Your Guide to Underwriting Class Action Lawsuits

Josh Schwadron

Written By

Josh Schwadron

Chief Executive Officer

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Published On

January 1, 2021

Published On

January 1, 2021

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Quick Answer

Class action lawsuits come in a number of different stripes. Such grievances could be brought about by injuries from defective products, including pharmaceutical drugs, motor vehicles and other consumer products such as medical devices. Beyond those, consumer fraud, securities fraud, corporate misconduct, and employment practices can also lead to the filing of class action lawsuits.

Often individual injuries are minor, so one person may not want to go through the hassle of hiring an attorney and pursuing redress through a formal lawsuit. If, however, the same conduct or action has affected a substantial number of people, then those individuals could sue as a class and thereby consolidate the attorneys, defendant, evidence, witnesses and most other aspects of the litigation. The lawsuit is filed by a lead plaintiff (or lead plaintiffs) on behalf of a larger group, which is then referred to as a "Class."

For you and your legal funding company, class actions represent a compelling case-type for investment. If you accurately underwrite just one claim within a class action, the other hundred/thousand are now within your purview to understand and fund.

Having said that, the temptation to bet the house on a single class action or MDL can leave you over-leveraged if the class-action goes belly up.

To help you and your team better understand and assess class action cases, we're going to break down key case information and documents needed to accurately assess a class action for legal funding.

The goal of this post is to help all levels of your legal funding organization, including:

  1. Business owners: update and assess document requests and underwriting criteria.
  2. Underwriters: get a refresher on what to look out for, and provide another framework for you to compare your criteria against.
  3. Case managers: if you agree with our suggestions in "Why Failing to Build Underwriting Operations is Losing You Money" you will benefit from this article by learning what else to look out for and increasing your legal fluency when discussing cases with attorneys.

For starters, if you're interested in keeping up with the current class actions working their way through the court system, these are fairly reliable resources:

  1. Featured List of Class Action Lawsuits
  2. Consumer Action - Class Action Database

Class Action Specific Features

Here are a handful of factors to consider while  processing and tracking class actions, which diverge from your standard PI case:

  1. These cases are highly competitive for everyone involved-attorneys and legal funders alike. Expect to pay a premium if you wish to generate leads via search engine marketing.
  2. Often, these cases are concentrated among a handful of major firms and attorneys, so you'll likely work with the same firm and same people over and again. Best to keep the relationship positive.
  3. Don't expect to talk to the actual attorney handling your applicant's case-they are managing hundreds, if not thousands, of plaintiffs' cases. Instead, many firms have a dedicated paralegal or case manager assigned to manage all plaintiff funding requests.
  4. HIPPAs may be required for you to obtain medical records, so be prepared for a slowed-down application process

Documentation You Always Need

Class-Action-Specific Documents

A lot of the required documents are conditional on the specific class action you are underwriting. Generally speaking, though, you can safely assume you'll need to request evidential documents, verifying the plaintiff in fact:

  1. Used of the product or service
  2. Suffered harm due to that usage
  3. Is part of the class via a copy of claim form filed by plaintiff, along with proof of filing

For Depuy hip cases, for example, you should request medical records evidencing the initial implant surgery of the specific Depuy product, as well as the subsequent medical complications and additional procedures required to remedy those complications.  

Filed Copy of the Class Action Complaint

The class action complaint will clearly lay out the nature of the action, parties involved in the action and the common factual allegations. Although a plaintiff need not identify individual class members prior to class certification, he must show that there is an available method to identify class members based on objective criteria, which is included in the complaint as a request for class certification.  

Preliminary Approval Order

The preliminary approval order cites a number of critical details, such as appointment of class counsel, appointment of a settlement administrator, approval of a  program for disseminating notice to the class and, finally, a date for the fairness hearing, at which the settlement is granted final approval.  

Settlement Agreement and/or Binding Memorandum of Understanding

The settlement agreement is the most critical part of the documentation since it will lay out the terms on which the parties have agreed to settle the class action lawsuit. It will specify, amongst other things, the monetary relief that will be provided to the class members (class members are persons who fall within the Class definition), the amount of attorney fees and expenses to which defendants will not object (the court awards the attorney fees after a fee petition is filed by the concerned attorneys), the process for submitting and reviewing claims filed by the class members, name of the class counsel and form of the class action notice.

