What’s the Deal With Those Postcards You’ve Gotten Saying You Can Get $9.95 In a Class Action?
January 12, 2015
When most people think about class actions, they picture the same thing: a post card that comes in the mail—covered in fine print—saying you were part of this or that class action. Or at least I think they do. You know the drill: You bought a product that didn’t work, got some text messages, your bank charged you unlawful fees—something it says in small print. All you need to do is fill out your name and send it back after a checking a box and filling out your name.
But how did that notice get to you? What’s really going on?
Long story short: A lawsuit was filed as a class action. The parties settled, and the people who are affected by the settlement (whose rights are going to be given away if the settlement gets approved), known as class members, get notice of their rights. If you get a notice, call us. We’ll tell you if it's a good or bad deal for you and what to do next.
Further explanation: When you get a notice, it means that a lawyer somewhere (or group of us, in law firms or teams of firms) have a client (or a few clients) who we claim had their rights violated by a certain company that we sued. You have all sorts of rights under federal and state laws. (For example, companies can’t call or text your cellphone out of the blue without your permission. A federal law (the Telephone Consumer Protection Act) says when it happens, you’re entitled to between $500 - $1,500 per call or message. If it happens to you, you “have a claim” for $500 - $1,500. Take that spam!) Some people get fed up with spam, contact us lawyers who tell them about their rights, and we file class action lawsuits on their behalves.
Starting a class action happens like any other lawsuit—we file a complaint with the appropriate state or federal court (generally based on where the bad stuff happened, where the company we’re suing is located, and where our client is). The Party who files the complaint is the “plaintiff.” The company we’ve sued is the “defendant.” The only real difference is that in our complaints we say that the bad stuff that happened to our client (who is called the “named plaintiff”) happened to a group of people that we can identify down the road. We don’t need to prove at that point that we have a class action.
Now, when we first file the case, we don’t always know how many people are out there. We just need a good faith basis for thinking there’s more than 40 (40 is the rule of thumb minimum we’ll eventually need for a class). All we need to start the case though is one person who had their rights violated in the same way as everyone else did. So, if a company pays to get a list of cellphone numbers off the web from people who never actually gave their permission to be called and calls them all using the same equipment, one person can file the lawsuit on behalf of everyone else. If 10,000 people were called one time apiece, the damages at $500 - $1,500 per person equals $5 million - $15 million. Double that range if each person was called twice.
Class action settlements, preliminary approval, and those postcards
Most class actions never make it to trial. Courts either dismiss them or they settle at some point during the pre-trial phase of the lawsuit when the parties are exchanging information (known as the “discovery” phase). When class actions settle, they can settle just with respect to the named plaintiff (so only the named person gives us his or her right to sue) or they can settle on behalf of everyone in the class (known as settling on a “classwide” basis).
In cases where the settlement is classwide, it has to go through 2 hurdles: preliminary approval and final approval. For preliminary approval, the parties show the settlement to the Court and have to explain why it is a fair deal for class members. If it seems like its fair, the Court will grant “preliminary” approval and order that notice go out to class members containing the terms of the settlement along with forms that let people submit “claims” under the settlement—that’s the post cards you’ve gotten. When it grants preliminary approval, the court will also set a date about 3 months out for the “final” approval hearing—a court date when the Court will re-examine the fairness of the settlement a second time after hearing the reaction of the class members.
Let’s break this down. In the cellphone call example, let’s say the case settles with the defendant agreeing to pay $2,500,000—less than the case was supposedly worth (again, $5 million - $15 million), but like in any case, when you don’t go to trial you give up money for certainty. The way the money most often gets divvied up to the 10,000 class members is through a “claims process.” Notice of the settlement is sent out to the 10,000 people to the extent they are identifiable. The notice contains the key terms of the agreement and provides a time period for when people have to submit their claims (filling out the claim form—the post cards—and mailing them back to the settlement administrator).1
So let’s say under the terms of the settlement, each class member can file a claim for $300—not a bad deal for getting spam phone calls. If the court grants final approval, the people who file claims will get checks for $300. If the $2,500,000 limit is hit, the amount paid to each claimant is reduced proportionately so as not to exceed the agreed on cap.
Class members also have the right to “opt out” of the settlement or to file an objection telling the court why they think the settlement is unfair. By filing a claim or objecting, the class member is “staying in” the settlement—that means that if the court grants final approval to the agreement, the terms of the agreement will bind the class member and they’ll lose their right to sue the defendant in a separate lawsuit on their own. On the other hand, class members who file requests for exclusions can’t get anything from the settlement but also won’t be giving up their rights to sue the defendant in their own separate lawsuit for $500 - $1,500 if they feel like it.
The final fairness hearing
Once the time period set by the court for objecting and opting out has passed (usually about 45-60 days after notice is sent out telling people about the settlement) and often (but not always) after the time period for filing claims has passed, the court holds a second hearing (fancy name for a court appearance where the parties can present evidence and make arguments), this time to consider whether to grant “final” approval. As was the case when the settlement was first presented to the court for preliminary approval, back before notice was sent out, the Plaintiff’s lawyers have to show the court that the settlement is fair and reasonable. This time, however, the Court also knows the number of opt outs (people who said they’d rather file a separate lawsuit than accept the benefits offered under the settlement) and the objections. Let’s say instead of getting $300 each the settlement gave everyone $5 coupons to the Defendant’s restaurant. That’s hardly a good deal and its likely that if a court granted preliminary approval, the negative reaction of class members who object and point out that the settlement terms stink—a $5 coupon when they could’ve gotten between $500 and $1,500 at trial—could convince the court to deny final approval.
Most settlements get final approval though because Parties negotiate the agreement knowing they’ll have to convince the court to approve it twice. And objections are most often overruled by the Court so long as the agreement’s terms are overall fair. The people who filed objections can actually appeal. When no appeals are filed, or after appeals that are filed are resolved, checks will be cut and sent out to class members.2
So that’s what’s up with those postcards. They affect your rights to get money and sue different companies named in the notice. If you get a class notice, call us so we can tell you if it's a deal worth filing a claim in, objecting to, or opting out of.3
1 Settlement administrators are actual companies that do what their names suggest: administer class action settlements. Someone needs to mail out the notice, collect thousands of claim forms, process them, create and manage the settlement website (which often allow class members to file claims electronically), provide phone support, and process and mail out payments to class members who file claims). There are dozens of settlement administrator companies, and like any industry, a select handful are the most prominent.
2 Appeals can delay payment to class members for months if not years.
3 This overview doesn’t mention how the plaintiff’s attorneys’ are paid. Since class actions are expensive, no plaintiff pays for his own attorney. Rather, like in personal injury cases, the class lawyers operate on a contingency basis. This means they get paid if they win at trial or enter into a settlement where, as part of the benefits given by the Defendant, the Defendant agrees to pay the class lawyers’ attorneys fees. Such fees must be approved by the court in a class wide settlement. The typical fee is around 25% of the amount of money or other benefits secured for the class. In the cellphone example, a 25% fee of $2,500,000 would provide the lawyers who fought the case for the Plaintiffs with $625,000 for their work so long as the amount of time they spent on the case supported such an award.
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