When Seeking a Settlement Administrator, Price is only Part of the Equation
In the mass and class action space, legal professionals widely recognize the significance of selecting the right third-party administrator ("TPA"). Amid our role as a TPA, a reoccurring question arises, "What’s the lowest estimate you can provide?” While the financial aspect is undeniably crucial, it should not be the sole determinant when vetting a TPA. Gaining a comprehensive knowledge of the numerous benefits a TPA offers to the administration process is crucial, especially when judges' involvement in the selection process becomes more apparent. Before allowing pricing to guide the decision on which TPA to retain, it is essential to consider the following factors, which hold equal or greater significance than cost alone.
Judicial Interest
In recent years, a noteworthy shift has occurred in the way certain courts approach the selection of TPAs, making it an issue of growing significance for class action attorneys to consider. These changes aim to streamline the administration process, reduce delays, and enhance the overall experience for class members and the settlement fund. Notably, courts are no longer solely scrutinizing Counsel's decisions but are also focusing on TPAs to contribute to this goal.
For example, the Superior Court of California in Riverside County revised its Case Management Order in 2017, specifically emphasizing the administrator's proposed fees, with a requirement for justification if necessary. Shortly after, the Northern District of California introduced its Procedural Guidance for Class Action Settlements, last revised in December 2018 and August 2022. This guidance mandates that Counsel explain their choice of administrator, including how many TPAs submitted proposals, signaling a significant change that demands attention from both attorneys and administrators.
Most recently, the Superior Court of California in Los Angeles County (LASC) established its comprehensive Model Rule Requirements. These rules represent a substantial shift in the level of detail expected from potential administrators at the preliminary settlement approval stage, covering areas such as proposed fees, qualifications, data protection procedures, and more. Given the high volume of class actions filed in LASC annually, this development carries significant implications. As class action attorneys prepare for their next settlements, referencing LASC's Model Rule Requirements and the Northern District's Procedural Guidance can ensure the adoption of a best practice approach to the settlement and administration process. These evolving court initiatives underline the increasing relevance of understanding the role and value that a TPA brings to the administration process in today's legal landscape.
Transparency and Equity in the Bidding Process
The nuances that govern bid quotations can sometimes be intricate, leading to variations that might seem perplexing. Understanding the parameters that influence bids is paramount, as bids can often fluctuate based on factors such as case complexity, the scope of work, anticipated timeframes, and the resources required. Each lawyer or administrator might approach these elements differently, leading to differences in quoted figures. One approach to fostering consistency in the bidding process is establishing a checklist of assumptions and variables that align with Rule 23 and due process requirements. Enhancing the TPA’s toolkit with an elaborate compilation of assumptions, or even a spreadsheet containing these assumptions interwoven with diverse formulas, heightens the likelihood of obtaining more readily comparable bids. This assists Counsel in making informed decisions and promotes fair competition among administrators.
Addressing the scenario where a seemingly lower bid may not necessarily equate to the best value is also critical. While a TPA might initially present a more cost-effective solution, the risk arises if the bid is based on inaccurate assumptions or an incomplete evaluation of the needs of the administration. Such oversights could lead to final expenses surpassing the anticipated budget. This is why a comprehensive understanding of the scope of the case, coupled with an accurate assessment of variables, is imperative to understanding a bid’s true value. To ensure that bids are rooted in accurate assumptions, TPAs should base their quotes on cases with similar circumstances and target audiences, drawing parallels to past scenarios. This approach standardizes the bid and helps achieve more accurate estimates, reducing the likelihood of unforeseen expenses while maintaining legal compliance. It should be noted, too, that recent observations have unveiled a concerning pattern where bids are hastily assembled, overlooking the necessary adherence to due process and Rule 23. This lack of diligence in complying with the Judges’ Class Action Notice and Claims Process Checklist and Plain Language Guide often translates into lower, and often times inaccurate, bids in the competitive bidding landscape.
Cyber and Physical Security
In this digital era, where financial transactions and data exchanges transcend physical boundaries, security takes center stage in every facet of operations. TPAs tasked with managing substantial amounts of money, sensitive and confidential data shoulder the responsibility of safeguarding that information while ensuring a seamless administration process. As data breaches become more prevalent, security is not merely a checkbox but a fundamental cornerstone. TPAs prioritizing and investing in robust cyber and physical security measures demonstrate their commitment to protecting the settlement process, settlement funds, and data entrusted to us. TPAs who have not invested in their security measures put sensitive information and the settlement funds at risk and jeopardize the settlement’s very foundation.
While the line item for security may not always feature prominently in a proposal, its absence can cast a long shadow over the settlement process. A settlement administrator who is diligent about maintaining proper insurance, conducting regular security audits, and staying abreast of technology upgrades carries significant financial burdens. Counsel seeking settlement administrators must recognize that security isn’t an optional add-on; it’s an integral component of successful settlement administration management. Though not always overt, these costs contribute to the overall quality and reliability of the administrator’s services and are an investment in the settlement’s long-term viability.
