“Follow the Form, or Be Formed into the Class” –
Third Circuit Rejects the “Reasonable Indication” Opt-Out Standard under Rule 23

1. Introduction

Perrigo Institutional Investor Group v. Papa, No. 24-2861 (3d Cir. Aug. 12, 2025) confronts a recurring problem in Rule 23(b)(3) class actions: what happens when a sophisticated investor intends to opt out of a securities class action but fails to comply with the precise opt-out mechanics ordered by the district court?

The appellants, Sculptor Master Fund Ltd. and Sculptor Enhanced Master Fund Ltd. (“Sculptor”), owned roughly 5 % of Perrigo plc stock during the class period. While the Roofer’s Pension Fund class action was pending, Sculptor filed its own individual suit, assuming that counsel had mailed the required exclusion request. Years later, on the eve of a proposed settlement, Perrigo discovered the omission and argued that Sculptor was still a class member bound by any judgment.

The Third Circuit affirmed the district court’s refusal to let Sculptor belatedly exit the class. In doing so, it laid down two precedential rules:

1. The “reasonable-indication” doctrine—accepted in the Second and Tenth Circuits— does not apply in the Third Circuit; an absentee must follow the specific “time and manner” for exclusion stated in the Rule 23(c)(2)(B) notice.
2. Where a sophisticated party and its counsel miss an opt-out deadline and litigate for years in ignorance of their error, such neglect is not “excusable” under Rule 6(b)(1)(B) and Pioneer.

2. Summary of the Judgment

• Issue 1 – Opt-out Standard. The Court held, as a matter of first impression, that an absent class member cannot rely on mere “reasonable indication” of intent. Formal compliance with the court-ordered procedure is mandatory.
• Issue 2 – Excusable Neglect. Weighing the Pioneer factors, the Court found Sculptor’s three-and-a-half-year delay and counsel’s lack of diligence fatal.
• Issue 3 – Adequacy of Notice. The class notice, which thrice warned that members would be bound unless they mailed a signed opt-out letter by the deadline, satisfied due-process requirements.
• Disposition. Judgment of the district court affirmed; Sculptor remains in the class and must dismiss its individual action to participate in the settlement.

3. Analysis

3.1 Precedents Cited and Their Influence

The panel canvassed a raft of Supreme Court and circuit authority:

• Phillips Petroleum v. Shutts, 472 U.S. 797 (1985) – Due process requires an opportunity to opt out, but leaves the method to Rule 23.
• Ortiz v. Fibreboard, 527 U.S. 815 (1999) and Martin v. Wilks, 490 U.S. 755 (1989) – Establish the historic importance of an individual’s “day in court.”
• Pioneer Inv. Servs. v. Brunswick, 507 U.S. 380 (1993) – Four-factor test for “excusable neglect,” incorporated through Rule 6(b).
• In re Four Seasons Sec., 493 F.2d 1288 (10th Cir. 1974) & Plummer v. Chem. Bank, 668 F.2d 654 (2d Cir. 1982) – Source of the now-rejected “reasonable indication” language.
• In re Navistar MaxxForce, 990 F.3d 1048 (7th Cir. 2021) – Persuasive authority insisting on strict adherence to court-ordered opt-out mechanics; the Third Circuit expressly aligned itself with this view.
• Numerous Rule 23/manageability decisions (Sullivan, Nissan, Baby Products, Processed Egg) buttressed the Court’s emphasis on efficient administration and avoidance of “one-way intervention.”

3.2 The Court’s Legal Reasoning

1. Textual analysis of Rule 23. The Rule obligates the district court to state “the time and manner for requesting exclusion.” Because the Rule makes the court-specified method part of the opt-out right, an absentee must comply with it. Any broader “reasonable-indication” approach would override this delegation and render Rule 23(e)(4) (“new opportunity to request exclusion”) superfluous.
2. Practical/administrative concerns.
   • Fluid “reasonable-indication” tests would require courts to make hundreds of fact-specific determinations, undermining settlement finality.
   • Allowing parties to announce intent informally fosters “one-way intervention,” letting sophisticated investors hedge—litigate individually when convenient, yet retreat into the class if their case founders.
3. Excusable-neglect balancing.
   • Prejudice: Late exclusion threatened the tentative settlement’s calculus.
   • Length of delay: 42 months is “substantial” by any measure.
   • Reason: Pure attorney error coupled with failure to inspect the public opt-out list within days of its filing showed lack of diligence.
   • Good faith: Granted, but outweighed by the other three factors.
4. Constitutional notice analysis. The notice satisfied Mullane’s “reasonably calculated” standard; due process does not require an encyclopedic catalogue of every hypothetical contingency (such as settlement impact on parallel suits) so long as the core consequence—being bound absent exclusion—is communicated plainly.

3.3 Likely Impact of the Decision

• Creates a Clear Circuit Split. The Third Circuit now sits with the Seventh on one side and the Second/Tenth on the other, increasing the likelihood of Supreme Court review or future Civil Rules amendments.
• Heightened Counsel Diligence. Institutional investors and their attorneys litigating in the Third Circuit must institute rigorous calendaring and audit systems; “intent” is irrelevant without the prescribed form.
• Enhanced Settlement Certainty. Defendants gain confidence that the class composition is fixed after the opt-out deadline, facilitating earlier, firmer settlements without “blow-up” clauses keyed to invisible opt-outs.
• Uniformity in Manageability Rulings. District courts now have binding, appellate-level precedent to enforce strict compliance, streamlining administrative processes and reducing satellite litigation.

4. Complex Concepts Simplified

Rule 23(b)(3) Class

A damages-seeking class action where individual questions may predominate but the court finds that a class mechanism is superior. Members have an express right to opt out.

Opt-out / Exclusion Request

The formal step by which a potential class member tells the court they do not want to be part of the class and wish to preserve their own lawsuit.

“Reasonable Indication” Doctrine

A lenient standard (Second & Tenth Circuits) allowing any objectively discernible manifestation of intent—letters, motions, separate lawsuits—to serve as an opt-out, even if it ignores the notice’s stated procedure.

Excusable Neglect

Rule 6(b)(1)(B) allows courts to forgive a missed deadline if the four Pioneer factors (prejudice, delay length, reason, good faith) collectively support relief.

One-Way Intervention

A strategic posture where an absent class member waits to see how the merits develop before deciding to join or leave the class, disfavored because it undermines fairness and settlement stability.

5. Conclusion

The Third Circuit’s decision in Perrigo Institutional Investor Group v. Papa is straightforward but significant: if the class notice says “mail a signed letter by Date X,” nothing less will suffice. By rejecting the softer “reasonable-indication” test and applying a strict Pioneer analysis, the Court prioritised judicial economy and settlement finality over individual litigant leniency. The ruling places a bright line under counsel’s duty of procedural vigilance and establishes a new, binding principle for class actions filed within the Third Circuit:

“A class member who fails to follow the district court’s stated time and manner for exclusion remains in the class, no matter how clearly it intended otherwise.”

Whether the Supreme Court will move to reconcile the emerging circuit split remains to be seen. Until then, litigants in Delaware, New Jersey, Pennsylvania, and the Virgin Islands have a clear directive: follow the form—or be formed into the class.