class actions settlements

Some 60,000 cell-phone users who had signed up to receive "promotional messages" from Nextones.com in order to get a free ringtone got just such a text message on January 18, 2006 advertising a cell-phone-related Stephen King book. This resulted in a class action that was thrown out on the grounds that plaintiffs had agreed to "terms and conditions" permitting such cell-phone advertising; moreover, the federal law prohibiting the use of an automatic telephone dialing system applied only to systems that dialed numbers randomly or sequentially, and the defendants were operating off of a list of opt-in telephone numbers.




The Ninth Circuit reversed. The issue, it said, was not whether phone numbers were sequentially dialed, but whether the equipment used could hypothetically sequentially dial telephone numbers. It also held that there was a disputed issue of fact whether King's publisher, Simon & Schuster, counted as an "affiliate."




Faced with the prospect of going to trial and the risk of $500 to $1500 damages assessed for each call (i.e., $30 to $90 million in damages) defendants have settled. There is a settlement fund of $10 million established, plaintiffs can submit claims that will pay $175 (or a pro rata amount if the fund is exhausted) and plaintiffs' attorneys will ask for $2.725 million from that fund.




This is superficially all well and good, but if the claim response is the all-too-typical 1%, the attorneys may well collect 27 times as much as the class will get. Indeed, assuming that $1 million for notice and administration disappears from the fund, the full $10 million won't be paid out unless over half the class signs up. There is also a mysterious $250,000 "cy pres" award whose destination is not specified in the notice or in the settlement.




If you're a class member who received the text message in 2006, congratulations, you can get free money: fill out a claim form before September 20 (and kudos to the parties for allowing claimants to do it online); if you're a class member who has concerns about the settlement, contact me.