The mere whisper of the words “class action” can send a shiver down the spine of any business owner, heralding a storm of legal challenges and potential financial upheaval that could shake the very foundations of their company.
In recent years, we’ve seen class action lawsuits skyrocket, and the picture isn’t pretty. Corporate defendants hit record spending in class action settlements (and individual settlements of class action claims), as well as in settlements of government enforcement actions over the last two years. Unfortunately, 2024 isn’t showing any signs of slowing down.
Last year, class action and government enforcement lawsuits resulted in settlement payments of more than $51 billion dollars. With settlement figures in just the first quarter of 2024 standing at almost $20 billion, those numbers may be eclipsed by the end of the year.
So, what’s happening here? Based on the sheer number and increasing cost of these settlements, corporate defendants appear to understand the high stakes and are looking to minimize their risk and potential liability. This is particularly true in the current legal environment where class certifications are granted in the majority of cases and government enforcement actions continue to be largely successful. There is every indication that the plaintiffs’ bar and government agencies will continue to be aggressive in the pursuit of consumer protection claims.
Should you find yourself needing to consider settlement in this type of litigation, it’s important to evaluate all settlement options to identify the structure that best suits your needs or the needs of your company. We often receive questions from our clients regarding the different settlement structures that exist for class actions and government enforcement actions, including their benefits and detriments.
Class Action Settlements
With respect to class actions, settlements can occur either on a class-wide basis or an individual basis. A class-wide settlement typically contemplates larger payouts – often in the millions of dollars. This type of settlement offers a broad release of all persons who are defined as being part of the class. These settlement structures require identification of class members, notice of the settlement to the class members, and administration of payment to the class members. Legally, class-wide settlements in federal court must also be approved by the presiding district court in a fairness hearing.
The key benefit to a class wide settlement is the breadth of the release, which extends to all class members who do not opt-out. Sometimes, these settlements still result in ancillary litigation by class members who opt-out and file their own lawsuits. However, the overall risk and cost associated with such ancillary litigation typically does not exceed the benefit of a broad release.
An individual settlement of a class action lawsuit looks differently. With an individual settlement, no release exists as to potential class members and only the claims of the individually named plaintiff or plaintiffs are released. Typically, the claims of the putative class members are dismissed without prejudice, meaning that they are free to file a future claim. Nevertheless, an individual settlement may make sense for a smaller corporate defendant lacking the financial ability to fund a class-wide settlement. However, we continue to see the premium price of an individual settlement of a class action lawsuit rise, with settlement values ranging from $200,000 to $500,000 dollars.
Government Enforcement Settlements
In government enforcement settlements, we also have seen dollar figures during the last two years on the rise. Most settlements of government enforcement actions involve consent judgments with strict injunctive relief provisions, which means large restrictions on the ability to conduct business activities. For corporate and individual defendants, many times part of the agreed judgment amount can be suspended based on the defendant’s ability to pay. As with settlements associated with a class-wide release, usually a government enforcement action contemplates millions of dollars and ongoing reporting requirements by the defendant to the applicable government agency.
What should you do if your business is hit with a class action lawsuit or government investigation? Your smartest move is to seek the guidance of litigation counsel with specific experience in class action and enforcement defense. They will be able to evaluate your unique circumstances to determine your best options for response to minimize the potential risk, financial liability, and disruption to your ongoing operations.
Lisa is a Partner and the Litigation Director at M&S. She defends highly regulated businesses in class actions, complex commercial litigation, and government enforcement actions brought by state and federal agencies. Lisa also provides mediation and arbitration services, serving as a skilled neutral in helping disputing parties achieve resolution outside of the courtroom.