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The Black-Box Business of Class-Action Suits

Doing the paperwork behind mass tort cases, from finding plaintiffs to cutting their checks, is a growing and lucrative business. It is also lightly scrutinized.

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Class action settlement check
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They come in the mail like sweepstakes offers, promising cash, new products, or stock warrants to anyone harmed by, say, tainted spinach, securities fraud, or a spontaneously combusting laptop.

Though most people toss such notices in the trash, they are emblematic of a lucrative, if little-known, adjunct to the business of class-action lawsuits: the $1 billion industry of class-action administration.

Class-action administrators not only identify and notify potential beneficiaries of class-action litigation; they also send out mass mailings, process claims, and ultimately determine who receives compensation. But with little or no oversight from the courts, or even from the lawyers who hire them, administrators may not be giving class members their due.

"These firms are operating completely below the radar," said Lester Brickman, a class-action expert and a professor at the Benjamin N. Cardozo School of Law at Yeshiva University, in New York.

At most, an administrator might be required to file an affidavit with the court, stating how much of the settlement money was ultimately distributed and the number of claimants receiving it.

"There are never any specifics, who exactly is getting what," says Brickman. Nor is it usually known how diligent the administrator was in contacting potential class members.

Since defendants often keep unclaimed funds, they have no particular investment in the scrupulous administration of settlements. Also, "the judge just wants to get the case off the docket," said Michael Perino, a professor at St. John's School of Law, in Jamaica, New York, who has authored several articles on class-action litigation.

Then there are plaintiffs lawyers: Having already pocketed their fee, they have little incentive and perhaps few resources to check up on administrators, especially when there are millions of people in a class.

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