Pros and Cons of Third-Party Filers

So you’ve settled your class action and hired a claims administrator. Let the claims filing process begin. In recent years, a cottage industry of third-party filers, also known as claims filing services, has affected the claims process.

Third-party filers (TPFs) are companies or law firms that solicit absent class members to provide services including (i) filing settlement claims on their behalf, (ii) compiling, where necessary, documentation or information to support those claims, and (iii) communicating with the claims administrator to perfect, cure, supplement, or otherwise assist their client with the claims filing process from inception through distribution of funds.

Many TPFs are former class action attorneys or claims administrators and are expert at filing claims. Because they know the process so well, they can add value for some claimants. But, problematically, they can also delay the process and create material additional work for the claims administrator, increasing the cost to the class and delaying payments.

TPFs typically charge their clients on contingency – they usually take a third of the claimant’s recovery. While this can be a value to clients with large claims or claimants who make claims in separate settlements with several defendants (as in some antitrust cases) they can also add little to no value for individuals who are already represented by class counsel. In those instances, the TPF simply reduces the claimant’s recovery by paying attorney’s fees twice, once with class counsels’ fee and again with the TPF fee.

TPFs are a reality of most large-scale settlement administrations. The market has spoken – they are here to stay. There are strategies that administrators and class counsel can employ to facilitate or discourage TPFs to file for their clients. That decision is informed by the goals of class counsel in any particular administration. TPFs can add benefits to the process but they can also add challenges that result in delays and increased costs to the class. The pros and cons of TPFs are discussed below.

Benefits of TPFs

The primary benefits of TPFs are (i) they file claims for claimants that otherwise would not, (ii) they provide correct and efficient documentation to claims administrators, (iii) they keep track of claims for institutional claims like brokerages for securities cases, (iv) they help client prepare complex claims documentation.

Filing claims where claimants wouldn’t. In consumer fraud cases where individuals are the primary claimant, many such individuals either don’t know about the settlement, are not motivated by the amount they can recover or simply are not skilled at making claims or providing documentation. TPFs know alternative documentation for proof of purchase – for instance credit card statements showing charges normally suffices as proof and TPFs can assist the claimant in locating the necessary statements, rather than providing a receipt that the claimant has long since discarded, normally suffices as proof and can assist the claimant in locating the necessary statements.
Documentation. In certain cases, documentation can be cumbersome, especially for companies. TPFs know exactly what documentation is sufficient for a valid claim. Furthermore, they are able to contact the claims administrator and discuss knowledgably the various documentation that might be required. Especially in antitrust and securities cases, where the class period for transactional data is required, TPFs can and do facilitate the process for clients, providing accurate data to claims administrators in a format that the administrator can work with.
Securities Cases. For many brokerage houses, claimants in securities fraud class action cases, portfolio monitors (broker nominees) keep track of the brokerage’s positions and make claims for them where appropriate. Historically, the relationship between the portfolio monitor and claims administrator has been beneficial to both sides, working together to maximize claims and recoveries for victims of securities fraud.
Complex Claims. Since many TPFs previously worked in the claims industry, they know how to document claims in complex cases. An important challenge for any claims administrator in a complex case is the ability to interpret incoming data. TPFs can be helpful to both their clients and the claims administrator when they provide data in a clear usable fashion when filing claims.

Relatedly, when a claimant participates in multiple settlements in the same cases, as happens in antitrust cases, a TPF can streamline the process for their clients and the administrator having learned from previous settlements the requirements for the documenting subsequent settlements.

Challenges of TPFs

Some TPFs engage in practices that are detrimental to the claims process. They (i) create delays and administrative costs by filing “placeholder” claims, (ii)they file duplicative claims, (iii)they file unauthorized claims and (iv) there are documented cases of TPFs filing claims determined to be outright fraud by courts.

