A “claims-made” class action settlement allows the defendant to make a large amount of money “available” to class members, but in order for the members to collect, they must jump through the hoops of correctly filing claims. Because of the low response rate in such settlements, the defendants will end up paying much less than the funds made available. Indeed, of the $8.5 million made available to the class members [in an action over gym membership fees], Global Fitness only paid $1.6 million — a payout of approximately 10 percent of the settlement funds. Despite this low payout to plaintiffs, class counsel are still paid a certain rate based on the funds that were made available — not the funds that were actually paid out — in some instances giving them attorney fees larger than the class members’ damages award!

The class counsel here were paid $2.4 million, nearly $1 million more than the class members collected.

Josh Blackman, a Cato adjunct scholar and law professor, is a member of the class and raised objections to the settlement. [ Ilya Shapiro and Frank Garrison , Cato, on Blackman v. Gascho]

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