The Rise Of Smaller Class Actions

On July 22, 2014, NERA Economic Consulting (NERA) published a study of consumer class action settlements between 2010 and 2013. The report states that NERA's data "show a steady increase in consumer class action settlements from 2010-2013." NERA found that 66 class actions were settled in 2010, 111 were settled in 2011, 141 were settled in 2012 and 161 were settled in 2013. In other words, nearly 100 more class actions were settled in 2013 than were settled just three years prior.

At the same time, however, NERA also concluded that the aggregate amounts paid by settling defendants in each year only exhibited a "gradually increasing trend" when two large, outlier settlements are excluded. (These two outlier settlements are a $7.25 billion settlement of antitrust claims alleging that merchants paid excessive interchange fees for accepting Visa/MasterCard and a $1.6 billion settlement of claims alleging that Toyota vehicles experienced sudden, unintended acceleration.) In fact, when these two outlier settlements are excluded, the average amount of each settlement "showed a slightly decreasing trend" during this period. Thus, although the number of class action settlements increased substantially since 2010, the average per-case settlement amount actually declined while the aggregate annual settlement amount increased only gradually.

NERA's data are consistent with the authors' experience in consumer class actions during the last five years, who have also observed the trend of more class action settlements for smaller settlement amounts. What is causing this trend, and what can businesses expect in the future? Three basic conclusions are drawn, as follow.

Conclusion No. 1: Class Action Lawyers Are Focusing on Volume

A primary cause of this trend is a shift in the nature of the class actions being filed. Plaintiffs' lawyers are filing a higher volume of class actions that have comparatively smaller values. Indeed, class actions are increasingly becoming a volume, "commoditized" enterprise for many plaintiffs' lawyers. The following factors from the NERA data and the authors' own experience support this observation.

Plaintiffs Are Filing More Class Actions Involving Smaller Damages

For example, there has been a recent boom in the filing of smaller value class actions, including claims involving food labeling (e.g., claims alleging that products are mislabeled as "All Natural," claims alleging misleading calorie content, etc.), consumer privacy...