Delivering Settlement Benefits to the Class: Dos and Don’ts

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It is no secret that class action practitioners are facing a more difficult time getting a settlement approved. Not only must settling parties face a proliferation of professional objectors seeking to muck things up, but courts are also under pressure to scrutinize class action settlements more closely. See, e.g., Allen v. Bedolla, 787 F.3d 1218, 1223 (9th Cir. 2015). One recent order illustrates the perils of the approval process. In Banks v. Nissan N. Am., No. 11-2022, 2015 WL 7710297 (N.D. Cal. Nov. 30, 2015) (slip op. available here), the court refused to grant final approval to a settlement to resolve claims for an alleged brake defect in certain Nissan and Infiniti vehicles. The court was particularly troubled by a cap on reimbursements that resulted in some class members recovering only a fraction of their out-of-pocket costs, with “more than one-third of the claimants . . . receiv[ing] a $60 (or less) reimbursement of a $1,000 repair bill.” Id. at 19. The court also criticized the plaintiffs for not detailing the risks of further litigation in their papers, id. at 16, and for a low claims rate. Id. at 18-19.

How to avoid the problem faced by the plaintiffs in Banks? First, if the benefits must be tailored to a narrow class, aim for substantial benefits to each individual class member. As part of a settlement to resolve automotive defect claims, plaintiffs often negotiate nonmonetary relief—a repair program or extended warranty coverage on the defect—to protect a broad group of current car owners. See, e.g., Eisen v. Porsche Cars N. Am., Inc., No. 11-09405, 2014 WL 439006, at *7 (C.D. Cal. Jan. 30, 2014) (approving settlement that included extended warranty coverage and reimbursement). That apparently was not feasible in Banks, as the class vehicles were too old to be covered under warranty. Instead, the Banks plaintiffs reasonably tried to direct the settlement’s benefits to those with out-of-pocket losses—a smaller class. But courts are much more likely to approve a reimbursement program if class members recover a substantial proportion of their out-of-pocket losses. See, e.g., Browne v. Am. Honda Motor Co., No. 09-06750, 2010 WL 9499072, at *12 (C.D. Cal. July 29, 2010) (approving reimbursement of 50 percent of the costs class members previously incurred replacing their brake pads). In stark contrast, the Banks plaintiffs obtained much less remuneration for out-of-pocket losses, failing to overcome the court’s concern that some class members would be recouping only $20 out of $1,000 repair bill under the settlement reimbursement formula.

Second, in seeking final approval, plaintiffs should thoroughly evaluate the risks of further litigation, and explain those risks in detail in their settlement approval motions. This is an important factor for settlement approval. See Churchill Village, LLC v. General Electric, 361 F.3d 566, 575 (9th Cir. 2004). As the Banks decision underscores, courts will not credit generic recitations of an action’s risks in considering whether the settlement is fair to the class. See Banks, at 16.

Third, when a settlement involves a claims process, plaintiffs should make sure as many class members as possible are aware of the settlement’s benefits. For instance, plaintiffs should ensure that updated addresses, such as those maintained in the National Change of Address database, are used for the class notice. Depending on the facts of the case, a plaintiff may also have the class administrator conduct a skip-trace for addresses with undeliverable notices, have reminder postcards sent out, have the administrator host a dedicated settlement website, and/or contact class members directly to educate them on the settlement’s benefits.

The factors detailed above are just a few of many that the court will analyze when evaluating the fairness of a proposed class action settlement; class action practitioners should analyze and weigh these carefully.

Authored By:
Ryan Wu, Senior Counsel