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How Will the Administration of Your Class Action Settlement be Impacted by the New Northern District Guidelines?

A question and answer session with industry veterans and Heffler Senior Directors Jim Prutsman and Ed Radetich.

As most class action practitioners are aware, the Northern District of California issued new procedural guidance for class action settlements on November 1 of last year. These guidelines, which are the most detailed in any court system in the country, outline expectations for settlement administrators as well as class counsel. The guidelines standardize the settlement and administration reporting process, making it more consistent and memorializing the call for detailed transparency. The guidelines formalize requests some judges were already making.

The guidelines imply increased critical examination by the court for settlement administrators in both the selection process and in the administration process. In what ways does this impact settlement administrators and the industry as a whole?

“In the motion for preliminary approval, the parties should identify the proposed settlement administrator, the settlement selection process, how many settlement administrators submitted proposals, what methods of notice and claims payment were proposed, and the lead class counsel’s firms’ history of engagements with the settlement administrator over the last two years.”

We always expect to compete, and we encourage an open and fair marketplace where counsel selects a claims administrator based on who is the most qualified. The new guidelines require additional information in our proposals to increase transparency, which is good news for qualified settlement administrators who can back up their qualifications with historical data and experience.

The guidelines standardize what information the Court is looking for so that it can evaluate and compare to other similar types of cases in deciding whether to approve a settlement or not. This may require administrators to more accurately track information they may not have been previously tracking.

The court is formally calling for transparency in preliminary approval by asking counsel to explain the proposal process and how competitive it was, and what types of notice and administration programs were rejected in favor of the bid winner. In doing this, the courts are hoping to ensure a fair process in which the class is protected by a sound notice and administration plan.

New guidelines require posting a lot of new information on the settlement website in what the courts are calling post-distribution accounting. Is this feasible for administrators?

Here, the new guidelines regarding post-distribution accounting are much more rigid for claims administrators. It asks that distribution information be tallied and posted online within 21 days of distribution, including information about the settlement fund, the number of checks not cashed, average recovery per claimant, the amounts distributed to each cy pres recipient, and more.

Unfortunately, 21 days is too short of a time period to reflect accurate numbers. It’s not enough time to receive returned mail and rectify addresses, or employ re-targeting efforts, or even to see what checks have cleared. The 21-day timeline should be looked at by the courts as an update, and not a final report.

However, reconciling and reporting on these numbers is a significant effort, which means there’s a cost implication in imposing such a slim time frame for reporting.

You can’t speed up human behavior, and often settlement checks will go uncashed for a relatively long period of time. If the court (rightfully) asks administrators to consider class behavior in notice and distribution plans, the same should be done for the benefit recovery process.

The Northern District indicates the court may not approve the amount of the cost awarded to the settlement administrator until the final approval hearing. Is this a new practice? 

“The parties should also address the anticipated administrative costs, the reasonableness of those costs in relation to the value of the settlement, and who will pay the costs. The court may not approve the amount of the cost award to the settlement administrator until the final approval hearing.”

We don’t feel this is a new practice. It’s just a formal reminder that the Court holds the ultimate decision on fees and expenses.

The risk for settlement administrators is that the fees and expenses we set in our proposals may be different than what we’re awarded in the end. In large part, those proposed fees are based upon estimated class size, which is often very different than what was anticipated during the proposal process. It’s a reality of which administrators are always aware.

We don’t interpret this as meaning that the Courts will not approve interim fee and expense requests, especially in larger cases where there are substantial upfront costs.

If the case has a claims form, how difficult is it to provide an estimate of the number and/or percentage of class members you would expect to submit a claim?

“If there is a claim form, an estimate of the number and/or percentage of class members who are expected to submit a claim in light of the experience of the selected claims administrator and/or counsel from other recent settlements of similar cases, the identity of the examples used for the estimate, and the reason for the selection of those examples.”

Unfortunately, there are unforeseeable factors that can impact claim rates. History is not a guarantee of future claims filings. With that said, experience with similar cases, an understanding of the class demographics and behavior, and knowledge of the media landscape all help to shape a good administration strategy. But there are many challenges when it comes to predicting a response rate. Simply put: we don’t know what we don’t know.

However, the larger issue isn’t estimating the number of people filing claims. The issue arises when that estimated claims rate is based upon estimated class size. When cases are filed, plaintiffs and defendants often disagree about the size of the class. Their estimates come from different experts who don’t necessarily work together and are working for opposing interests. Getting these experts together to agree on the class size, or at least bring their estimates closer together, affords experienced administrators a better chance at predicting claims rates.

Ninth Circuit case law disfavors reversions, and across the board, most judges are against the practice. What has been the recent trend with cases where unclaimed portions of the settlement revert? 

