No-Hindsight Review and the Alignment of Rule 23(a) and Rule 23(e): The Sixth Circuit Affirms a Global Settlement of Michigan “Home-Equity Theft” Claims

Introduction

This appeal arises from a decade-long challenge to Michigan counties’ now-repudiated practice of seizing tax-delinquent properties, selling them, and retaining any surplus over the unpaid taxes. After watershed rulings by the Michigan Supreme Court, the Sixth Circuit, and the U.S. Supreme Court declared the practice unlawful, a consolidated class action in the Western District of Michigan reached a mediated settlement with 43 counties. The district court certified a settlement class, overruled dozens of objections, and approved a structure that pays claimants 80% of their surplus proceeds (amounting to an average “actual recovery” of approximately 64 cents on the dollar after fees), with no prejudgment interest. Objectors appealed.

The Sixth Circuit affirmed. The court held that the settlement satisfied Rule 23(a) and Rule 23(e)(2), emphasizing that adequacy of representation in a settlement class context is a substantively unified inquiry across Rule 23(a)(4) and Rule 23(e)(2)(A); that settlement fairness is measured at the time of the bargain without hindsight bias; that protracted, court-facilitated mediation is strong evidence of arm’s-length negotiations; that inclusion of lienholders was proper; and that a modest lodestar multiplier supported the fee award. A separate concurrence lambasted the settlement’s economics—no prejudgment interest, fee payments coming out of the class’s recovery, and a 20% haircut on principal—yet agreed the district court acted within its discretion given timing and the sui generis history of these claims.

Parties: Wayside Church and a putative class of former property owners (plaintiffs) versus Van Buren County, as representative of a defendant class of Michigan counties; 42 other counties joined the settlement.
Issues: Class certification adequacy; settlement fairness under Rule 23(e)(2); allegations of collusion/reverse auction; inclusion of lienholders; attorney’s fees in a § 1983 takings settlement.
Outcome: Affirmed—class certified for settlement; settlement approved; fees upheld.

Summary of the Opinion

Writing for a unanimous panel, Judge Readler affirmed class certification and settlement approval. The court:

Applied heightened scrutiny to a settlement class but found adequacy met: experienced counsel litigated for a decade, developed the legal theory, conducted substantial discovery, and mediated across 30+ sessions.
Rejected adequacy challenges premised on counsel’s communications with represented parties, postcard notice shortcomings, and delayed substitution of deceased class representatives, noting corrective steps, lack of prejudice, and that adequacy demands competence, not perfection.
Found the settlement “fair, reasonable, and adequate” under Rule 23(e)(2): it was negotiated at arm’s length; the relief was adequate given the risks at the time (pre-Tyler and pre-Freed) including a live circuit split on core liability and unresolved damages issues like interest; and the distribution was equitable because every claimant receives the same pro rata share (80% of surplus).
Rejected “reverse auction” collusion claims; a neutral mediator and the absence of concrete evidence (or disproportionate fees) weighed against collusion; the parallel Grainger case was not stronger (class certification denied there).
Held inclusion of lienholders was fair, as they possess non-contingent interests impaired by foreclosure.
Upheld a $7.8 million fee award (lodestar with a 1.14 multiplier), even though § 1988 fee-shifting would ordinarily apply in § 1983 cases; in the settlement posture, paying fees from the common fund was reasonable and not disproportionate.

Judge Kethledge concurred, underscoring that, on the merits, class members are constitutionally entitled to every penny of their surplus plus prejudgment interest and fee-shifting. He criticized the settlement’s bottom line (roughly 64 cents on the dollar with no interest) but, given deferential review and the unique obstacles created by Williamson County before Knick, he concluded the district court’s approval fell within its discretion. He urged that the settlement carry minimal precedential weight due to its sui generis context.

