Opt-Out Litigation

It has always been an option for any member of a class action to “opt out” of a class settlement and pursue a separate (and presumably greater) recovery. In most cases, the cost and complexity make it unfeasible for individual plaintiffs to litigate their cases separately. However, there is a growing opt-out trend in securities class actions, especially on the part of larger institutional investors who have the resources, incentives or shareholder pressures to do so.

On the premise that opting out is more lucrative, some plaintiff firms openly court institutional investors and other members of the class action as a settlement draws near. This shift creates many problems for the defendant companies, who must address a large and unpredictable exposure from opt-out claims over and above the class action settlement or trial award. Plaintiffs also face an important “bird in the hand” decision regarding any proposed settlement versus initiating an independent lawsuit that carries no guarantees.