You have reached a hard-fought settlement in a class action. Congratulations! Unfortunately, the claims administration process is no easy street. What happens when you receive tens of thousands of claims in the first several days when you were estimating fewer than that for the whole claims period? Or you receive thousands of claims from the same Internet protocol (IP) address? Claims with no email addresses or signature? Claims with duplicate email or mailing addresses to another claim with a single letter or apartment number changed? All of these are indicia that your claims process may have been hijacked by a bot submitting fraudulent claims. See, e.g., Opperman v. Kong Techs., Inc., No. 3:13-cv-00453 (N.D. Cal.) (out of more than 5,400 claims submitted from the same IP address, about 1,000 claims were submitted by people who lived in one single-home residence).
Fraud in the claims process is a land mine for counsel on both sides of the aisle. It artificially drives up the claims rate and cost of the settlement, undermines the legitimacy of the process, and potentially affects recovery for legitimate class members, to name a few consequences. While fraud can occur in many types of class action settlements, declarations filed by claims administrators suggest that this type of fraud is common in class actions involving low-cost consumer goods. See Declaration of Lana Lucchesi, Opperman v. Kong Techs., Inc., No. 3:13-cv-00453; Declaration of James R. Prutsman, Carrera v. Bayer Corp., No. 2:08-cv-04716 (D.N.J.) (outlining numerous methods used by claims administrators to detect fraudulent claims), and Brief Amicus Curiae of Angeion Group, LLC, Carrera v. Bayer Corp., 2013 WL 5606438, at *5–6 (defending programmatic audits used by settlement administrators to identify duplicate and fraudulent claims).
Here are a few strategies you can use to prevent and mitigate fraud—by bot or otherwise—in the claims process of your case:
- Retain a settlement administrator as soon as possible. While you may be tempted to save costs by involving a settlement administrator after a settlement agreement is finalized or by limiting the settlement administrator’s role in the settlement administration process, the submission of fraudulent claims will likely cost more and potentially put the settlement at risk. It therefore may be less costly to take advantage of an administrator’s expertise when developing the claims submission requirements and structure before the ink is dry on the settlement documents. For instance, you will want to get the administrator’s input on the various issues included in the settlement agreement, particularly as it relates to the administrator’s ability to effectively identify and weed out fraudulent claims.
- Do your due diligence by asking potential administrators to identify standard fraud prevention measures and incorporate them at various stages in the claims administration process. You should ask the claims administrator what vulnerabilities he or she sees in the current claims process that is being negotiated and what measures the administrator would recommend to identify and mitigate potential fraud. There are a number of specific fraud prevention methods identified in the next section to aid your discussion.
- Empower the settlement administrator. It is key that the settlement agreement empower the settlement administrator to identify and reject fraudulent claims. Most settlement administrators have proprietary algorithms that they use to flag various issues in the claims administration process. This allows the administrator to identify claims submitted from the same IP address or the same physical address. It should even pick up any minor variations in the claimant’s name or IP or physical address. The settlement administrator should also have a list of known fraudsters with which it can cross-reference the names of the individuals submitting claim forms in your settlement. You may also consider including language in the settlement agreement that specifically allows the administrator to contact the claimants directly and verify the validity of their claims.
After you retain and empower a settlement administrator, you should consider and implement as many fraud prevention methods as possible as you structure the claims process. Here are several methods we have found helpful:
- Unique claim identification numbers. You should provide ascertainable members of the class with a unique claim identification number to list on their claim forms or, better yet, that will automatically populate on an electronic claim form. If a claimant provides a valid claim identification number on the claim form, the administrator can easily confirm that claimant is entitled to the settlement benefit. A claim form without a unique claim identification number listed should not necessarily raise any red flags, but the absence of such a number can be a factor when analyzing the validity of the claim.
- CAPTCHA technology. CAPTCHA technology requires claimants to click or check a box to confirm they are not a robot, which makes it difficult for an individual to write a script that submits a voluminous amount of fraudulent electronic claim forms. This will reduce the risk of fraudulent claims early in the claim submission process.
- Affirmative selections on the claims form. Requiring claimants to make an affirmative selection, such as identifying the product they purchased to confirm it is the product at issue in the lawsuit or selecting a certain settlement benefit, will make it more difficult for a bot to submit fraudulent claims. Failure of a claimant to make such a selection may be an indication that the claim was filed using a computer script.
- IP address tracking technology. Settlement administrators can implement technology to track the IP addresses from which electronic claim forms are submitted. This allows the administrator to gather additional information, such as the name associated with the IP address and the time at which the claim form was submitted, which may help determine the validity of a claim.
- Penalty of perjury. You should require the claimant to declare under penalty of perjury that the information on the claim form is accurate. It is hoped this will deter false claimants and may provide the court with a remedy to investigate any individual who submits false claims. See Opperman v. Kong Techs., Inc., No. 3:13-cv-00453 (N.D. Cal. Jan. 17, 2018) (referring the fraudulent claimants to the U.S. Attorneys’ Office for investigation).
In short, developing and investing in fraud prevention measures early in the settlement process can save money in the long run and safeguard the integrity of the settlement by helping to ensure that only legitimate class members benefit from the settlement. You should select a settlement administrator with the requisite experience and tools to identify fraudulent claims and consult with that settlement administrator before the settlement agreement is finalized to make sure that the agreement will empower the administrator to identify, investigate, and reject fraudulent claims. These measures will go a long way toward preventing and mitigating fraud in the claims process.
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