Placeholder Claims. A common practice of TPFs is to sign up a claimant without documentation and file a claim to hold their place until documentation is secured. This practice creates additional work for the claims administrator, which must check for duplicate claims (dedupe) once documentation is filed. This can be a problem when the documentation is filed under a different name than the placeholder (a spouse, for example). It can also cause delays when the placeholder claim is filed timely but the documentation is filed outside the claims period. In extreme cases, the distribution has been made in the meantime, creating a conflict where the TPF insists the claim was timely but the documentation is late and the distribution has already been made.
Duplicative Claims. TPFs can create duplicative claims in a variety of ways. Claims administrators have experienced scenarios where both the individual claimant and the TPF file the exact same claim. There are also situations where a claimant signs up with more than one TPF, each of which file a claim for the claimant. This scenario can be exacerbated when, for example, one TPF files for the husband and another files the same claim for the wife. These duplicative claims can be extremely difficult for the claims administrator to dedupe.
Unauthorized Claims. Claims administrators have encountered situations where the TPF believes they represent a claimant, but the claimant either hasn’t retained them or does not know they have retained them. This can happen because many TPFs are not lawyers or law firms and do not necessarily have valid formalized agreements with clients. Even where there is an agreement, some claimants do not understand the scope of the agreement. And because of the placeholder practice described above, sometimes a TPF will make a placeholder claim that the claimant does not want to pursue. And because of competition amongst TPFs, the claimant may encounter an offer from another TPF that promises a larger recovery or will make the claim for a smaller percentage of the recovery. As discussed below, a good practice for eliminating these unauthorized claims is to require TPFs to produce a written agreement for each claimant they represent, but courts have been inconsistent in requiring this practice. That can put the claims administrator in a difficult position as to whether to pay the claim.
Fraud. Unfortunately, there are circumstances where TPFs simply commit criminal fraud making claims for claimants that do not exist or whose records are submitted fraudulently. Every claims administrator has some sort of system to detect fraud in the claims process. With fraudsters becoming more and more sophisticated in their techniques, this fraud is more time consuming to detect and causes delay and increased administration costs.
Practical Implications. What can lawyers settling a class action do to manage TPFs? There are best practices that can address the problems created by TPFs. And not all types of cases are equally affected by TPFs. TPFs are prevalent in antitrust, consumer and securities cases. Because of the value of portfolio monitors, TPFs are welcome in securities cases. The best practices in cases where TPFs create problems for claims administrators include (i) identify client priorities, (ii) design a claim form, notice and web portal to attract or deter TPFs, (iii) determine how rigorous the documentation requirements will be, (iv) create a message code to identify TPFs, (v) audit more closely, (vi) do not pay TPFs directly and (vii) require TPFs to produce their agreements with claimants.
Priorities. Claims administrators should find out the client’s priorities. TPFs can drive claims rates, but they also add expense. If their priority is a high claims rate and they are willing to pay the cost, they can set up the claims process to be friendly to TPFs. If cost is a major factor, they could make it more difficult for TPFs to make claims, or in rare cases, outright restrict TPFs in the text of the settlement agreement or approval Order.
Design. Claims administrators can design the claim form, notice and website to attract or deter TPFs. They can even advise claimants that TPFs exist and describe how they can help claimants. They can also deter TPFs by refusing to pay them directly and requiring them to produce their agreements.
Documentation. Class counsel and claims administrators can work together to determine the documentation required to make a claim. This requirement can even be spelled out in the settlement agreement. Obviously, this must be done keeping preliminary approval in mind and avoiding fraudulent claims.
Identifying TPFs.

Practical Implications

What can lawyers settling a class action do to manage TPFs? There are best practices that can address the problems created by TPFs. And not all types of cases are equally affected by TPFs. TPFs are prevalent in antitrust, consumer and securities cases. Because of the value of portfolio monitors, TPFs are welcome in securities cases. The best practices in cases where TPFs create problems for claims administrators include (i) identify client priorities, (ii) design a claim form, notice and web portal to attract or deter TPFs, (iii) determine how rigorous the documentation requirements will be, (iv) create a message code to identify TPFs, (v) audit more closely, (vi) do not pay TPFs directly and (vii) require TPFs to produce their agreements with claimants.

Priorities. Claims administrators should find out the client’s priorities. TPFs can drive claims rates, but they also add expense. If their priority is a high claims rate and they are willing to pay the cost, they can set up the claims process to be friendly to TPFs. If cost is a major factor, they could make it more difficult for TPFs to make claims, or in rare cases, outright restrict TPFs in the text of the settlement agreement or approval Order.
Design. Claims administrators can design the claim form, notice and website to attract or deter TPFs. They can even advise claimants that TPFs exist and describe how they can help claimants. They can also deter TPFs by refusing to pay them directly and requiring them to produce their agreements.
Documentation. Class counsel and claims administrators can work together to determine the documentation required to make a claim. This requirement can even be spelled out in the settlement agreement. Obviously, this must be done keeping preliminary approval in mind and avoiding fraudulent claims.
Identifying TPFs. Claims administrators can and do create software to detect whether claims are made by TPFs. This identification can determine the type of review for such claims.
Audits. Every claims administration has an audit process. In cases where TPFs are prevalent, claims administrators can employ a more rigorous audit process to review claims made by TPFs. While this is more costly to the client and the class members, it will likely yield more valid claims being paid.
Payments. Pay all claimants directly – make a provision of the settlement agreement that no payments will be made to TPFs. (The SEC precludes any such payments). The TPFs are then paid directly by the claimant according to their agreement.
Agreements. Finally, as a term in the settlement agreement, require all TPFs to provide their retainer agreement for all clients to the claims administrator. These simple additions to class action settlement agreements eliminate fraudulent claims and provide an avenue for TPFs and claims administrators to work together.

Conclusion

TPFs will make claims in class action settlements. Some add value – portfolio monitoring companies in securities cases. Others add costs and create delays. There are strategies that can be used to facilitate or discourage TPFs. When class counsel considers the implications of TPFs at settlement, the parties can create a strategy that manages the effects of Third-Party Filers.

About The Author

Kendall S. Zylstra

Senior Vice President of Class Actions and Mass Torts

Mr. Zylstra has over two decades of experience in complex class action litigation. Throughout his extensive career, Mr. Zylstra has represented dozens of antitrust plaintiffs. He has also served as an Assistant District Attorney in Philadelphia. Most recently, Mr. Zylstra served as senior vice president at Rust Consulting and head of Rust’s antitrust and securities practice areas.

As a Senior Vice President of Class Actions and Mass Torts at Angeion Group, Mr. Zylstra consults existing and prospective clients to identify and meet settlement administration goals for the parties, the court, and all stakeholders. Mr. Zylstra received his J.D. degree from Temple University School of Law and holds a bachelor’s degree in from Calvin College. In 2013, he was appointed to the Advisory Board of the American Antitrust Institute. Mr. Zylstra also serves on the Advisory Board of Committee to Support the Antitrust Laws (COSAL). He is a licensed attorney in the state of Pennsylvania.