Structuring Class Action Settlements

Settlement Structures, Residual Funds, Attorneys’ Fees, and Reverters: Part I

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Class action settlements can be structured in a variety of ways. Many include a common fund, consisting of an agreed-to amount the defendant deposits into a Qualified Settlement Fund, or “QSF,” a tax vehicle that facilitates settlements. Some settlements require the funds to be deposited after the trial court orders preliminary approval of the settlement, while others require that the deposit be made after final approval. The common fund often is a comprehensive amount that includes the funds that will be distributed to class members, as well as amounts for service awards to named plaintiffs, court-approved attorneys’ fees, and expenses that have been and/or will be advanced by class counsel to support the litigation and settlement administration. In other settlements, the common fund includes only those amounts that will be distributed to class members, with the defendant agreeing to pay the other items separately once the court decides how much it will approve and directs the defendant to pay the approved amounts.

Other variations exist both