Chapter § 5.17 Types of Class Action Settlements

• Jurisdiction: United States
• Publication year: 2020

§ 5.17 Types of Class Action Settlements

There are many variations of monetary and nonmonetary class settlements. For the purposes of this discussion, we will focus on two frequently used types of settlements when the proposal allows for monetary recovery: claims-made and common-fund settlements.

[1] Claims-made and Common-fund Settlements

Claims-made settlements are common in consumer cases where class members “can be difficult to identify and have little interest in participating in the case.”³⁴¹ In this scenario, class members must file a claim form to share in the settlement proceeds, and funds may go unclaimed. If the parties negotiated a fixed settlement amount, those unclaimed funds may go to a court-approved cy pres recipient or, in rare cases, revert to the defendant. But revisionary settlement structures are disfavored.³⁴² On the other hand, common-fund settlements are typical in antitrust, securities, and mass tort actions. A class recovery in these suits “will divide the common fund on a pro rata basis among all who timely file eligible claims, thus leaving no unclaimed funds.”³⁴³

While much of the available data on the claims rates in claims-made cases is anecdotal, most observers agree that claims rates in these cases are relatively low.

[2] Unclaimed Settlement Funds and Cy Pres

The term “cy pres” is derived from the French expression cy pres comme possible, which means “as near as possible.”³⁴⁴ The doctrine originated to save testamentary charitable gifts that would otherwise fail.³⁴⁵ That is, if the testator had a general charitable intent, the court would look for an alternate recipient that will best serve the gift’s original purpose.³⁴⁶ With class settlements, cy pres refers to the parties’ plan for the “next best use” of settlement funds that cannot be distributed to class members or remain unclaimed following distribution.³⁴⁷ The Third Circuit has described the traditional cy pres distribution in the class action context as follows:

When class actions are resolved through settlement, it may be difficult to distribute the entire settlement fund, after paying attorneys’ fees and costs along with fund administration expenses, directly to its intended beneficiaries—the class members. Money may remain unclaimed if class members cannot be located, decline to file claims, have died, or the parties have overestimated the amount projected for distribution for some other reason. It may also be economically or administratively infeasible to

...