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May 15, 2023

Is Closer Court Scrutiny of The Class Action Settlement Administrator Selection Process the New Norm?

Julie N. Green
Randi J. Martz

Is Closer Court Scrutiny of The Class Action Settlement Administrator Selection Process the New Norm?

In the world of class actions, the preliminary approval stage of a proposed settlement is a major milestone. At this juncture, the selected claims administrator is ramping up to notify potential class members about the settlement. Historically, it has often been the responsibility of either plaintiffs' or defense counsel to vet the capabilities and experience of their chosen administrator. But in California, we are seeing a trend in which certain courts are also increasing their scrutiny of the administrator selection process. We find this fascinating and expect this trend may continue across more state and federal courts.

Courts have long maintained strict requirements for the administration process. All administrators must adhere to the Federal Rule of Civil Procedure 23, including its requirements for legal notice and class member payment calculations. But courts have seldom required counsel to formally document the administrator selection process, let alone details of the proposed administrator's fee terms, data security practices, potential conflicts of interest, or financial relationships, particularly not at the preliminary approval stage.

Over the past several years, certain courts have taken concrete steps to examine administrators more closely and early in the process. Though the specific rules and procedures may differ by court, the message is clear: courts want to minimize delays, distractions, or anything that could negatively impact the class member or the settlement fund. And they are looking not just at counsel but to the administrators to help make that happen.

In one of the state's earliest examples of court-issued scrutiny, the Superior Court of California, Riverside County established its Case Management Order (most recently revised in 2017). The order focuses pointedly on the administrator's proposed fees and how they are calculated, requiring justification if needed.

Shortly after, the Northern District of California issued its Procedural Guidance for Class Action Settlements (revised in December 2018 and August 2022). The guidance, among other things, requires counsel to explain how they chose the administrator, including the number of administrators that submitted a proposal to do the work. This major shift forced counsel and administrators to sit up and take notice.

More recently, the Superior Court of California in Los Angeles County (LASC) issued its Model Rule Requirements. This is the most robust set of rules we have seen to date, most notably the level of detail a potential administrator must provide at the preliminary settlement approval stage concerning its proposed fees, experience and qualifications, procedures for protecting the class data, and more. Given the sheer volume of class actions filed in LASC each year, the impact could be substantial. When preparing for your next settlement, we recommend referencing LASC’s Model Rule Requirements and the Northern District's Procedural Guidance to ensure a best practice approach to the settlement and administration process. In addition, we recommend involving your administrator as soon as possible so that you and your administrator are in sync. Here are some of the key aspects to be considered: 

Ability to secure class data. The security and confidentiality of class data are paramount throughout the administration process. This starts with the initial data transfer between counsel and the administrator. Ensure your administrator has the necessary protocols in place to manage class data securely. They should have documented evidence of policies and procedures that comply with Federal and State regulations. Pursuant to the Model Rule Requirement, administrators must explain in their declaration their operative procedures for protecting the security of class data. 

Insurance coverage for data breaches or funds mismanagement. Administrators carry a wide range of professional insurance coverage. They should be able to provide evidence of policies for errors and omissions, fidelity, and cyber insurance to cover any potential losses that could negatively impact the class or jeopardize the settlement. Under the Model Rule Requirement, administrators must explain in their declaration the amounts of insurance coverage for any data breach, defalcation of funds, or other misfeasance they carry.

Potential conflicts of interest with class members. Right from the start, the court seeks to uncover any pre-existing relationships between the administrator and a class member that could influence the outcome of a settlement. For example, the administrator must prove there is no tie between it and the lead plaintiff, for example, the lead plaintiff being a current or former employee. Pursuant to the Model Rule Requirement, administrators must explain in their declaration all facts relevant to any actual or potential conflicts of interest with Class Members.

The existence of financial relationships. The court wants to know about any financial relationship between the administrator, class counsel, or lead plaintiffs. While broad, we interpret this to be in reference to any relationship that could financially benefit said parties and suppose this could extend to a law firm representing the administrator on an unrelated matter. Under the Model Rule Requirement, administrators must explain in their declaration the nature and extent of any financial relationship with Plaintiff, Class Counsel, or Defense Counsel

Not-to-exceed bid. The court requires a not-to-exceed bid, so ensure your administrator fully understands the scope of services and can provide an accurate quote. It is extremely helpful when requesting a quote to provide the administrator with the parties' settlement agreement and an accurate count of members in the proposed class.

If other state and federal courts follow LASC's and the Northern District's lead, from our standpoint, the terms are straightforward and good news for experienced and qualified administrators. In many instances, we are already providing this information to counsel in other contexts aside from the declaration for the court. 

Ultimately, this trend by the courts to seek a more thorough review of the settlement administration process is a positive development. Many of the court's requirements should be best practices, and they establish a benchmark for what all administrators should provide. Get ahead of the curve by planning with your administrator to ensure these requirements are met; this way, you will be certain to keep the settlement process moving efficiently and avoid delays in receiving preliminary approval of your case! 

About the Authors:

Julie N. Green is the Senior VP of Operations and Notice Expert at CPT Group. Over the past 18 years, Julie has designed and implemented hundreds of class action notice programs. Her ability to navigate complex notice requirements helps clients make informed decisions to meet their unique settlement goals while adhering to stringent court and data privacy mandates. 

Randi J. Martz is the Director of Marketing & Business Development and Notice Expert at CPT Group. With more than 14 years of class action administration experience, Randi's research, planning, and design acumen drive innovative legal notice programs. Her recommendations and strategies help clients pinpoint efficiencies and cost reductions as they accomplish their settlement goals.