Nonpecuniary Class Action Settlements

Abstract

Nonpecuniary settlements - agreements in which consideration other than immediate cash payments are given to class action plaintiffs in exchange for a release of liability - have become controversial methods for resolving large-scale litigation and thereby, in theory, deterring corporate misconduct. Such settlements, it is claimed, enrich attorneys but provide no substantial benefit either for the public or for the class members who have suffered harm. This study provides the first empirical and analytical investigation specifically focusing on such settlements. We categorize nonpecuniary settlements into five general types: (1) coupons, (2) securities, (3) monitoring, (4) reverter funds, and (5) fluid recoveries. We demonstrate that nonpecuniary settlements can sometimes serve the interests both of the plaintiffs and the public, although in other cases such settlements will be socially undesirable. We identify a number of features of nonpecuniary settlements that tend to enhance their value or to substantiate the inference that such settlements are fair, adequate and reasonable from the standpoint of class members. Finally, we examine a data set of 127 class action settlement notices published in the New York Times from 1993 to 1997, in order to situate the topic within the overall context of class action litigation.