Why Waiting to Consider Settlement Could be a Mistake
Class action lawsuits are complex, and many companies that find themselves involved in them are under the impression that they are in for a long, protracted battle. However, this doesn’t always have to be the case. While there is no one-size-fits-all approach to class actions, early settlement consideration can provide a number of benefits to the defending company. Thus, the decision to fight or to settle the lawsuit is not mutually exclusive, but rather can, and often should, be evaluated and pursued simultaneously early in the case.
Defending litigation is expensive and the majority of cases end up with a cash settlement. So, the question is: Can an early settlement provide an efficient end to litigation? The simple answer is yes, for a number of reasons.
When settlement is considered at the beginning of litigation, class counsel:
- Has not yet invested copious time and expense – factors which, when added up, can impact the total cost of the settlement
- Can avoid the uncertainty of litigation and certification
- Has an opportunity to monetize the case
These benefits for class counsel can also be valuable for the defending company, as it allows them to test class counsel’s conviction and determine whether there is an economically-feasible settlement option—low Lodestar time means the total cost of settlement may be much less than anticipated.
If a company finds itself facing a class action lawsuit, it’s important to remember to not wait until it’s too late to consider whether settlement makes sense, as costs can increase exponentially depending on the trajectory of the litigation. To get started, below are some key questions to ask:
- What is the exposure if the class is certified and prevails on the merits?
- Could class counsel expand the class definition and create additional risk or exposure?
- Have other companies in the same industry or space been sued and the cases settled? If so, what were the terms?
- Are the claims asserted fundamental to business operations or is this a case that can be resolved, allowing the company to operate in the same or similar manner?
- What is the competence of class counsel and their ability to fund, fight and prevail on class certification?
- What are the estimated costs for the following phases of litigation: Motion to Dismiss and Motion to Consolidate/Transfer; Discovery; Class Certification; Interlocutory Appeal, if any; and Trial?
- What is the impact of the litigation phases on management and business operations?
- When will the company have to start reserving losses for anticipated litigation expenses and liability?