A claims-made settlement is a class action deal in which you only receive money if you actively submit a claim, and the defendant’s total payout rises and falls with how many class members do so. That structure separates it from a common-fund settlement, where a fixed sum is divided among everyone who files. It matters because participation rates in claims-made cases routinely land in the low single digits, meaning most eligible people never see a dollar and much of the “available” money is never paid out at all.
How the Structure Works
After the parties reach a deal and a court gives preliminary approval, the class gets notice. From there, class members have to do something to be paid. That might mean filling out an online form, mailing a paper claim, uploading proof of purchase, or checking a box confirming eligibility. Some processes take a minute; others require receipts from years earlier.
This structure tends to appear in consumer cases where the defendant has no ready list of who bought its product or used its service. A grocery chain that sold a mislabeled cooking oil has no database of shoppers who picked up a bottle, so a claims process lets those customers step forward and identify themselves.
Claims-Made Versus Common-Fund
The financial mechanics diverge sharply. In a common-fund settlement, the defendant pays a fixed lump sum, and eligible claimants split it on a pro rata basis. The total cost to the defendant is the same whether one person files or a million.
In a claims-made settlement, the defendant’s cost tracks the number of valid claims submitted. If only a small share of the class files, the defendant either keeps the difference (a reversion) or the money is redirected somewhere else. That single design choice drives most of the criticism the model attracts.
Why Most People Never File
Low participation is not the exception in claims-made cases. It is the norm. A 2019 Federal Trade Commission study of 149 consumer class action settlements found a median claims rate of 9% and a weighted average of just 4%.1Federal Trade Commission. Consumers and Class Actions: A Retrospective and Analysis of Settlement Campaigns Research by Harvard Law School Professor William B. Rubenstein found that in large consumer class actions involving more than 2.7 million members, the average rate falls to roughly 1.4%.2Edelson PC. Plaintiffs’ Bar Should Work to Raise Class Action Claims Rates A Mayer Brown review found rates in five claims-made settlements with meaningful data ranging from 0.000006% to 12%.3Institute for Legal Reform. Class Action Study
Notice quality is one driver. The FTC study found email notices produced a claims rate of only about 3%, partly because fewer than half of recipients realized the email was about a settlement rather than a promotion.1Federal Trade Commission. Consumers and Class Actions: A Retrospective and Analysis of Settlement Campaigns Direct mail packets with the claim form included performed better, at roughly 10%. Rates were also higher when notices used plain language to describe the payments available.
The forms themselves are another obstacle. Many require documentation people never kept. As Judge Richard Posner observed in Redman v. RadioShack Corp., the hassle of submitting a claim can exceed the value of the award itself.4Duke University School of Law. Claims-Made Class Action Settlements Researchers have also pointed to a simpler cognitive fact: when the default option is inaction, most people take it, regardless of the amount at stake.2Edelson PC. Plaintiffs’ Bar Should Work to Raise Class Action Claims Rates
What Happens to the Unclaimed Money
Because most eligible members never file, most of the money in a claims-made settlement is money nobody claims. Where it goes is a defining feature of the deal.
