The Pitfalls and Possibilities of Plans of Allocation in Class Action Litigation

In many types of complex class action administrations, especially those involving securities, counsel, and claims administrators need to create, verify, and implement Plans of Allocation. 

class action plan of allocation

What is a Class Action Plan of Allocation? 

For the purpose of this discussion, a Plan of Allocation (POA) is the written methodology by which damages and/or final awards are calculated for eligible claims. This is separate from a class definition, which outlines who is part of the settlement; and separate from an overall distribution plan, which outlines deadlines, how to file a claim, and when checks are issued. This post is focusing on the “how do I determine how much I will get paid?” question. 

POAs can be very simple. For example, a POA can simply be “each eligible claimant will receive $5 per gumball they purchased.” POAs can also be far more complex, like 10 pages of highly specific damage calculations involving a series of complex clauses and formulas. 

For complex POAs, administrators, and subject matter experts can increase efficiency and decrease risk for the settlement by thorough review and perfection of the POA before any mail goes out. While a pre-mail review is not always possible, where it is there are a number of areas to focus on when reviewing a POA.

Increasing Efficiency and Decreasing Risk in Class Action Plans of Allocation

The first question to ask is whether the plan of allocation makes sense. Depending on the subject matter of the case, this question might involve outreach or consultation with experts, or some critical thinking. The review is intended to gut check any obvious errors or gray areas of interpretation that can be corrected. Using the example above, if the POA had said “$500 per gumball,” that seems likely to be a typo or missing a decimal point. Another example might be a securities POA that references an amount ‘per option,’ when ‘per the 100 underlying shares of common stock represented in the option contract’ was really meant. The difference in these examples can skew damage or award calculations by factors of 100 and so it is crucial to correct or add clarifying language to ensure appropriate interpretation.

Practical Plans of Allocation

The next question should be whether the POA can be implemented. For this review, an administrator needs to have a full understanding of the data being requested from the claimant (or obtained from other sources) as well as an understanding of the coding principles that can be used to plug those data points into a calculation model. For example, if the POA calls for a different calculation for purchases that occurred after business hours, in order to implement such a provision the administrator would need the time zone (for the POA and purchase), the time of purchase, and may need a lookup calendar for holidays and other considerations that would affect business hours. Without these elements, it is not possible to implement the provision as written.

It is important to then question whether anything is missing or overlaps. This is usually the most difficult to spot and can lead to a myriad of problems if not corrected. If not all populations or scenarios are covered by the POA, this can result is eligible class members not having payment amounts. On the flip side, if more than one clause can be applied without explicit instruction on how to rank the competing clauses, this can cause disputes if the class member disagrees with which clause was applied.

Class Action Plans of Allocation Standards

Finally, when reviewing a POA it is important to know if there is a standard, and if the POA in question follows, or deviates from, the standard (and whether or not that was intentional). When dealing with securities class actions, 90 percent of POAs contain the same 5-10 provisions based on the nature of stock trades and governing laws. If one of these provisions is changed or missing, that does not mean the POA cannot be implemented or approved by a court (and there can be very good reasons for deviations), but typically the change was unintentional and once noted can be adjusted to meet the standard. Conforming to these standards in securities cases leads to efficiency of coding, reduces risk of errors when attempting to reinvent the wheel, and helps reduce confusion and disputes. Where a change from the standard is intentional, being aware of the digression also allows the administrator to perform added review to ensure coding is done properly.

It is essential that POAs be correct and clear before mailing. Performing the above reviews can aid in this endeavor. While most notices will include a disclaimer that there could be modifications to the POA without additional notice to the class, courts may order supplemental notification efforts depending on the nature of the change. In addition, even if no re-notification is needed, having conflicting POAs causes unnecessary confusion for the class members and increased likelihood of disputed claims. Through careful review, open communication, and the early involvement of subject matter experts, administrators can contribute to flawless POAs and a smoother execution of the settlement.

Stephanie “Stevie” Thurin is a project director in Epiq’s class action, mass tort and claims administration business unit. Thurin, one of the principal members of the class action team, is responsible for overseeing all aspects of case administration, including counsel and court coordination, settlement implementation, management of the noticing and claims processing, budgeting, personnel management, disbursement and quality assurance.


Filed under: class action