The Impact of Free Media on Class Actions
Class action lawsuits are certainly not new. Indeed, some scholars believe they date back to medieval times, when groups of villagers would choose three or four representatives to represent their collective interests in court. What is new, however, is the rampant popularity of class action lawsuits in the age of the internet and social media.
Whereas notice to class members historically came by way of mailings or publication in relevant periodicals, today class membership is an advertised commodity. Consequently, class awards have the potential of becoming exponentially larger than they’ve ever been.
By way of illustration, this article presents some of the top websites advertising quick cash through participation in class action suits. It also explores several case studies illustrating how media attention to class action lawsuits has changed the way class payouts are made. Additionally, the article touches on the desirability of various settlement structures that may help stem the tide of viral class participation.
The Rise of Online Class Action Advertisements
There is no doubt that the internet and social media have forever changed the risks inherent to settling class action lawsuits. There are scores of websites that promote only one thing: advertising class action settlements in which the public can participate. Among them are:
In addition to their web presence, many of these organizations effectively spread their message through social media. Top Class Actions, for example, has nearly 125,000 Facebook followers.
Importantly, these media efforts tend to disproportionately impact popular brands. It is unclear why consumers so act (popular theories include that consumers (i) feel they are “owed” by these brands and/or (ii) are comfortable filing a claim against these brands because they believe the brands to have deep pockets). Regardless, settlements involving well-known brands consistently display higher claim rates.
Case Studies of Viral Classes
The examples of viral classes are plentiful. For purposes of illustration, we’ll contrast class take rates from popular brands as against similar claims filed against lesser-known brands. The results are startling:
- Redbull. In this case, the company settled a false labeling case and created a $10 million fund allowing class members to recover $10.00 per household in cash or a $15.00 voucher per household. Claimants filed 2,700,000 claims seeking $20,000,000 in cash and $10,500,000 in vouchers.
- Salov Olive Oil. In this case, the company settled a false labeling case and created a $4.5 million fund allowing class members to recover up to a $5.00 per household benefit in cash without proof of purchase. In that case, claimants submitted approximately 46,000 claims.
Brand recognition can be a factor in causing a case to go viral. It is certainly not the only variable which creates public interest and claims.
How to stem the tide
Unfortunately, there is no way to stop the advertising of class benefits in free media outlets such as websites and social media. What class defendants can do, however, is remain aware of the impact of free media on eventual class membership. We recommend the following process:
- Hire a notice expert who can design a media plan to meet constitutional due process, provide brand safe messaging and that is intended to get the message out clearly to class members. At Risk Settlements, we can assist with this important task as we confront notice issues in every case.
- Determine if there are appropriate antifraud provisions which can detect waste, fraud and abuse.
- Empower the third-party administrator to validate claims for fraud using customary processes.
- Hedge your bets. Some companies seek to transfer the settlement risk with solutions like Class Action Settlement Insurance (“CASI”) or an early risk transfer such as Litigation Buyout (LBO) Insurance (“LBO Insurance”). CASI provides an efficient resolution to expensive litigation at a known cost, mitigating a company’s concern that its settlement could go viral.
LBO Insurance allows a company, in exchange for a one-time premium payment, to ring fence its liability and settlement exposure by transferring the risk, up to policy limits, to the insurer. The insurer then takes over the defense of the litigation, takes financial responsibility for defense costs, and takes financial responsibility for any settlement costs or final judgment. In the meantime, the class action defendant can resume normal operations without the vast cloud of financial uncertainty that accompanies class action lawsuits.
In this age of free online media, the financial risks and unknowns of class action lawsuits are greater than ever before. Popular brands seem especially vulnerable to viral media that spawn unprecedented take rates. In this climate, class defendants would be wise to seek any solution that could bring some certainty and finality to these inexact circumstances.