“A smoking gun in debate over consumer class actions?”

by Walter Olson on May 28, 2014

Information hardly ever gets onto the public record about what percentage of notional claims are actually redeemed following a class action settlement, which means there’s generally no way to evaluate participants’ forecasts of robust redemption rates (these forecasts help support not only large fee requests by lawyers in the case at hand, but also the general repute of the class action mechanism as one with genuine benefits for class members — the “consumers win $30 million” sorts of headlines). One class of people who do know a lot about this question are settlement administrators, those who manage the mostly obscure private firms set up to handle payout requests as they come in. But they don’t talk to the press.

That’s why a declaration submitted last month in a false-labeling class action involving Duracell batteries is so tantalizing. … defense lawyers at Jones Day submitted a declaration from Deborah McComb, a senior consultant at Kurtzman Carson Consultants, a settlement administrator. KCC is administering the Duracell settlement, and the point of McComb’s declaration is that the rate of claims in this case is consistent with what KCC typically sees in similar settlements that have received final approval.

McComb provides some hard numbers to support the point — and this is why the declaration is significant. KCC, she said, has administered hundreds of consumer class actions in which class members received notice indirectly rather than directly through the mail. These cases “will almost always have a claims rate of less than 1 percent,” she said.

In fact, the “median claims rate for cases in the KCC analysis” was .023 percent, far lower than 1 percent. The Duracell settlement was said to be worth $49 million, including a stated $6 million to charity, but the amount headed to class members was likely going to come in below $345,000. Class actions with mail notice to class members may perform somewhat better — it’s hard to know how much so — but these revelations tend to back up reformers’ belief that where dollar amounts per claimants are not large enough to justify the time and trouble of redemption, the great majority of redistribution will go on for the benefit of lawyers and other middlemen. [Alison Frankel, Reuters; Daniel Fisher, Forbes]