Last month, the philosopher and New York Times "Ethicist" columnist Kwame Anthony Appiah fielded a reader question near and dear to our hearts: should I file this class action claim? Here is the question in full:

“I was recently informed via email that I could be entitled to a share of a settlement from a class-action lawsuit. The company being sued denied wrongdoing but agreed to the settlement to avoid an expensive legal battle. I admire this company and have used its product for years. My suspicion is that the lawyers behind the lawsuit are bounty hunters exploiting a technicality. Should I still file for my share of the settlement? (It would be modest — enough to take my husband out for dinner.) If I don’t take my share, everyone else will just get more.”

Now, before we get to Appiah’s answer, here is ours:

File the claim!

OK, here is our longer answer:

The only thing we can discern from these details is the settlement is pro rata, which is a Latin term meaning “in proportion.” In a pro rata settlement, each claimant gets a percentage based on two things:

1)     How much the claimant purchased. (i.e., if it is a refrigerator settlement and you had purchased one fridge from the defendant, then you get one portion of the settlement. Two fridges, two portions, etc.)

2)     HOW MANY PEOPLE FILE A CLAIM

Yep, that second point is all-caps-level serious. That’s because the typical class action has a very low participation rate. In many cases, class members receive far more than they would if 100% of the class filed claims. (A good rule of thumb is that the average case has a 33% participation rate.)

The rest of the litigation is a mystery—but fortunately it’s also irrelevant since the court is no longer even considering the merits of the case. 

The reader notes, in defense of the company it seems, that they “denied wrongdoing but agreed to the settlement to avoid an expensive legal battle.” However, defendants just about always say that. Likewise, plaintiffs will similarly say the opposite— something along the lines of "While Class Representatives believe they have meritorious claims, they recognize that there are significant obstacles in the way to recovery."

When the court approves a settlement, it no longer considers whether the plaintiff’s claims are true or the defendant’s denials are true. It simply considers whether the settlement’s proportionality is fair to all those deemed class members. Also keep in mind that the court could have dismissed the case at many points on the road to this settlement, which is something courts do in other cases all the time. If it was not clear to an attorney savvy enough to rise to the level of arbiter of complicated legal disputes—that is, a judge— how will it be readily obvious to a claimant?

Of course, there have been excesses in the court system. "Tort reform” has been a cause for decades in the United States, and Congress has passed measures like the 2005 Class Action Fairness Act and the 1995 Private Securities Litigation Reform Act to try to prevent abuses of the class action system by opportunistic people. But even in a case where the average citizen and the savvy expert alike might roll their eyes and say, “This case is ridiculous,” remember that neither the court nor the settlement affirms or denies the claims of the case. At this point, the court certifies that a group of people and/or businesses are a class, and each member of that class has been granted rights in proportion to their experience with the defendant company. And that’s it.

To file that claim is to claim those rights. To choose not to is to cede those rights—and the money to someone else.

So, what did Professor Appiah say? (We’ve highlighted the core of his response.)

“From one perspective, the company and the class-action lawyers are both economic actors; the company’s legal team will have made their best assessment of its potential losses, as the opposing lawyers will have made their best assessment of their potential gains, and they will have litigated or negotiated accordingly. Still, if you are right — and you ought to spend a little more time to satisfy yourself that you are — taking your share would mean going along with a scheme that wrongly exploits the class-action system. Your suspected bounty hunters wouldn’t really be contributing to either of the two desirable ends that can recommend such suits: compensating those who have been wronged and discouraging future offenses. Giving up your share wouldn’t change this, of course. But at least the affair wouldn’t be something you took part in or benefited from. Why not let your husband take you out to dinner and celebrate that?”

The Ethicist is a fun column, but we think Professor Appiah gets it wrong here. A low participation rate is not the force which will stop exploitation in the class action system, and the reader is not “going along with a scheme” if the scheme has already ended. The reader, by ceding money to other claimants, is simply ensuring those claimants get an ever-so-slightly larger slice of the settlement.

Link:

"Should I Take My Share of a Class-Action Settlement I Think Could Be Bogus?" --The New York Times