not abuse its discretion in refusing to extend the opt-out date, because it considered Silvercreek’s proffered evidence and determined that counsel’s performance fell below the threshold required for neglect to be excusable.” Accordingly, the Circuit Court affirmed the district court’s ruling.

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