Return to sender? – Class-Action Settlements
Joan Urdang
Corporate targets of class-action lawsuits, such as securities-litigation or product-liability cases, have long argued that plaintiffs’ lawyers stand to gain exponentially more than the members of the class. Indeed, plenty of the money won in settlements never gets to those who have been wronged.
For example, in 1999, Toshiba America Inc. agreed to pay out $2.1 billion to almost 2 million owners of its laptops as part of the settlement of a suit that claimed the computers contained faulty disk drives. But many owners never filed claims forms, and $350 million of the settlement was left neglected. A federal judge ruled that the remaining money could be used by schools and nonprofit groups to buy computers.
“More money has been left on the table recently,” says Jim Newman, executive director of Securities Class Action Services LLC, a subsidiary of Institutional Shareholder Services Inc. In many cases, the unclaimed awards are simply the result of a batch of out-of-date addresses, or claims forms that were never filed. So what happens to the funds? After “reasonable and diligent” efforts have been made to locate the beneficiaries, says Dick Redfern, president of Rust Consulting Inc., a Minneapolis-based claims administrator, the money can be redistributed to those claimants that have already cashed their checks; it can be donated to an organization (as in the Toshiba case); it can revert to the state as unclaimed property; or it can even go back to the defendants in the suit. The disposition is usually stipulated in the settlement or decided by the presiding judge.
It’s not just individuals who lose out on money they are owed; many companies also fail to collect on class-action suits. A study published recently in the Washington University Law Quarterly reported that a sample group of companies filed for just 23 percent of claims for which it was eligible. The average dollar award the companies missed out on was $75,112.
PUNY RECOVERIES
Many settlements are too small to bother with.
Case Per-share loss * Amount recovered *
Advanced Health $4.44 $0.05 (1%)
Caprius 3.80 0.05 (1%)
Ikon Office Solutions 5.76 0.30 (5%)
Swisher Int’l 4.75 0.24 (5%)
Software AG Systems 3.03 0.19 (6%)
* Estimated
SOURCE: SECURITIES CLASS ACTION SERVICES
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