When Settlement Claims Exceed the Fund
Experienced class action attorneys know that predicting settlement response rates is anything but an exact science, and it is particularly difficult in today’s environment, with social media and settlement promotion sites. Any class action settlement can go viral, causing unpredictably high claim rates and putting companies at risk of exceeding their settlement fund.
Here are examples of settlements where claims exceeded the available fund and cost more than expected:
Class members were identified as consumers who purchased Airborne-branded products—including Airborne Effervescent Health Formula, Airborne On-the-Go, Airborne Power Pixies, Airborne Nighttime, Airborne Jr., Airborne Gummies and Airborne Seasonal Relief—between May 1, 2001 and November 29, 2007. The notice campaign for the settlement reached 80.4 percent of adults an average 2.6 times. As a result, Airborne received 702,323 claims with an aggregate value of $36.53 million, which is $13 million more than the initial settlement fund of $23.25 million.
- Naked Juice:
Class members included all consumers in the U.S. who purchased an eligible Naked Juice product between September 27, 2007 and August 19, 2013. Naked Juice estimated a class size of 16.5 million people. Consumers were notified of the settlement by publication in Parade and People magazines, as well as online banner ads. Overall, 758,930 claims were filed, and 634,278 valid claims were approved for a settlement fund of $9 million. Originally, the benefit to valid claims was full reimbursement with proof of purchase up to $75, and without proof of purchase, the benefit was a maximum of $45. According to the administrator, “the majority of traffic came from a news article on the ABC News website, and a news article displayed on the Yahoo.com homepage headline area. In the following days, the story was also picked up by Huffington Post and FoxNews.com.” After the news stories broke, the company saw over $30M million in claims posted against a $9 million settlement fund.
- Red Bull:
All consumers who made at least one purchase of Red Bull products in the U.S. between January 1, 2002 and October 3, 2014, were eligible class members. The court-approved notice program for the settlement included a combination of print publications, including People, Sports Illustrated and Wired; internet banner advertising; a press release; and search advertising. Red Bull established a settlement fund of $13 million, comprised of both cash refunds and free products. After the settlement was announced, the settlement website crashed under the weight of the submissions. By the end of the claim period, class members filed 2,010,043 cash and approximately 700,000 voucher claims.
In these cases, the settling companies likely did not anticipate that the magnitude, velocity and intensity of claims. Cases can go viral as a result of many factors, including the new reality of digital media—as discussed in Jeanne Finegan’s guest blog post — as well as unearned media, news stories, social media and public interest. All these factors add complexity to structuring class action settlements and notice programs.