Benefits and Compensation

Court Signs Off on $1 Million Settlement Resolving COBRA Class Action Case

A federal district court has approved a $1 million settlement agreement that, in the court’s words, “appears to be among the largest, if not the largest, average per person recovery in a certified class action asserting COBRA claims.” The settlement resolves a class action lawsuit alleging that an employer/plan administrator violated COBRA’s notice and premium subsidy rules by failing to distribute on a timely basis initial COBRA notices, COBRA election notices and notices related to the subsidies. The settlement consists of a $375,000 payout to nearly 70 class members (who on average will receive more than $5,000), a $12,000 “service award” to the class representatives as well as a separate payout of nearly $625,000 for attorney’s fees and other costs.

Settlement Was Fair

On Aug. 25, 2014, the parties reached the $1 million settlement, which the court preliminarily approved on Sept. 30, 2014. A final fairness hearing was held Jan. 20, 2015.

The court determined that the settlement was fair for several reasons, including:

  1. Complexity, expense, and duration of litigation. Although the court granted partial summary judgment on liability and the trial would focus on the availability of statutory penalties, proving these damages at trial would have been difficult, complex, expensive and time consuming, without any guarantee of success. The reason is because the court retains discretion whether to award statutory penalties. Settling now “avoids the risks and burdens of potentially protracted litigation” requiring the plaintiff class to incur further expenses without the guarantee of any recovery, according to the court.
  2. The probability of success on the merits. Despite obtaining partial summary judgment on liability, the plaintiffs faced an uncertain likelihood of obtaining statutory penalties because that is up to a court’s discretion. A court may award a statutory penalty of up to $110 per day against an employer that fails to provide adequate COBRA notice. Thus, although the plaintiffs could have obtained the maximum amount, they also could have received nothing. Furthermore, it is difficult to obtain such penalties under the prevailing legal standard of considering important factors such as bad faith and prejudice, the court noted. This made the plaintiff class’ likelihood of success at trial uncertain.
  3. The range of possible recovery and certainty of damages. As noted above, courts have the discretion to award penalties and might decide to award nothing, or the maximum amount. Given this, “the $375,000 settlement reflects a fair, reasonable, and adequate compromise,” according to the court. It also reflects an average per person recovery of more than $5,000 for the 69 class members, and thus “is well within the range of what courts have awarded or approved in other COBRA class actions,” the court added.

More information on the case,  Slipchenko v. Brunel Energy, Inc., 2015 WL 338358 (S.D. Tex., Jan. 23, 2015), can be found at hr.complianceexpert.com.