class actions settlements

If I were to buy a three-pack of color ink for my inkjet printer today, it would cost me $42.99 at HP.com and $36.99 at Amazon.com. That's not a big deal—unless HP is trying to settle a class action by giving class members $2 coupons that can only be used at HP.com (and can't be transferred or stacked, and expire in six months). And even if the coupon was larger (some class members get $7 coupons) HP makes much more money selling ink at HP.com than at Amazon.com, all else being equal: this is a marketing program for them. And the attorneys are claiming that they're entitled to $2.9 million for such a lame settlement because the coupons are "worth" $5 million. And even if one attributed full face value to the coupons (which the parties try mightily hard to not call coupons), I strongly suspect far less than $5 million of coupons will be claimed or redeemed.

The Center filed an objection today in the Northern District of California. Kabateck Brown Kellner, who we've seen before in the $0 AOL settlement and the $117k Classmates.com settlement, are among the lead attorneys in this ripoff as well.

Objections are due January 3. If you're a class member (and most people who purchased HP inkjet printers in the last nine years are, and there are tens of millions of them out there), you can file a claim or object at the settlement website; this settlement nicely permits emails if you prefer objecting that way.

In the Kellogg's Frosted Mini-Wheats class action settlement, class members (those who purchased the cereal on certain dates in 2008 and 2009) who submit claims will receive $5/box for up to three boxes of purchased Frosted Mini-Wheats, with claims pro-rated if there are more than $2.75 million in claims. If there is less than $2.75 million in claims, money goes to a charity that has yet to be named. In addition, Kellogg's will donate "$5.5 million" in food to charity (that also has yet to be named), though there is no indication how that valuation will be determined. For this, six law firms are requesting $2 million in fees, though:
That amount of fees is disproportionate to the class relief;
the settlement provides for cy pres relief even though there might be more than $8.25 million in claims, demonstrating that the attorneys put the interest of the third-party charities ahead of their clients' interest; and
the class notice is defective for failing to identify the charitable recipients of the cy pres, giving the class no opportunity to object to an improper recipient.

If you're a class member and you're unhappy with attorneys improperly making millions in your name, do contact me at the Center for Class Action Fairness to discuss your options.

Under Fed. R. App. Proc. 30(b), appellants and appellees are to coordinate the production of a joint record on appeal, the appendix of the relevant filings and transcripts from the lower court proceedings to assist the appellate court in their review of the case. A number of courts of appeal, including the Seventh and Ninth Circuits, have very common-sense approaches to this: they've established local rules whereby each side submits their own appendix.  Others haven't caught on to the game-playing that can go on, and go with the default federal rule.  So, I, as an appellant, negotiate with the appellee settling parties about what appears in the record.

Time after time, I see the appellees asking to kill countless trees by burying the record on appeal with paper from the lower court. One might think they're doing this to just increase the costs of litigation for the other side, since the appellants are required to prepare the record on appeal—except Rule 30(b)(2) permits the appellant to take the position that the additional material is unnecessary, and ask the other side to advance the costs of providing the designated material. The real reason is, I would imagine, an insulting one: to persuade the judge that there's so much work to be done that the judge should just be lazy and throw up their hands and ignore the issues rather than dig through all the paper. This certainly never fooled the judges I clerked for, but it must work often enough to be worth the death of all these trees. There aren't any real sanctions with any bite for making appellate judges' lives harder like that, notwithstanding the clear command of Rule 30(a)(2) not to be pointlessly including material, so we have this wasteful game.

I'm seeing this now in one of my pending appeals; the appellees are trying to bury the record in meaningless paper that has nothing to do with the issues on appeal. I can't stop them, so I shrug my shoulders and ask for the payment that Rule 30(b)(2) requires. That should be the end of it, but for some reason the lawyers—often the same lawyers that have made me write a check to post an appeal bond to ensure they could recover their costs in the unlikely event they won on appeal—want to argue with me that the material is essential to the record on appeal and it's up to me to pay for including the material in the record on appeal. I generally don't play this game, but I recently had cause to write the following paragraph in a letter to defense counsel regarding the copying costs of one small three-page slice of the hundreds of pages they wanted included (material redacted to protect the guilty):

Docket No. [yyy]. [This docket entry] applies to the 10-[xxxx] cross-appeal and is not relevant to [my appeal]. I agree that if you decide to prosecute the cross-appeal, you will be required to advance the costs for us to include this docket entry in Volume 1 of the Record. Should you prevail in [the cross-appeal], you can petition to receive the approximately $5 to $20 in costs from the plaintiffs' appeal bond, but I understand if you wish to bill another $100 to your client to argue about this some more.

