class actions settlements

This morning we filed this reply brief in the Bluetooth Headset Products Liability Litigation. The hearing is July 6, a week from today.

If you read our first brief, you may recall that we argued that the new warnings mandated by the settlement were not materially different than those that class members already had when they bought their headset. (I was personally impressed that objectors held on to their thin-paper manuals and knew where to find them.) Much to my surprise, plaintiffs agreed, but claimed that the warnings were that good because of the lawsuit--a surprising concession that the settlement isn't creating any prospective relief.

And now some inside baseball: this case possibly presents an interesting choice-of-law question. California state law recognizes the "catalyst" theory for recovery of attorneys' fees. As such, Erie demands that a California-state-law case apply the catalyst theory, though that theory is rejected by federal common law in cases such as Buckhannon. But can one apply that substantive California law in fifty-state class action? Shutts would say no, but there is a D.N.J. decision out there, Chin v. DaimlerChrysler, that says yes--but without mentioning Shutts.

In this case, it's moot: the plaintiffs don't qualify for catalyst theory fees even under California law, and didn't even ask for recovery based on a catalyst theory. So I wouldn't expect the judge to reach it, but there's a law review article out there for someone ambitious.

Not all class action settlements are anti-consumer, and CCAF does not reflexively oppose settlements. I had two people independently approach me about a class action settlement over Costco's membership renewal policies.

Prior to the suit, if one purchased a one-year $50 membership on February 1, 2006, let it expire, and then renew your membership on March 1, 2007, the one-year membership would expire February 1 rather than March 1, 2008. Plaintiffs sued arguing that this was consumer fraud. After some rulings adverse to it, Costco agreed to settle by providing a free month or three to class members.

The settlement was structured the way a settlement should be. Class members automatically received the benefit from the settlement without having to file a claim form: Costco's computers would automatically grant the benefit to its customers. We know that the class members prefer that in-kind relief, because they had already demonstrated their preference by exchanging cash for membership benefits, so the in-kind offer gave them full cash-value without loss of consumer surplus. With 50 million Costco members, even if only 10% were affected by the renewal policy, there would be a benefit to the class of over $21 million--though of course that is a guestimate and the real figure might well be more or less. The attorneys are requesting $5 million or so in fees, which is a good living, but not the greediness of demanding 25 or 35% of the pool, assuming that they have not inflated their hours on the case.

I told both people who contacted me that I would not be opposing this particular settlement.

In 2007, plaintiffs brought a class action lawsuit against Ameritrade, alleging that Ameritrade was somehow behind the plaintiffs' receiving spam pushing the purchase of certain stocks--because, after all, there is no other way that anyone receives spam.




In 2008, the parties settled, with $1.87M for the attorneys, and zero pecuniary benefits to the 6.2-million-member class other than coupons for anti-virus software. Unfortunately for the attorneys,


at the preliminary approval hearing, Matthew Elvey, one of the class representatives, came forward and expressed numerous “reservations” about the settlement. He suggested that the gains the class would receive under the settlement had the appearance of benefitting the class but were, in operation, trivial.

This is understatement: Elvey told the court that he opposed the settlement, and even filed papers to that effect. Judge Vaughn Walker therefore declined preliminary approval--but then a few months later approved a similar settlement that had some minor changes such as the expiration date of the coupons and the wording of the notice.




To date, there is no evidence that the spam was connected to Ameritrade, or that a breach of Ameritrade data security that released home addresses for its customers has resulted in any harm, despite Ameritrade seeding databases with dummy spam-catcher e-mail addresses, and multiple analyses of whether identity theft had occurred.




Objections to this settlement are due July 9, 2009, with a September 10 hearing date in the Bay Area. And wouldn't you know it, I am a class member, though I must have thrown my densely written notice in the trash.

"If you bought a Bluetooth headset between June 30, 2002 and February 19, 2009, the settlement of a class action lawsuit may affect your rights." And if you want to know why your instruction manuals are overwhelmed with worthless wacky warnings, the settlement of this class action lawsuit may explain why.