Detailed Analysis

Precedents Cited and Their Influence

Rafaeli, LLC v. Oakland County, 952 N.W.2d 434 (Mich. 2020): The Michigan Supreme Court recognized former owners retain a property interest in surplus proceeds and that counties violated the Michigan Constitution by retaining them. This state-law recognition of a property interest undergirded federal takings claims and catalyzed statewide litigation.
Williamson County Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172 (1985), overruled by Knick v. Township of Scott, 139 S. Ct. 2162 (2019): Williamson County’s state-exhaustion rule initially blocked federal takings claims in federal court, prolonging and complicating relief; Knick later allowed direct federal suits, unlocking federal remedies but after years of loss accrual and time-bar complications.
Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022): The Sixth Circuit held that counties effect a federal taking by keeping or gifting surplus equity after tax foreclosure, even if state foreclosure law purports to vest absolute title in the county. Hall squarely recognized a Takings Clause property interest in surplus proceeds, setting up a circuit split with the Eighth Circuit’s Tyler decision.
Tyler v. Hennepin County, 143 S. Ct. 1369 (2023): The U.S. Supreme Court unanimously agreed with the Sixth Circuit’s approach: former owners state a Takings Clause claim when a government keeps surplus equity after a tax foreclosure sale.
Freed v. Thomas, 81 F.4th 655 (6th Cir. 2023): The Sixth Circuit recognized that just compensation in this context includes prejudgment interest on surplus proceeds. Notably, Freed issued a day after the claims deadline closed, highlighting why the panel evaluated settlement adequacy without hindsight.
Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997): Settlement classes demand heightened scrutiny; Rule 23 prerequisites must still be met, with special care to adequacy and cohesion absent the crucible of trial.
In re Dry Max Pampers Litig., 724 F.3d 713 (6th Cir. 2013); Shane Group, Inc. v. Blue Cross Blue Shield of Mich., 825 F.3d 299 (6th Cir. 2016): Sixth Circuit anchors for rigorous review of class settlements and fee awards to protect absent class members.
In re Wendy’s Co. S’holder Derivative Action, 44 F.4th 527 (6th Cir. 2022): Court-supervised, protracted mediation strongly indicates arm’s-length bargaining—an inference the panel applied here given 30+ Sixth Circuit mediation sessions.
Vassalle v. Midland Funding LLC, 708 F.3d 747 (6th Cir. 2013): Warns against preferential treatment of named plaintiffs; here, equal pro rata distribution avoided the Vassalle problem.
Comcast Corp. v. Behrend, 569 U.S. 27 (2013); Speerly v. General Motors, LLC, 143 F.4th 306 (6th Cir. 2025) (en banc): Differences in damages can defeat predominance under Rule 23(b)(3); the Wayside panel noted that complaints about varying claim strength more naturally belong in a predominance challenge (which objectors did not bring) rather than as an equitable-treatment critique under Rule 23(e)(2)(D).
Third- and First-Circuit guidance cited with approval: In re Baby Products Antitrust Litig., 708 F.3d 163 (3d Cir. 2013) (courts judge “fair, reasonable, adequate,” not “fairest possible”); In re Pharm. Indus. Average Wholesale Price Litig., 588 F.3d 24 (1st Cir. 2009) (district courts have “considerable range” in settlement approval). The panel endorsed the “ballpark of reasonableness” benchmark from leading treatise authority.

Legal Reasoning

Standard of Review: The court reviewed both class certification and settlement approval for abuse of discretion, i.e., whether the district court made clearly erroneous factual findings, applied incorrect legal standards, misapplied correct standards, or committed a clear error of judgment.

Adequacy of Representation (Rule 23(a)(4) and Rule 23(e)(2)(A))

The panel emphasized that, in settlement-class litigation, adequacy is a substantively unified inquiry cutting across Rule 23(a)(4) and 23(e)(2)(A): courts ask whether class interests are aligned with their representatives and are vigorously pursued by qualified, conflict-free counsel. Heightened scrutiny applies because certification occurs without a merits trial.

Experience and Effort: Lead counsel were early movers in this constitutional theory, sustained a decade of litigation and discovery, and engaged in 30+ Sixth Circuit-facilitated mediation sessions over 18 months—strong evidence of adequacy.
Communications and Notice: While initial postcard notices omitted some information and counsel contacted potential class members post–preliminary approval, counsel corrected course with long-form notices and ceased outreach upon guidance. The notice program—supplemented by publication and reminders—produced a robust claims rate (well over 50%), supporting adequacy and due process despite technical imperfections.
Substitution of Deceased Representatives: Although disclosure and substitution lagged, the court found no concealment or forgery (unlike Hubbard) and held that timely substitution before final approval preserved adequacy. Adequacy demands competence, not flawlessness.

Settlement Fairness (Rule 23(e)(2))

The court assessed the four core concerns: adequate representation, arm’s-length negotiation, adequacy of relief, and equitable treatment.

