Nonpecuniary Class Action Settlements

Abstract:     
This paper provides a theoretical and empirical analysis of "nonpecuniary" class action settlements -- coupons, monitoring arrangements, securities issuance, reverter funds and fluid recoveries. Because of valuation problems, these settlements can be criticized because they facilitate deals between plaintiffs' attorneys and defendants, reducing the benefits available to class members. On the other hand, there are potential economic benefits from these settlements. Coupon settlements conserve the difference between wholesale and retail prices; monitoring settlements offer potential economies in providing insurance; securities settlements and reverter funds address problems of potential insolvency of the defendant, and fluid recoveries may optimally deter wrongdoing in cases where compensatory damages would not. We argue that courts engaged in fairness review of nonpecuniary settlements should apply the following test: "Is the settlement under consideration as good or better for members of the class, with a range of reasonable error, than what realistically could be expected in a cash settlement?" We support our analysis with a review of 127 class action settlement notices taken from the New York Times, and by a nationwide survey of class action attorneys' fees rules.

Note: This is a description of the article and is not the actual abstract. The views expressed in the article do not represent the views of the Department of Health and Human Serivces.

JEL Classification: K41

Accepted Paper Series