What are the different types of class action settlement funds and rewards?

There are several ways to set up a class action settlement fund, which dictate both distribution and reward. There are common funds, claims made, pro rata, voucher, and non-monetary. A structure should be chosen within the settlement agreement, prior to filing for preliminary approval.

Common-Fund Settlement – These settlements are typical of antitrust, securities, and employment class actions. Claimants receive pro rata shares of the common settlement fund to some set formula. The amount each claimant receives is a function of the number of claims, and the entire fund is distributed. Class counsel fees are determined as a percentage of the common fund. Uncashed checks are typically paid to cy pres recipients (those who are as close to the donor’s intention as possible).

Claims Made Settlement –Claims-made settlements are based upon the alleged injury or grievance, with a recovery amount based upon the damages suffered. This is often common in consumer cases and may require proof of damages from the class member. If the value of the claim exceeds the fixed amount, an adjustment of the payment amounts (a pro rata reduction) can be made out of the unclaimed funds based on court approval. Class counsel fees and expenses are generally paid separately.

Pro Rata Settlement – The term “pro rata” means “proportionate.” Similar to common fund settlements, this allocation method divides the pool of money proportionately based upon the number of class members. That means shareholders get back what they put in. Often this is the same amount, but in the case of investments it could be more or less than the next claimant. The amount could also vary based on the number of claimants the total amount is divided among. In these cases, a class action notice will typically include an expected recovery amount per class member, with qualifying language that explains that the amount may change depending upon how many class members make a claim.

Voucher Settlement – Voucher settlements are less common and include non-cash offers to class members. There are several ways to structure this allocation, including coupons or discounts. Voucher settlements are less common with the Courts because they require class members to spend money and continue using the defendant’s goods or services to obtain the benefit. Exceptions can be made if the coupon or discount directly addresses the claims raised in the settlement. In any case, these offers need to be made without restrictions or expiration.  

Non-monetary Settlement – The popularity of non-monetary class action settlements has waxed and waned over the years. With this type of class action settlement, the shareholder class agrees to drop their class action lawsuit against a company in exchange for equitable relief in the form of disclosure, governance reform, or payment of attorney fees. Most routinely, the defendant agrees to cease problematic business practices, curb misconduct, engage in greater transparency, and take corrective steps to benefit shareholder interests. Unlike the other types of class actions, non-monetary cases do not require settlement fund allocation.

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