Class action lawsuits are usually resolved with one of two settlement structures: a common-fund settlement or a claims-made settlement. A simple way to think about the difference between the two is that the former is for a fixed amount while the cost of the latter is variable.
Common-Fund Settlements
In a common-fund settlement, the defendant agrees to the total cost of the settlement it will pay, i.e., the “common fund,” the pool of money from which all settlement expenses are deducted. These expenses generally include valid claims, plaintiffs’ attorneys’ fees and expenses, class representative incentive awards and settlement administration costs. While the amount each claimant receives is based on how many claimants file valid claims, the overall amount paid by the defendant is set on day one.
