To Settle Or Not To Settle: Eight Questions Corporate Counsel Should Ask In Evaluating Class Action Settlements

by Pierce Atwood LLP
Contact

To settle or not to settle; that is the question, right?  It is asked when you receive the demand letter threatening a class action, when the complaint is filed and served, at the initial scheduling conference, before the class certification hearing and after the class certification decision.  There is no single, right-or-wrong answer.  Your response will depend on many factors that only you, as in-house counsel, your management and, in some cases, your board of directors can answer.  But there are questions within the question that can point you to the path that may be most appropriate for your organization.  Here is a checklist of eight such questions (with additional sub-questions), some more obvious than others.

1.  What is your litigation risk?  As some courts have recognized, class actions often place undue pressure on defendants to settle unmeritorious cases because they magnify the company's exposure in the event the plaintiff wins.  As disturbing as that reality is, it places a premium on analyzing the litigation risks at key junctures in the case.  Whether you choose to perform a formal litigation risk analysis or something more informal, you should consider your likelihood of success on dispostive motions, at class certification and at trial, and the likely financial outcome if you lose.  A thoughtful litigation risk analysis will help you place a settlement value on the case that can then be used to assess the benefits of any settlement that may be offered.  The accuracy of the analysis will depend on how much information you have.  It therefore will become more accurate as you gather more facts through your own internal investigation and discovery, and as you become more familiar with your judge and opposing counsel.

2.  What is your likely litigation expense?  This is another obvious question, although it also can be difficult to answer early in the case.  A companion question that is easy to overlook is:  what will be the legal expense of settlement?  The class action settlement process itself takes time and costs money, and some settlements can require years of additional work that should be taken into account.

3.  Will the settlement attract copy-cat lawsuits?  Sometimes settlement of a statewide class action invites additional filings in other states, greatly multiplying the company's exposure.  If your company engaged in the same business practices in other states that are the focus of the statewide claims you are now facing, then you should consider settling on a nationwide basis, or at least make sure the attorneys' fees award in the statewide settlement is not so rich that it will attract lawyers waiting in the wings or more filings by your current adversaries.  

4.  Will the settlement buy you peace?  The answer will depend largely on how you draft the class definition and the scope of the release.  In drafting the class definition, you should ask whether it is expansive enough in time (its temporal scope) and space (its geographic scope) to include all persons who might become class members in a lawsuit involving the same or related subject matter.  In drafting the release, you should ask whether it will encompass all of the types of claims from which you reasonably may seek protection.  You also should consider including in the settlement agreement a provision that allows your company to withdraw from the settlement if a threshold percentage of class members opt out.

5.  Are you prepared to pay the price of fairness?  A class action settlement is valuable only if it is approved.  At the final fairness hearing, the trial court will have to decide whether the terms of the settlement are fair and reasonable to the class, and its determination could be overturned on appeal.  For cases in which there are no objectors, judges will make the fairness determination based only on the presentation of counsel for the settling parties.  In other cases, objectors may oppose the settlement, either because they truly believe it is unfair to class members or, all too often, because they want to hold the settlement hostage until they are paid a ransom to go away.  Even where there are no objectors, courts increasingly are taking closer looks at settlements to assess whether they treat potential class members fairly.  You and your outside counsel will want to make sure that the terms you are agreeing to will offer benefits to class members that can be defended as a fair and reasonable exchange for the rights they will be giving up by virtue of the release, viewed in light of the risks they bear of an unfavorable result if the litigation goes forward.  Happily, this is one area in which you and counsel for the settling plaintiffs have common interests, permitting what could be a helpful collaboration to craft a settlement that passes the fairness test.

6.  Can you live with the attention the settlement will receive?  There is no such thing as a private class action settlement.  The settlement agreement will be filed on the court's docket and its fairness will be adjudicated in a public hearing.  What's more, there will be a class notice, which may include publication in newspapers or on the Internet, and there likely will be a website describing the settlement.  If your company has public relations professionals, you may want to include them in reviewing the class notice and the notice plan, and your management and board will need to understand that the settlement could well attract attention not only from potential class members and lawyers, but also from your customers and competitors. 

7.  How will the settlement affect your company's reputation?  Will it signal to plaintiffs' lawyers that you are an easy target, causing them to line up to bring the next lawsuit?  Or will it signal to the marketplace that yours is a responsible company that cares about its customers and is prepared to take care of them when they are harmed?  The answers to these questions will turn not only on the terms of the settlement, but also on the merits and seriousness of the claims in the underlying lawsuit.  

8.  How important is it to the company to put the litigation behind it and return to business as usual?  Class litigation, like any significant litigation, can be an unwelcome distraction from the daily needs of running a business.  Some companies take a principled approach, choosing to fight rather than settle the unmeritorious case regardless of the resources and attention that defending the case may demand.  Other companies may decide that they would rather settle the matter and get on with their corporate lives, even though the case has no basis.  Each company, and each case, is different, but it is always worth considering the effects that ongoing litigation will have on the company's operations.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Pierce Atwood LLP | Attorney Advertising

Written by:

Pierce Atwood LLP
Contact
more
less

Pierce Atwood LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.