Neutrality, Reputation and Transparency
Neutrality is an essential principle of procedural justice. It is the goal of TPAs to protect all parties involved, including class members. While both sides of the bar are expected to zealously represent their clients in every class action, TPAs are entrusted to serve as unbiased partners. Caution should be exercised when dealing with a TPA with a propensity to always say yes. A TPA should be willing and capable of declining requests and demands if such compliance could compromise the impartiality of the settlement. TPAs that show even a slight bend or fail to seek clarity from both sides risk eroding their neutrality.
In tandem with maintaining a neutral stance, cultivating a reputation for unwavering integrity, complete transparency, and consistently ethical behavior is imperative. The process of selecting and retaining a TPA should call for careful consideration, taking into account the immediate benefits of the case and the enduring advantages that arise from establishing a strategic partnership.
At the commencement of the administration, delineating essential requirements and tasks is necessary. This strategic collaboration with a TPA optimizes benefits and lays down the groundwork for court approval, reinforcing the steadfast commitment to upholding fairness and ensuring transparency throughout the process. It’s not uncommon to encounter situations where the integrity of a TPA is called into question during the Final Approval stage. Such instances typically arise when the TPA’s actual fees and expenses greatly exceed their initial estimates by two or three times. This underscores the importance of exercising caution when confronted with significantly lower bids than those offered by others. While some attorneys and judges might demand strict adherence to the original bid, numerous instances of discrepancy go unnoticed, emphasizing the significance of vigilance in the TPA evaluation process.
Experience
Each distinct practice area has its own intricacies, encompassing legal procedures, complex calculations, taxation concerns, and communication needs. Mishandling any of these aspects can lead to a nightmare scenario for both legal practitioners and the court, further jeopardizing the case’s ultimate resolution. In the current competitive landscape, the chosen TPA must possess the acumen to handle the distinctive nuances of each case. These intricacies span various facets, including the nature of the case, the organizational context, class size considerations, demographics of the class, the strategic approach to the notice campaign, and, occasionally, even the preferences of a specific judge or court. An adept TPA boasts an astute comprehension of these details and is accustomed to the evolving legal landscape – all of which collectively underpin the pivotal role of guaranteeing a compliant and well-executed settlement process.
Efficiency and Timeliness
Collaborating with an expert TPA provides a pivotal advantage – the ability to streamline what would otherwise be a cumbersome process, thereby expediting the case’s resolution with precision and accuracy. Within this context, the establishment of efficient protocols and the integration of well-established systems are of paramount importance. These factors serve as the backbone for effectively managing the multifaceted notice and claims processes, ensuring prompt fund distribution, curbing potential delays that could impede progress, and minimizing administrative burdens.
It’s worth noting that while the appeal of hiring a lower-priced administrator might be financially advantageous, such a decision could come at the expense of compromising the efficiency and overall quality of the administration. As another industry partner aptly points out, the adage, “Quality costs more,” still holds true. The rationale behind this sentiment becomes evident when considering the most desired outcome— a seamless final approval process. This perspective stresses the importance of prioritizing quality over cost, as it yields a more favorable outcome for all parties involved by contributing to a smoother and more effective settlement process.
Responsiveness
Ensuring the needs of claimants and Counsel through effective communication and responsiveness is always vital to a successful administration. Open and proactive communication cultivates trust, reduces uncertainty, and lessens the likelihood of misunderstandings or conflict. No one wishes to experience the worry of delays and added expenses due to miscommunication or unresponsiveness from their chosen TPA. The TPA should be able to promptly and accurately address the settlement’s requirements. This includes providing timely proposals, offering regular status updates on the developments and progress of the case, and swiftly adapting to any unforeseen changes. Such practices will curtail the need for additional work and avoid unwarranted delays, benefiting both Counsel and the court.
Conclusion
In the quest for the ideal TPA, it is apparent that the significance of price must be placed within a broader context. The inquiry about the lowest bid often echoes loudly, yet this should not overshadow the multitude of other pivotal factors that govern the effectiveness and integrity of the settlement administration process. The combination of integrity, security, expertise, efficiency, and responsiveness carry weight equal to, if not surpassing, the cost factor, ultimately shaping the foundation upon which a successful settlement administration is built.
About the Authors
Dominique Fite is a Vice President of Business Development for CPT Group, Inc. She leverages her extensive experience to provide clients nationwide with strategic guidance, tailored solutions, and cost-effective approaches during the formative stages of class action notice and claims administration processes for a diverse range of case types. She has 15 years of involvement in the realm of class actions, first starting as a litigator representing plaintiffs before specializing in class and mass action settlement administration. She holds a J.D. from American University, Washington College of Law.
Ryan Schley, Esq.
Ryan Schley is a Vice President of Business Development for CPT Group, Inc., where he advises and develops customized solutions during the developing stages of the settlement administration process. He is a California licensed attorney with a J.D. from Western State University College of Law and a B.S. from the United States Military Academy at West Point.
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In the LASC, 131,508 cases were filed from January 1, 2022, to December 31, 2023, with approximately 12,025 of these cases being class actions. This contrasts with the Federal Court, where 10,017 class actions were filed (Lex Machina).