Overlawyered has covered other ridiculous failure-to-warn-of-hearing-loss consumer-fraud lawsuits, but missed this one filed by the Garcia Law Firm, which was eventually consolidated with twenty-six other lawsuits against Motorola, Plantronics, and GN Netcom (which makes "Jabra" headsets) alleging that the insufficiently advertised risk of hearing loss from turning the volume up too high on a Bluetooth headset was consumer fraud meriting damages, yadda yadda, because, without a wacky warning, people might not know that loud sounds can cause hearing loss.

The settlement is remarkable: the defendants are spending approximately $1.2 million to give notice of the settlement that offers $0 to the class. That's, right $0. There's a total $100,000 cy pres award to four charities selected by the plaintiffs, and the manufacturers agree to provide a wacky warning that "Exposure to loud noise from any source for extended periods of time may temporarily or permanently affect your hearing." Only lawyers like warnings like this. Such warnings make the rest of us worse off; when people see so many warnings "crying 'wolf,'" it inures them to meaningful warnings.

In return, the trial lawyers are going to ask for up to $850,000 in fees and costs—a remarkable infinite-percentage attorneys' fee. Nine representative plaintiffs will ask the court for a total of $12,000 in "incentive" payments.

On June 3, CCAF filed filed an objection on behalf of seven clients.

And anyone in Los Angeles July 6 who wants to watch the hearing, please join in the fun. I've got my plane ticket.

This is the blog for the Center for Class Action Fairness, a non-profit project founded by Ted Frank to provide pro bono representation to consumers dissatisfied with court-appointed representatives in class actions, especially with respect to settlement approval.

I'm Ted Frank. The idea came from the success of my pro se objection to the settlement in the In re Grand Theft Auto MDL.

I often get inquiries on what consumers can do when they get notice of a class-action settlement that benefits lawyers to the expense of consumers. Without attorneys like CCAF, the answer is usually nothing: asking for exclusion doesn't prevent the lawyers from cashing in; objecting without the help of an attorney will almost always be brushed off by the court; there is no financial incentive for an attorney to get involved, unless an objector wants to pay their tremendous fees—and there is certainly not an incentive for an objector to spend thousands of dollars to hire an attorney to object to a bad settlement.

Even when a lawsuit is plainly meritless, it costs defendants a lot of money to have litigators dealing with the case. Without a loser pays rule, it's cheaper for the defendants to pay trial lawyers protection money to go away. Because no one has an incentive to object, the settlements get rubber-stamped, and the trial lawyers go on to file the next extortionate lawsuit. And we all pay higher prices as a result.

In other cases, the lawsuit has merit, but the class lawyers would prefer to maximize their share of the settlement than do what is right for their putative clients: they structure the settlement in tricky ways that will minimize the total cost to the defendant while making it seem like their own outsized fees are justified. The defendant just wants the suit to go away as cheaply as possible, and doesn't care whether lawyers or consumers get the money. The class notice might be misleading: we successfully objected in one case where the notice implied that the class would get $9.5 million (thus making the $1.05 million attorney fee seem reasonable), when the class in fact got about $117,000.

CCAF hopes to change this by giving consumers another option: object, with a lawyer standing behind them to explain to a court why the law doesn't permit such an extortionate settlement that fails to benefit consumers.

By letting courts know that consumers are watching them, they'll be less likely to rubber-stamp bad settlements. If so, the lawyers won't try to unfairly profit at the expense of their clients. On multiple occasions, once we made it clear to the parties that we were going to object to settlements that shortchanged the class, they amended their settlements to provide millions of dollars more to class members. This is wonderful when it happens, but we'd like it to happen before we get involved.

There's an additional side benefit to scrutiny of class action settlements to ensure that the settlements aren't solely benefiting lawyers. If bad settlements aren't approved, then trial lawyers will be unable to profit off of bad cases. Without the promise of profit, the bad cases won't be brought. And we'll all be better off.

When I started this in 2009, I was a resident fellow with the American Enterprise Institute. I left AEI to do this full-time; in 2010, I became an adjunct fellow at the Manhattan Institute. CCAF is not affiliated with and is entirely independent from AEI and the Manhattan Institute.

In the words of Justice Brandeis, "Sunshine is the best disinfectant." It is important to bring attention to the all-too-frequent cases where lawyers try to misuse the class action system to rip off their clients. Here's a list of some of our press coverage.