In a reversionary settlement, unclaimed funds return to the defendant. Critics say this creates a perverse incentive: the defendant benefits financially when participation is low, which can encourage restrictive eligibility conditions and complicated claim forms. The Federal Judicial Center has warned that reversion clauses encourage defendants to impose narrow eligibility requirements. Some courts will not approve any settlement that permits reversion at all; the Alameda County Superior Court Complex Division follows that policy.5Plaintiff Magazine. Class Action Settlement Principles to Take With You Into Mediation
The main alternative is cy pres distribution, a legal term meaning roughly “the next best use.” Leftover funds go to a charity or nonprofit whose mission relates to the interests of the class. Courts generally prefer cy pres over reversion because returning money to the defendant undermines the deterrent purpose of the lawsuit. The American Law Institute recommends that courts try additional distributions to claimants first, on the theory that few settlements fully compensate anyone’s actual losses.6Duke University. Cy Pres in Class Action Settlements
Cy pres has its own critics. Courts have flagged cases where class counsel selected recipient charities they had personal ties to, or where the defendant retained influence over the recipient. In Lane v. Facebook, $9.5 million went to the “Digital Trust Foundation,” an entity with Facebook-affiliated leadership.6Duke University. Cy Pres in Class Action Settlements In Frank v. Gaos, the Supreme Court took up a challenge to a Google settlement that sent $5.3 million to cy pres recipients and nothing to a class of more than 100 million users. The Court sidestepped the merits on standing grounds, leaving the fundamental question about cy pres-only settlements unresolved.7Supreme Court of the United States. Frank v. Gaos, No. 17-961 Several states have since directed residual funds toward legal services. California, Illinois, Massachusetts, North Carolina, South Dakota, and Washington all require that at least some leftover settlement money support legal aid for low-income residents.8Federal Bar Association. Cy Pres Awards in Class Action Settlements
Attorneys’ Fees and What the Class Actually Gets
The most contested question in claims-made settlements is how the lawyers get paid. In a common-fund case, courts often calculate fees as a percentage of the fund, benchmarked around 25%. In claims-made deals, the fight is whether the fee percentage should be measured against the amount the defendant made available or against the smaller amount class members actually claimed. The gap between those two numbers can be enormous.
Take the GoDaddy settlement in Drazen v. Pinto. GoDaddy made up to $35 million available, but with a 1.9% claims rate the class received roughly $2.3 million in value. Class counsel requested up to $10.5 million in fees.9Eleventh Circuit Court of Appeals. Drazen v. Pinto, No. 21-10199 The Eleventh Circuit vacated the settlement, ruling that the lower court had wrongly treated it as a common fund. Because the deal included vouchers, the court held it was a coupon settlement under CAFA, meaning fees on the coupon portion had to be based on the value of vouchers actually redeemed rather than their face value.1011th Circuit Business Blog. No-Go for GoDaddy Coupon Settlement
The Seventh Circuit has been especially aggressive. In Redman v. RadioShack Corp., it reversed a settlement where attorney fees of $1 million were double the value delivered to the class, calling the result equivalent to a 67% contingency fee.4Duke University School of Law. Claims-Made Class Action Settlements In Pearson v. NBTY, Inc., the same court overturned approval of a deal giving class counsel $4.5 million while delivering less than $900,000 to the class, labeling it a “selfish” settlement. After renegotiation, the class received more than $3 million in additional recovery.11Hamilton Lincoln Law Institute. Pearson v. NBTY, Inc. The Seventh Circuit established that the reasonableness ratio is the fee compared to what the class actually received, and that administrative and notice costs do not count as class benefits.12FindLaw. Pearson v. NBTY, Inc.
In In re ConAgra Foods, Inc., a federal judge in California twice denied final approval of an $8 million settlement after finding that nearly $7 million was earmarked for class counsel while the class stood to receive less than $1 million. The court found the allocation reflected “excessive self-interest” and noted counsel knew the claims rate would be very low. A revised deal guaranteeing $2 million to the class with no reversion was approved in September 2023.13Hamilton Lincoln Law Institute. In Re Conagra Foods, Inc. In February 2025, the Ninth Circuit reversed the fee award in the California Pizza Kitchen data breach settlement, finding that $800,000 in fees represented roughly 46% of the settlement’s actual value to the class, and directing the lower court to award fees that were “reasonable and proportionate.”14Ninth Circuit Court of Appeals. In Re California Pizza Kitchen Data Breach Litigation, No. 23-55288
Warning Signs Courts Watch For
Courts screen claims-made settlements for signs the lawyers on both sides put their own interests ahead of the class. The framework comes from the Ninth Circuit’s 2011 decision in In re Bluetooth Headset Products Liability Litigation, which flagged three red flags:
- Counsel receives a large share of the settlement while the class receives little or no direct payment.
- A “clear sailing” provision, under which the defendant agrees not to challenge the fee request up to a set amount, removing any adversarial testing of its reasonableness.
- A reverter or “kicker” clause, under which any reduction in the fee reverts to the defendant instead of going to the class.
When these features appear, the district judge has a heightened obligation to probe whether the fee arrangement came at the class’s expense.15Ninth Circuit Court of Appeals. In Re Bluetooth Headset Products Liability Litigation, 654 F.3d 935 The Pearson court went further, declaring that kicker clauses deserve “a strong presumption of invalidity” because they guarantee that any judicial fee reduction benefits only the defendant.12FindLaw. Pearson v. NBTY, Inc.