“(The motion for preliminary approval should state, where applicable) – In light of the Ninth Circuit case law disfavoring reversions, whether and under what circumstances money originally designated for class recovery will revert to any defendant, the potential amount or range of amounts of any such reversion, and an explanation as to why a reversion is appropriate in the instant case.”

Reversion, or giving unclaimed settlement funds back to the defendant, has been on a slow decline. At the federal level, it’s almost non-existent. One exception has been settlements which do not require a claims process. 

Skipping the claims process is not common, and when considering reversion judges do take the distribution process into account. Cases in which class members are not required to file a claim, and simply receive a check (such as tenant/landlord cases), judges have occasionally ruled in favor of returning the uncashed checks to the defendant.

The rationale in these situations is that if a class member is not willing to cash a free check with no other obstacles between themselves and the money, then there are no further steps the defendant can take to provide the individual with the benefit.

New guidelines require the notice contain a settlement website URL, which houses links to the notice, motions for approval and attorney fees, and other important documents. Is it feasible for all cases to have a website? 

It’s certainly feasible and recommended for all cases to have a website that houses all applicable settlement documents. In our digital age, a settlement website is often the simplest and most effective way to ensure class members have access to all the information they need.

With an experienced administrator, the website is simple and cost-effective to set up. At Heffler, we have our own content management system that allows our team to quickly organize content and stand up an informational website.

However, deciding whether to allow class members to file claims online gets more complicated. In some circumstances an online claim filing process is necessary, but in others such as securities it could become more complicated and cost could be a factor.

The ability to file claims online can be complicated and requires support and programming from skilled IT professionals to satisfy due process. A good settlement administrator should have this resource available in-house so it certainly can be done, but there may be additional costs in creating a case-specific website. In smaller cases, that extra expense may not be worth it and could eat into a chunk of the settlement funds.

New guidelines suggest class counsel should consider various ways to increase notice to class members. 

“Class counsel should consider the following ways to increase notice to class members: identification of potential class members through third-party data sources; use of social media to provide notice to class members; hiring a marketing specialist; providing a settlement website that estimates the claim amounts for each specific class member and updating the website periodically to provide accurate claim amounts based on the number of participating class members; and distributions to class members via direct deposit.”

Over the past 50 years, technology has drastically changed the way people communicate. Because of this, settlement administrators need to have qualified notice experts as part of their teams. If done effectively and with a capable team, results should increase, and costs should be reduced. The problem is that most administrators do not have a qualified notice expert, and their notice plans aren’t achieving the necessary results. When those programs are challenged it results in delaying the final approval of settlements.

A qualified notice expert can support a notice plan with legitimate research, including how effective the use of social media and other solutions are. In addition, that expert will know how and when to employ resources such as third-party data sources.

The avenues available to administrators to reach class members are so much greater than even just 10 years ago, and when used properly should increase reach potential. However, every notice program, digital or otherwise, should be supported with data and research. It’s important to be educated and to critically and carefully analyze the notice plan being presented to you.

Further, the court suggests providing a settlement website that provides continuously updated estimates of claim amounts for each specific class member. Is this feasible? 

“Class counsel should consider the following ways to increase notice to class members:…providing a settlement website that estimates the claim amounts for each specific class member and updating the website periodically to provide accurate claim amounts based on the number of participating class members…”

This is technologically feasible, but there are several challenges to consider, especially with Pro Rata (proportional) claims.

While claims administrators try to review claims as they are received, many claims are incomplete when originally filed, duplicate or fraudulent claims are filed, etc. The estimated recovery for class members will swing wildly from the beginning of a case until final reports are submitted. This can be very misleading to class members.

However, this is valuable information that should be posted on the settlement website when final reports are submitted to the Court. A more feasible approach would be for settlement administrators to provide updated benefit and class information near the completion of the administration process. This information can also be used to identify trends in the industry as more data is collected and projected.

The notice guidelines also suggest considering distributions to class members via direct payment in order to extend the reach of the settlement. In your experience, is this feasible?

“Class counsel should consider the following ways to increase notice to class members:… distributions to class members via direct deposit.”

Technically, this is doable. Direct deposit and direct payment typically refer to ACH transactions, which is a network that facilitates moving money from one bank to another. The process requires acquiring and storing class member’s banking information, including routing numbers.

This is information settlement administrators shouldn’t be holding onto for long periods of time and can lead to unnecessary exposure for counsel and the administrator. If a case takes two years to settle, or an appeals process prolongs distribution, there are even additional risks for the administrator.

In addition, banking information can decay and become useless in that elongated timeframe. People change their bank accounts and banking institutions often and beginning with clean data would be a challenge in most cases. Considering those cons, direct deposit may not actually be the best way to extend the reach of the settlement.

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Heffler Claims Group
Heffler Claims Group (Heffler) is a national leader in class action settlement administration, having specialized in the notice and administration of complex legal matters for more than 50 years.


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