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The Pitfalls of a Common Fund Settlement

by | Apr 7, 2021

When resolving class actions, plaintiffs and defendants often weigh the pros and cons of a common fund vs. a claims-made structure.  (See our previous article describing how claims made settlements are more common than you think).  One of the biggest risks of a common fund, however, is that a low claims rate will result in a windfall to participating class members.  That is exactly what happened in Bonoan v. Adobe, Inc., 3:19-cv-01068-RS (N.D. Cal.).

Bonoan was a TCPA class action in which an individual sued Adobe, Inc., alleging that Adobe violated the TCPA by using an auto dialer to make thousands of unsolicited cell phone calls.  In late 2020, the parties agreed on a $1 million common fund settlement, with claimants entitled to a pro rata share of the settlement once attorneys’ fees, litigation costs and expenses, and incentive awards were deducted.  In the motion for preliminary approval of the settlement, class counsel estimated that this would result in claimants receiving between $400 and $800, an admittedly hefty sum.  

Yet, when all the claims were tallied, the class’s lackadaisical response to the settlement resulted in something remarkable.  Rather than $400 or $800 payments, each class member would actually receive $2,800 for the trouble of having allegedly received one unwanted telephone call.  Given this, the parties decided to waive any objection to all late received claims (approximately 70), leaving each class member with $2,000 apiece, even though the maximum statutory recovery for a willful TCPA violation is $1,500.  

As plaintiff’s counsel astutely put it in the motion for final approval, the “per-claimant recovery [of $2,000] remains near the very top of [TCPA] class action settlements.”  Indeed.

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Are you are looking to resolve a class action on a claims-made basis? If so, contact us to learn how we can help you to mitigate, cap, and transfer the financial risk of settlements in existing class action litigation.

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