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Professor Eric Voigt of the Jones School of Law at Faulkner University in Alabama has authored an intriguing article entitled A Company’s Voluntary Refund Program for Consumers Can Be a Fair and Efficient Alternative to a Class Action, 31 Review of Litigation 617 (University of Texas 2012).  Voigt proposes that a company’s voluntary efforts in providing refunds to customers in consumer litigation can, in an appropriate case, be a more efficient means of providing collective redress than a class action settlement, which a court should take into account in conducting the superiority analysis required under Rule 23.  Voigt argues that in evaluating superiority of a class action, non-judicial alternatives must be considered in addition to individual lawsuits.  Therefore, he argues, a court must consider whether a company’s voluntary refund program is a more fair and efficient alternative to class action litigation.  He also proposes various procedural and substantive features that should be included in any voluntary refund program to satisfy the requirement that it be a fair and efficient alternative to a class action.  Voigt’s article is one of the first I have seen addressing this issue in detail, and I highly recommend it to practitioners, academics, judges, and policymakers alike.

As Voigt’s analysis suggests, even though it lacks the same preclusive effect as a class action settlement judgment, a voluntary refund program is something that a defendant may consider in attempting to avoid or defeat a class action in an appropriate case.  Candidates for this strategy could include any case where the cost of providing direct relief to customers for 100% of damages that could be claimed in a lawsuit is outweighed by the cost of defending a potential class action combined with the likely cost of having to ultimately settle the case for some smaller amount.   The strategy is far from failsafe because a voluntary refund program lacks the same preclusive effect as a class action settlement, and because a court’s evaluation of the superiority requirement is a matter of discretion.  However, having done a voluntary refund program with the protections proposed in Voigt’s article can provide a strong basis to seek an early ruling not to certify any subsequent class action.  Similarly, even when a class action lawsuit has already been filed, the prospect of doing a voluntary refund program can be used as leverage in bringing down an unreasonable settlement demand from plaintiff’s counsel.  This is especially true in jurisdictions that do not recognize the “catalyst” theory (click link to read 2005 article on the topic by Professor Roy Simon) as a basis for the recovery of attorney’s fees.

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