If a settlement website is to be constructed, the settlement agreement provides relevant details for the establishment of the website and its content. The settlement agreement should be fully executed by all parties. While reviewing a settlement agreement make certain of three things: it appears fair and equitable, the relief provided to the class members is meaningful and not inadequate and the claims filing process is not unnecessarily cumbersome. These factors are considered closely at the time of final approval of the settlement.

Final Approval Order

A final approval order is technically not a document you need at the time of funding, since it takes a considerable amount of time to reach the final approval stage after preliminary approval. By the time final approval is given, it is likely attorney fees will be paid shortly thereafter. Most attorneys like to fund their attorney fees on a class action lawsuit well before final approval stage.  

Documents to help you understand the fee split

Court Approval of Attorney Fees and Retainer Agreement

The settlement agreement may have a portion which establishes the attorney fee for which the attorney will file a petition to the court and acquire an assurance from the defendant, stating they will not object to the stated attorney fee as long as the court approves it. The Eleventh Circuit Court of Appeals has reaffirmed that attorney fees should be awarded based on a percentage (most commonly 25% or 30%) of the total monetary awards (known as a percentage-of-recovery method) made available to the class in class action settlements, as opposed to the actual claimed total value of the settlement. Factors that might affect the amount of attorney fees the court could award in a class action settlement include:

  • inadequate or meaningless relief for class members
  • complexity and confusion of the notice and claim forms
  • whether the settlement is negotiated at arm's length or under the supervision of a well-recognized mediator who provides reasonable opportunity to class-members to submit easy-to-understand claim forms

At the same time, understand courts have determined that attorney fees should be structured as an incentive for lawyers to risk achieving the highest possible benefits for the greatest number of class members.  

Fee-split Agreement with co-counsel (if any)

A fee-split agreement would designate other counsel on the case who needs to be paid as well. Keep an eye out for any other attorney names which pop up during your web research on the concerned case so you may determine whether they have a share in the overall fees.  

Sharing Fees with Referral Attorney

As for attorney funding, it is always a good idea to obtain written confirmation that the attorney does have to share his fees with a referral attorney. An email confirmation is sufficient in most instances.  

A Friendly Reminder For All Case Types- Further Risk Minimization

Bankruptcy Risk

Always do a thorough debtor rating while looking over potential cases to fund. In most instances, this is done by another department within the funding company. However, as an underwriter, you are responsible for verifying the identity of the debtor or defendant, who will ultimately pay the settlement. A thorough look into the financial health of a debtor can help you avoid a debtor who might claim bankruptcy a few months down the line.

Court-stamped Documentation

As a matter of procedure, insist all case documentation that has been filed in the court be clearly court stamped. If this is not possible, request that the attorney provide some form of proof demonstrating the documents in question have been filed with the court. For most class action settlements, a settlement website is set up, which becomes a repository for all relevant court documents, lists important deadlines and gets regular case updates. Such a website can be used to verify the status of the case and the documentation.

Defense Counsel

Check law firm websites to confirm names of defense counsel listed on documentation provided by a client to ensure that the said defense counsel is still with the firm.  

You do not want to be stuck holding a non-binding document because the defense counsel left the firm. The firm may attempt to fight the settlement, or at least attempt a renegotiation.  

Do Independent Research

Whenever possible, monitor the progress of the case if the case is available on the relevant court's website to ensure there are no undue delays or any other matters impeding the smooth resolution of the case. As indicated above, a class action settlement is a good starting ground for independent research.  

Disciplinary History of Attorney

To maximize caution and minimize risk, it is always helpful to check the status of the attorney you are planning to fund using the State Bar, in addition to any other available disciplinary history.

If applicable, focus on the reasons for any censure or suspension on your attorney's record. For example, if he/she was reported for tardiness or use of delaying tactics in court, you can and should assume there is lack of commitment to the profession and, ultimately, to the client. It'd be better to decline that attorney rather than waste resources personally ensuring your case is handled in a timely and professional manner.

Josh Schwadron

Written By

Josh Schwadron

Chief Executive Officer

About the author

Joshua is a lawyer and tech entrepreneur who speaks and writes frequently on the civil justice system. Previously, Joshua founded Betterfly, a VC-backed marketplace that reimagined how consumers find local services by connecting them to individuals rather than companies. Betterfly was acquired by Takelessons in 2014. Joshua holds a JD from Emory University, and a BA in Economics and MA in Accounting from the University of Michigan.

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