What Types of Settlements Exist in Class Action Lawsuits?

There are several ways class action settlement funds are divided and distributed among class members. The distribution method is always spelled out in the settlement agreement and must be approved by the Court. Below, we’ve described the common types of settlements in class action lawsuits.

Claims Made – Claims-made settlements are often used in the consumer class action context. In claims-made settlements, defendants pay the class an amount equal to the total value of all the valid claims. In some cases, the defendant agrees to pay only a fixed amount, and if the value of the valid claims exceeds the fixed amount there will be a provision for an adjustment of the payment amounts, typically a pro rata reduction. Additionally, a defendant typically pays class counsels’ fees and costs separately. In a claims-made settlement, unclaimed funds (if a fixed amount has been negotiated and not all funds have been claimed or there are uncashed checks) are paid to court-approved cy pres recipients, or, in rare cases revert back to the defendant.

Common-Fund – These types of settlements are more typical of antitrust, securities, and employment class actions. In these, claiming class members typically receive shares of the common fund pursuant to some formula, such that the amount each claimant receives is a function of the number of claims, and the entire net settlement fund is distributed. Class counsels’ fees are typically a percentage of the common fund. Uncashed checks in these cases are commonly paid to cy pres recipients.

Pro Rata – This allocation method is used in common fund settlements and simply divides the net settlement amount proportionately among the class members. A pro rata distribution can either divide the net settlement fund among the number of valid claims made or divide the net settlement fund among all class members. A class action notice sometimes includes the estimated recovery amount per class member, with qualifying language that explains the amount may change.

Voucher – Voucher settlements are less common and are a non-cash benefit. There are various ways to structure these non-cash payments, including coupons or discounts. The courts don’t usually favor voucher settlements because they usually require class members to spend money to obtain the benefit, and often send class members back to the defendant to purchase more goods or services. There have been allowances made if the coupon or discount directly addresses the claims raised by the class action in the settlement. Often, these offers need to be made without restrictions or expiration.

Contact Heffler Claims for all settlement administration needs.

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Heffler Claims Group
Heffler Claims Group is a national leader in class action settlement administration, specializing in the notice and administration of complex legal matters. Together with Prime Clerk, the leading bankruptcy claims and noticing agent and another Duff & Phelps company, we offer the most comprehensive administrative services in the industry.

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