Arm’s-Length Negotiation: More than 30 sessions with the Sixth Circuit’s mediation office, including in-person sessions, and the involvement of a neutral mediator strongly indicated procedural fairness. Mediation confidentiality under Sixth Circuit Rule 33(b)(4)(D) did not suggest collusion.
Adequacy of Relief Measured at the Time of Bargain: When the parties executed the settlement (December 2022), the legal landscape was unsettled. A live circuit split existed on core liability (Sixth Circuit’s Hall versus Eighth Circuit’s Tyler panel), and the Supreme Court had not yet granted certiorari (it did so in January 2023) or issued its unanimous Tyler decision (May 2023). Likewise, prejudgment interest in this context was unresolved until Freed (September 2023), which came a day after the claims deadline. The district court properly resisted hindsight bias: at the time, continuing litigation involved real risks (liability, interest, res judicata, statutes of limitations, and equitable defenses), real delay, and real hardship for an aging claimant population. A guarantee of 80% of surplus and an average actual recovery around 64% was within the ballpark of reasonableness.
Equitable Treatment: The plan compensated all class members pro rata at the same percentage of their surplus, including named plaintiffs, avoiding preferential treatment problems (Vassalle). Variations in claim strength did not render the settlement inequitable; those concerns go to predominance (Rule 23(b)(3)) rather than equitable treatment under Rule 23(e)(2)(D), and objectors neither preserved nor pressed a predominance challenge on appeal.

Collusion and “Reverse Auction” Allegations

Objectors asserted a reverse auction theory—defendants settle with the most pliable plaintiffs’ counsel to undercut stronger parallel actions. The court, according substantial deference to the district court’s factfinding, rejected the claim for want of concrete evidence.

No Concrete Evidence: No communications, one-sided fee arrangements, or anomalously low consideration suggested collusion. Neutral mediation and the prolonged negotiation timeline cut against the theory.
Parallel Litigation (Grainger): The Western District had already denied class certification in Grainger and later denied intervention efforts, making that forum no stronger than Wayside for achieving global relief. Wayside’s defendant-class posture (with Van Buren County as representative) kept the other counties “in play” even after amendment was denied.

Inclusion of Lienholders

The settlement class encompassed persons holding “non-contingent” interests, expressly including lienholders. The court affirmed that mortgagees and other lienholders possess present, non-contingent rights impaired by foreclosure, making their inclusion fair and consistent with the injury and the fund’s purpose.

Attorney’s Fees

Although § 1988 ordinarily shifts fees to defendants in § 1983 litigation, the panel approved a common-fund fee drawn from the class recovery in the settlement posture, carefully scrutinized by the district court. Using both percentage-of-fund and lodestar cross-checks, the court upheld a $7.8 million award supported by a $6.85 million lodestar and a modest 1.14 multiplier—well within the range the Sixth Circuit has previously accepted. The mediated fee was not disproportionate to the class relief and did not suggest collusion.

Judge Kethledge’s Concurrence: A Cautionary Hesitation

Judge Kethledge concurred in full but penned a forceful critique of the settlement’s economics and the counties’ conduct. He stressed:

Merits Entitlement: Former owners are constitutionally entitled to the entire surplus plus prejudgment interest, and in § 1983 cases fee-shifting ordinarily means the government pays their attorneys’ fees.
Settlement Shortfall: The settlement delivers roughly 64 cents on the dollar, with zero prejudgment interest and fees paid out of the class’s recovery. His comparison showed Wayside likely would have recovered nearly $300,000 (surplus plus interest, with fee-shifting) in an individual action, versus $121,120 under the settlement.
Reluctant Deference: Given abuse-of-discretion review, fairness measured at the time of settlement, and the “tragic fortuity” of Williamson County’s federal-forum bar (until Knick) and murky state-court prospects pre-Rafaeli, he concluded the district court’s approval was within its discretion.
Limited Precedential Weight: He urged that the unique historical constraints here make the settlement’s precedential import “close to zero” for future meritorious class claims unburdened by Williamson County–style barriers.
Normative Rebuke: He condemned the counties’ lack of remorse and their exertion of “every available legal artifice” to keep as much money as possible from their residents.

