By Alexandra Lawrence
In October 2019, the United States Federal Trade Commission (FTC) held a public workshop on how to improve class action settlement notices for consumers. The FTC’s primary concern was to ensure that consumers are receiving appropriate redress when competition and consumer protection class actions settle. Much of the discussion at the workshop centered on the FTC’s Staff Report “Consumer and Class Actions: A Retrospective and Analysis of Settlement Campaigns” and used the data from that Report to discuss how settlement notices can be more effective.
This workshop is just one example of the United States’ more comprehensive and data-driven approach to reviewing the effectiveness of settlement notices in class actions, a topic that has received less attention in Canada. The FTC Staff Report and the subsequent workshop were born out of concern that the settlement notice programs of consumer class actions lacked effectiveness and were not achieving their expected outcomes. As a consumer protection agency, the FTC is concerned about settlements not adequately compensating consumers because the settlement process itself creates barriers to class members participating. In light of this concern, the response of the FTC was to initiate a quantitative, data-driven study to identify deficiencies in the settlement notice process, followed by a qualitative approach by way of the workshop to discuss the Report’s findings.
A data-driven approach to class actions has also been pursued elsewhere in the United States. In November 2018, the United States District Court for the Northern District of California reformed its procedural rules for class action settlements, mandating the disclosure of claims rate data and a full accounting of monetary recovery. The Northern District’s Procedural Guidance for Class Action Settlements were discussed at the FTC’s workshop and were praised by several panelists.
Beyond encouraging a data-driven approach to assessing the effectiveness of class action settlements, the FTC also presented data on best practices for settlement distribution. Not surprisingly, a direct payment approach statistically yields the greatest success in compensating class members. A direct payment is only possible when the class member’s identity and contact information is available to the defendant, allowing for a cheque or payment being sent directly to the class member. The FTC reported that 67% of individuals who receive cheques, cash them. In comparison, a claims-made approach, where class members have to take active steps to make a claim for compensation, yields a claims rate of 5-20%.
The FTC noted that in many class actions, a claims-made approach is favoured over a direct payment approach even where the defendant is in possession of the required information. Part of its advocacy work is to educate courts about favouring claims-made processes over direct payments.
Canada’s Approach to Class Action Settlement Outcomes
In Canada, while some discussion about a need for a data-driven approach has taken place, reporting is mandatory in only one jurisdiction so far. Rule 67 of the Superior Court of Québec in Civil Matters requires that information such as the number of class members who made a claim and the amount paid to each class member be reported to the court at the end of each class action. This rule came into force on September 1, 2012, several years before other jurisdictions started considering these types of reforms.
In its Final Report, Class Actions: Objectives, Experiences and Reforms, the Law Commission of Ontario (LCO) acknowledged that a lack of empirical data about settlement outcomes has made the analysis of said outcomes more challenging. The LCO recommended that outcome reporting be mandated in Ontario. The Ontario government adopted this recommendation in Bill 161. If passed, the new provisions in the CPA will require reports at the end of a settlement distribution, including information about the amount of the settlement funds paid out, the number of class members who received notice of the distribution, and the take-up rate – the number of class members who made a claim and were compensated.
In terms of the method for distributing settlement payments, there appear to be far fewer reported cases of direct payments to class members in Canada than in the United States. One of the few cases where a direct payment was made to class members occurred in CBS Pictures v Dillon, a case concerning the surplus rights under a retirement pension plan. There, the identities of all but one of the 139 class members were known, and the settlement allowed for class members to choose between either cash, benefit enhancements, or a combination of both for their approximately $113,000 payouts.
Few Canadian direct payment class actions have involved a scheme similar to that championed by the FTC, where class members are sent cheques directly without any claims process, but it is impossible to say for certain without more data. The question of why direct payments are – or at least appear to be – less common than claims-made approaches could be because class members’ contact information is not known by the defendant, or because damages cannot be determined without a claims process. It could also be the case that there are direct payment distribution methods being utilized in class actions, but we aren’t aware of them because there is no mandatory reporting obligations about settlement distribution outcomes outside of Quebec.
The LCO Report and Quebec’s court rules demonstrate that some attention in Canada is being paid to the lack of empirical data on class action settlement outcomes, but it is clear that in comparison to the United States, Canada is still far behind in this regard. Class actions are procedural tools which are designed to provide access to justice to the masses. How can we know whether access to justice – where justice is defined as compensation for harmed class members – is being achieved if we cannot measure the outcomes of class actions? When it comes to class action settlement outcomes, more data is definitely better.