How Courts Approve These Settlements
Federal Rule of Civil Procedure 23(e) requires that any class action settlement be “fair, reasonable, and adequate.” The rule directs courts to consider whether the class representatives and counsel adequately represented the class, whether the deal was negotiated at arm’s length, whether the relief is adequate given the risks of continued litigation, and whether the proposal treats class members equitably.16Cornell Law Institute. Federal Rule of Civil Procedure 23 Courts also evaluate the claims process itself, the terms of any fee award, and any side agreements.
Approval comes in two stages: preliminary approval authorizing notice to the class, and final approval after a hearing. Advisory committee notes clarify that a claims process is “not inherently suspect” and can be the most practical approach when class members aren’t identifiable from the defendant’s records, but the process must not be “unduly demanding, burdensome, and oppressive.”17George Washington University Law School. Front-Loading Judicial Review of Class Action Settlements
The Class Action Fairness Act adds another layer for settlements in federal court. Defendants must notify the U.S. Attorney General and the attorneys general of every state where class members live within 10 days of filing the proposed settlement, and final approval cannot come until at least 90 days after those notices are served.18U.S. Congress. Class Action Fairness Act of 2005 In practice, formal objections from those officials are rare.19University of Cincinnati College of Law. Class Action Fairness Act Scholarship
Fraudulent Claims Are Now a Problem for Real Claimants
As claims filing has moved online, fraudulent submissions have become a serious concern. Social media accounts and websites that track settlement opportunities publicize deals to audiences far larger than the actual class, and automated tools make it easy to submit claims at scale.
The volume can be staggering. In a 2024 settlement involving an eyelash serum, 6.5 million claims were filed and 97% were deemed fraudulent or invalid, leaving roughly 200,000 legitimate claims. A Wisconsin case with an estimated class of about 18,000 received more than 780,000 submissions. In Opperman v. Kong Technologies, nearly 5,500 claims were traced to a single IP address, with about 1,000 coming from one residential address.20Foley & Lardner LLP. Fraud Rising in Claims-Made Class Action Settlements
The problem cuts both ways. When a settlement is capped, fake claims dilute the pool available to legitimate claimants. When it is uncapped, the defendant faces potentially massive overpayments. Practitioners have recommended proof-of-purchase requirements, declarations under penalty of perjury, and settlement provisions designed to catch automated or mass-filed claims.
When the Model Delivers
Not every claims-made settlement produces a dismal result. Two examples are regularly cited as evidence the structure can work when properly designed.
The polybutylene plumbing settlement in Cox v. Shell, negotiated in 1994, ultimately spent over $1.14 billion, with 92% going directly to homeowner relief. More than 320,000 homes were re-plumbed at no cost to the owners. The settlement included an independent ombudsman, a balanced board of directors with both class counsel and defendant representatives, and recurring notice campaigns every few years that triggered new waves of claims across a 15-year life.21Public Justice. One Really Good Class Action
The Equifax data breach settlement, reached with the FTC, the Consumer Financial Protection Bureau, and all 50 states, made up to $425 million available to people affected by a 2017 breach that exposed the personal information of 147 million individuals. The claims process covered out-of-pocket losses, time spent dealing with the breach, and other cash benefits. As of late 2024, the settlement administrator was still issuing additional payments to prior claimants via prepaid cards.22Federal Trade Commission. Equifax Data Breach Settlement
The Facebook biometric privacy settlement achieved a 22% claims rate through in-app notifications, multiple rounds of communications, and simplified claim forms.2Edelson PC. Plaintiffs’ Bar Should Work to Raise Class Action Claims Rates The common thread across these cases is aggressive, repeated outreach and a claim form that doesn’t drive people away.
If you receive notice of a class action settlement, the practical takeaway is straightforward: whether you get paid depends almost entirely on whether you file, and filing sooner is safer than filing later. Appellate courts are pushing harder than ever on fees that outstrip actual class recovery, but that pressure only reshapes the deal. It doesn’t file your claim for you.