Viral Settlements are Unpredictable, but More Common Than You Think
Viral settlements—which are neither uncommon nor predictable—present a clear danger to the financial health of settling companies.
For example, the recent Naked Juice settlement was a typical settlement involving labeling claims. Unfortunately, the media picked up on the settlement, running numerous multimedia news stories that generated a groundswell of interest which turned into a tidal wave. According to the third-party administrator (TPA), Gilardi & Co. LLC:
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.
As the news stories quickly escalated, the number of claims spiked and overwhelmed the settlement website. By the time the smoke cleared, claimants filed approximately 700,000 claims seeking over $31 million in reimbursement. While the Naked Juice Settlement had a cap, objectors used the high take rate to argue that the settlement was unfair, as most class members would recover $4.50 rather than $45. Unfortunately, Naked Juice is not an isolated case but part of an increasingly common phenomenon of cases getting picked up by the media and going viral. Just look at Starkist, Redbull, Five Finger Shoes, and Airborne – all of these had incredibly high claim rates representing significantly greater losses than anyone would have predicted.
With the advent of claims promotion sites, consumers are notified about settlements and encouraged to file claims, regardless of whether they are actual class members – a type of fraud that is dynamic, pervasive, difficult to detect and very costly. Enticed by the prospect of free money, consumers are provided a hyperlink to a simple electronic claim form. After a few clicks, the process is complete, and they simply have to wait for the cash to arrive in their mailbox. With added factors such as social media, Facebook sharing and news sites discussing settlements, every settlement runs the risk of going viral and costing the settling company significant payments to people who may not be class members, possibly even reducing the benefit available to bona fide class members.