21 August

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Class Settlements And The Risks Of Viral Media Attention

Unfortunately, class action settlements tend to be another step down the road of financial uncertainty and unpredictability. In the class action context, when resolving a case using a claims-made settlement, the financial payout varies significantly, which can adversely impact liquidity, enterprise value, cash flow and assets. Additionally, when settlements go viral, companies face extreme losses which could exceed reserves and available cash on hand. So what causes cases to go viral and create unmitigated financial risk for settling companies? The answer is simple and also multifaceted: the internet. Digital communications and the thirst for relevant news content have completely changed how consumers gain awareness of class actions and how they file claims for settlement benefits. As a result of these changes, the ability to reach potential class members as well as those intent on abusing the system to receive free cash has created a fundamentally different risk paradigm for those looking...

12 March

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To Insure or Not to Insure with Class Action Settlement Insurance? That is the Question.

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For most companies, Class Action Settlement Insurance is the answer. Few organizations walk away from a class action lawsuit unscathed. After spending significant sums to defend, the vast majority of cases result in some type of monetary settlement. Additionally, key executives can be diverted from business for months on end. Adding insult to injury, today’s media climate dramatically increases the likelihood that a class action will go viral. Cases against popular brands are frequently picked up by national news sources. Moreover, scores of websites and social media pages are dedicated to finding putative class members and instructing them on how to make a claim. In one widely publicized action, for example, a settlement involving the energy-drink brand Red Bull resulted in nearly 3 million class members seeking a $10 payout. In short, the risks associated with class action suits are greater than ever. But there is a way to mitigate this...

12 March

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Class Action Promotion Sites and Free Media: The Business of Making Claims Go Viral

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Class action lawsuits are a much bigger risk today than they were 30 years ago. The internet has completely changed how consumers gain awareness of class action lawsuits and how they file claims for settlement benefits. As a result of these changes, class sizes have grown exponentially. In years past, known class members received direct notice, via mail, of their right to file a claim. Additionally, claim notices and filing instructions might be posted in one or two relevant print publications. For many consumers, filing a claim was more trouble than it was worth. Today, scores of websites and social media groups exist for two key purposes: (1) notifying the public of available class action settlement payouts; and (2) providing a quick and easy portal for filing claims. The impact of these sites is undeniable. For example, in one recent case against a supplement manufacturer, of the 44,000 consumers who filed a...

12 March

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Class Action Litigation Uncertainty: The M&A Killer

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It is no secret that class action lawsuits can have disastrous effects on mergers and acquisitions. One need look no further than the news to meet this point. In 2003, for example, famed environmental activist Erin Brockovich filed a class action lawsuit against Wainoco, a subsidiary of Frontier Oil Corp. At the time, Frontier was a party to a merger agreement with Holly Corp. worth $450 million. When news of the class action broke, Holly Corp. backed out of the merger, citing concern over the impact the suit would have on Frontier’s stock prices and overall financial condition. That situation is not unusual. Just this year, Tribune Media backed out of a planned merger with Sinclair Broadcast Group. Though that merger fell apart for several reasons, the fact that Sinclair was defending three class action lawsuits played a role in the deal’s demise. The truth is, class action lawsuits form a giant wall...

16 January

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The Impact of Free Media on Class Actions

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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...

22 October

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When is the right time to settle a class action?

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Perhaps more than any other type of litigation, class actions often feature dynamic shifts that quickly alter the settlement landscape. For example, the court’s ruling on a motion to compel discovery may bring a new perspective on liability exposure. And a decision on class certification often upends both parties’ expectations. The risks and benefits of continuing to defend class actions are constantly changing. Accordingly, defense counsel would be wise to analyze settlement options at every phase of the case. Finding the most efficient litigation off-ramps is one of the greatest skills a lawyer can develop. And perhaps nowhere is that skill more critical than in class actions. In this article, first we present a case study of a good settlement opportunity that was lost only to be exploited by class counsel later in the case. Next, we explore some of the nuances that should inform the settlement analyses throughout litigation. Case Study In one...

29 August

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Seven Reasons Companies Seek Class Action Certainty Through Risk Transfer

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Companies spend billions of dollars defending class action lawsuits each year. Compared to other forms of litigation, defending a class case is exceptionally challenging because the percentage of these cases considered “bet the company” continues to rise, while the overwhelming majority still results in settlement. Compounding the complexity of these matters is the universal understanding that the company’s and class counsel’s perspectives on settlement are wholly divergent. Knowing this, companies looking for certainty should consider risk transfer as a viable strategy in class action litigation.

14 June

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Why Waiting to Consider Settlement Could be a Mistake

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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...

05 May

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Guest Post: Are Class Action Settlements Tax Deductible?

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Guest Post by Peter Robbins, CPA, Partner at Corbett & Robbins, LLP With the exponentially rising role that litigation plays in today’s business world, one might consider the costs associated with settling lawsuits to be “ordinary and necessary” business expenses, rendering them tax deductible under §162 of the Internal Revenue Code (IRC). However, as experienced tax professionals know, there are always exceptions and restrictions to the rules—factors that can leave the unwary with an unexpected and hefty financial burden to bear. To determine whether payments to the settlement class are tax deductible, settling parties must bear in mind the provisions of IRC §162(c)(2) and §162(f), which prohibit deductions for payments that are: 1. Deemed to be illegal under U.S. or state law 2. For a fine or similar penalty paid to a government for the violation of any law Therefore, the ability to receive tax deductions on class action settlements is entirely dependent on tracing...

14 April

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Settling Class Actions, from the Defending Company’s Perspective

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While class counsel has its own objectives when it comes to settling class action lawsuits, the defending company has fundamentally different analyses. First is whether it should settle the case at all, as there are often business reasons not to do so. For example, the company may not want the reputational hit, to invite regulatory scrutiny or to set a bad precedent by settling....

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