Practical Impact and Future Implications

Settlement Timing Matters: The opinion underscores that courts must evaluate adequacy based on the legal and procedural risks as of the settlement’s execution—not with the benefit of later legal developments. This is especially salient where Supreme Court or circuit authority changes the merits landscape midstream.
Unified Adequacy Inquiry in Settlement Classes: The court’s framing—adequacy under Rule 23(a)(4) and Rule 23(e)(2)(A) is substantively the same in settlement class actions—offers a clear analytical lens for future approvals: alignment of interests and vigorous, conflict-free representation anchor both certification and settlement review.
Evidence of Arm’s-Length Negotiation: Extended, court-facilitated mediation is powerful evidence of fairness; conversely, reverse auction allegations require concrete proof (communications, one-sided terms, disproportionate fees), not speculation or mere parallel filings.
Equitable Treatment via Pro Rata Distribution: Equal percentage recoveries for all claimants—including class representatives—tend to satisfy Rule 23(e)(2)(D). Variations in claim strength are not, by themselves, an equitable-treatment problem; they instead raise Rule 23(b)(3) predominance questions, if preserved.
Lienholders as Class Members: Expect inclusion of mortgagees and other lienholders where the taking impairs non-contingent secured interests—important for designing notice and allocation plans in takings settlements.
Fees in § 1983 Class Settlements: Although § 1988 fee-shifting remains the default in litigated judgments, the Sixth Circuit accepts a common-fund fee in a mediated settlement where the district court employs lodestar cross-checks and the fee is modest relative to class recovery.
Home-Equity Theft Litigation After Tyler and Freed: Substantively, Tyler and Freed indicate that future litigated cases should ordinarily deliver full surplus plus prejudgment interest (and fee-shifting) to prevailing plaintiffs. The concurrence’s admonition cautions courts and counsel against invoking Wayside to justify discounted settlements when such legal uncertainties are no longer present.
Non-Precedential but Instructive: Although “Not Recommended for Publication,” the decision offers practical guidance on how the Sixth Circuit evaluates settlement processes, adequacy, and fee reasonableness in high-stakes constitutional class actions.

Complex Concepts Simplified

Home-Equity Theft: When a government forecloses on tax-delinquent property, sells it, and keeps value above the tax debt, it takes the owner’s “equity” (surplus). Tyler holds this states a federal Takings Clause claim.
Just Compensation and Prejudgment Interest: The Constitution requires restoring the owner to the same pecuniary position as if the taking had not occurred. That includes prejudgment interest because the owner lost the time value of money during the government’s possession.
Settlement Class and Adequacy: In a settlement class, the court must be especially careful to ensure counsel are experienced, conflict-free, and actively protect absent members’ interests—because certification is not tested at trial.
Reverse Auction: A pejorative theory that defendants pick the “cheapest” plaintiffs’ counsel to undercut stronger suits. Courts require concrete proof (emails, one-sided terms, anomalous fees), not speculation, to upend a settlement on this basis.
Pro Rata Distribution: Every claimant receives the same percentage of their individual loss. This is often used to avoid preferential treatment and to align interests among class members.
Lodestar and Multiplier: Fee courts compute reasonable hours times reasonable rates (lodestar) and may apply a multiplier reflecting litigation risk, delay, and results. Modest multipliers (e.g., 1.14) are common where counsel assumed risk over long periods.
Defendant Class: Plaintiffs may sue a representative defendant (here, Van Buren County) on behalf of a class of similarly situated defendants (other counties), enabling global resolution without naming each defendant individually.
Res Judicata and Statutes of Limitations: Prior judgments or the passage of time can bar claims. In this litigation, many claims accrued during the Williamson County era, creating individualized defenses that increased the risk of continued litigation.

Conclusion

Wayside Church affirms a large, mediated settlement that came together during a legally volatile period: before the Supreme Court resolved a circuit split on liability and before the Sixth Circuit confirmed entitlement to prejudgment interest. Applying abuse-of-discretion review and heightened settlement-class scrutiny, the court held that counsel were adequate, negotiations arm’s length, relief adequate given contemporaneous risks, treatment equitable across class members (including lienholders), and the fee award reasonable under lodestar analysis.

The most enduring doctrinal contributions are process-oriented: the alignment of adequacy under Rule 23(a)(4) and Rule 23(e)(2)(A) in settlement classes; the insistence on measuring fairness without hindsight; the probative weight of sustained, neutral mediation; and the requirement of concrete proof to sustain “reverse auction” attacks. Substantively, Tyler and Freed now set the baseline for future takings cases: full surplus plus prejudgment interest, ordinarily with fee-shifting. Judge Kethledge’s concurrence is a reminder that this settlement’s economics should not become a benchmark for future cases unburdened by Williamson County’s unique historical distortions.

In sum, the opinion endorses a pragmatic, timing-sensitive approach to settlement review while signaling that, going forward, governments should expect full constitutional compensation in litigated “home-equity theft” cases—and that class counsel should continue to build records demonstrating true arm’s-length bargaining, robust notice, and equitable allocations that align the interests of all class members.