A class action settlement has been reached. The agreement is inked. You have preliminary approval. A class action settlement administrator has been hired. In many respects, the hard part is over, but that does not mean that either the defendant or defense counsel can become complacent. There are still a variety of steps that must be completed in order to see the settlement successfully through to completion. Staying active in the settlement administration process can help a defendant ensure that the settlement is brought to an efficient, uneventful, and final end in as little time and with as little additional expense as possible. Here is a summary of some of the key considerations for defendants during different phases of the class action settlement administration process:
Meeting the CAFA Notice Deadline.
If the case is pending in federal court, the Class Action Fairness Act (“CAFA”) requires defendants to provide a notice of the proposed class settlement to the appropriate federal and state officials no later than 10 days after the proposed settlement is filed in court. In fact, the court cannot grant final approval of the settlement any earlier than 90 days after the notice is served. Oftentimes the settlement administrator is specifically retained to assist with the notice, but the ultimate responsibility falls on the defendant. Failing to comply with this requirement can delay the completion of a settlement or even result in the settlement release not being binding. See 28 U.S.C. § 1715.
Preparing for Final Approval.
Most legitimate objections to class settlements (whether from objectors or from the court) are based on concerns about the procedural fairness of the settlement, and in particular the notice program. One effective way to defeat such challenges is to make every possible effort to make the settlement procedurally fair. This includes setting reasonable opt out and objection deadlines, making sure the notice and claim form are both informative and easy to understand, ensuring that the method of giving notice is truly the best notice practicable, and ensuring that claims are handled properly. It is important to consider, for example, whether there are any small steps you can take above and beyond the terms of the settlement to increase the reach of the notice program. A little time spent personally monitoring any problems arising with the notice and claims portions of a settlement during the notice phase of your settlement can prevent the entire settlement from blowing up at the fairness hearing.
Monitoring Claims Administration.
Even after the settlement has been finally approved, monitoring the claims administration process can often be useful in avoiding unnecessary expense. In a case where the administrator simply has to pay a uniform amount to class members or amounts that vary based on a set formula, the payment process may be straightforward, but there are always unexpected scenarios and insistent claimants to deal with. Plus, many settlements involve more complex claims processes. As an example, in a class action settlement of a lawsuit attacking insurance claims practices, the settlement process may involve some process for adjusting individual insurance claims. This type of settlements would most likely include provisions to ensure that only valid claims and valid claim amounts are considered and paid by the administrator. For example, there may be a provision that allows both sets of counsel to review and object to a settlement administrator’s determination of a claimant’s eligibility, or a provision that allows claimants to challenge their settlement awards to a neutral evaluator. However, these provisions, which are intended to prevent claimants from taking advantage of the settlement process, can often lead to inefficiencies. Claims administrators often quote a flat rate for the notice program, but then charge hourly rates for their work in assisting with the processing of claims. With administration rates as high as $300 per hour (in addition to the hourly rate of outside counsel), a defendant can easily run into a situation where it is paying many times more than an individual claim is worth just to deal with post-settlement issues surrounding the claim. By taking on a more active role in monitoring the claims process, a defendant and its counsel will be in a better situation to perform the type of cost/benefit analysis that can eliminate the possibility of runaway claims.
Oftentimes, class settlement time lines must be flexible to accommodate expected variables in the administration. As examples, if third party liens must be resolved before claims can be paid, or if the settlement agreement requires communications from claimants or third parties such as employers or health care providers, settlement administration can be put on hold during these times. Delays almost always increase the cost of a settlement because they increase the length of time for which the settlement has to be monitored by outside counsel. Making sure these processes are proceeding as quickly as possible can help to minimize delays and any costs associated with these delays.