A “claims-made” class action settlement
allows the defendant to make a large amount of money “available” to class members, but in order for the members to collect, they must jump through the hoops of correctly filing claims. Because of the low response rate in such settlements, the defendants will end up paying much less than the funds made available. Indeed, of the $8.5 million made available to the class members [in an action over gym membership fees], Global Fitness only paid $1.6 million — a payout of approximately 10 percent of the settlement funds. Despite this low payout to plaintiffs, class counsel are still paid a certain rate based on the funds that were made available — not the funds that were actually paid out — in some instances giving them attorney fees larger than the class members’ damages award!
The class counsel here were paid $2.4 million, nearly $1 million more than the class members collected.
Josh Blackman, a Cato adjunct scholar and law professor, is a member of the class and raised objections to the settlement. [Ilya Shapiro and Frank Garrison, Cato, on Blackman v. Gascho]
6 Comments
Ahem.
Part of the problem might be the general carelessness lawyers have with other people’s money. They can’t be bothered to calculate that $1.6 million is not 10% of $8.5 million, but 18.8%. They’re off by nearly half. See D.C. for larger examples.
But they pay closer attention to their own fees I’m sure.
What if a judge tied compensation to class counsel based on the claims actually paid to the members of the aggrieved class? Wouldn’t that be interesting?
That would be very interesting. However, class action plaintiffs lawyers are used to getting paid as soon as the settlement is approved and your suggestion could mean years of delay in the lawyers getting paid.
MattS
But that would give those lawyers incentive to get the payout streamlined and done faster.
Without class action attorneys to absorb the risk of litigation, these gym members would not even have the opportunity to submit a claim.