You may recall that I was not pleased with an Apple settlement that provided for $2.5 million to go to a series of universities and law schools with "corporate governance" programs (two of which were affiliated with the lead plaintiffs' counsel) instead of to the purportedly injured class members. (See also coverage from Ira Stoll, Jim Copland, John Carney, and Lyle Roberts.) Such "cy pres" awards are a breach of class counsel's fiduciary duty to the class by putting the interests of unrelated third parties ahead of their putative clients.

After I sent a letter to class counsel and counsel for Apple notifying them that I had a client who was going to object, the parties quickly rushed to court and submitted a modified settlement. Now, class members have first bite at the $2.5 million, an approximately 15% increase in what shareholders can recover in the settlement; Harvard, Columbia, and the University of Delaware will not get any of it.

This is definitely a material improvement (and one that would entitle the Center to attorneys' fees), but it's still not good enough; I've asked the court to refuse preliminary approval until the settlement guarantees that the class gets the entirety of the $16.5 million settlement fund.

Notice went out today, and five separate people have emailed me in the last hour about the Google Buzz settlement, which I've been tracking since it was first announced a couple of weeks ago.  It flunks Rule 23, but, believe it or not, is not the worst settlement in the world (we have four cases pending in Ninth Circuit courts alone that are worse, including one in in Judge Ware's court).  In addition, this case is going to attract attention from a lot of privacy advocates whether or not the Center for Class Action Fairness gets involved, so I don't know how much value-added we provide by being the n-th objection.  And I'm a class member, so if we do get involved, I can do so pretty quickly.

Anyway, this is just to say that yes, CCAF is aware of the Google Buzz settlement; we haven't decided yet whether to get involved because we have six or seven other briefs due between now and Christmas; if you're interested in getting involved without waiting for that decision, take a look at our Ninth Circuit briefs in the Bluetooth (09-56683) and AOL (10-55129) cases that we filed earlier this year.

Did you buy Apple stock between 2001 and 2006?

Ira Stoll and Jim Copland have discussed the outrageous Apple backdating lawsuit resulting in the outrageous Apple backdating settlement. The magnitude of the settlement compared to the original claims demonstrates that it is an extortionate nuisance settlement, being made because it would cost more to defend the suit than to pay the attorneys to go away.

But it should be noted: the settlement is not just outrageous, it is illegal. Under the Ninth Circuit's Six Mexican Growers precedent, a court should not be issuing cy pres that is not likely to benefit the class members. And as the Center for Class Action Fairness noted in recent Ninth Circuit briefing, the American Law Institute has said that cy pres is inappropriate where class members are readily identifiable. Given that the class attorneys are negotiating money for third parties instead of their own putative clients (for their own benefit, no less), there is also a breach of fiduciary duty that raises questions whether the class attorneys meet the Rule 23(a)(4) standard. The settlement is further problematic in that the vast majority of class members are entitled to zero compensation; it is far from clear that the sole lead plaintiff is a member of this subclass.

The Center for Class Action Fairness would love to object to such a blatantly illegal settlement. But it can't do so in a vacuum: it can only do so on behalf of a class member who is being ripped off by these attorneys. Class members are those who bought Apple stock (AAPL) between August 24, 2001 and June 29, 2006—but only people who bought the stock between November 2005 and May 2006 are entitled to recover any money under the settlement, and their recovery is being diluted by the diversion to cy pres. We'd be happy to represent you pro bono if you agree that settlement is objectionable and wish to object: please contact me. If you're not in the class, but know people or institutions who might be, spread the word.  (Update: we have one objector, and are talking to a couple of others. Isn't crowd-sourcing great?)

Trial lawyers often say that they care about access to justice, but that principle seems to go out the window when it comes to objectors to unfair class action settlements that might interfere with attorneys' fees.

In Dewey v. Volkswagen, currently pending on appeal in the Third Circuit (10-3618, consolidated with 10-3506, 10-3617, 10-3798, and cross-appeals 10-3651 and 10-3652), the plaintiffs' attorneys have asked for an oversized appeal bond explicitly to prevent the appeal from taking place.

Plaintiffs claim that such an appeal bond is necessary to prevent "extortion" on appeal, the problem where a "professional objector" seeks to hold up the payment of the settlement attorneys' fees with a meritless appeal in the hopes that the class attorney will pay some fraction of the time value of money to get the objector to drop the appeal.

The Center for Class Action Fairness took the plaintiffs at their word, and, in our brief opposing the appeal bond, cross-moved for a different remedy: an injunction against extortionate settlements of the objection. Such an injunction, by requiring court approval of any withdrawal of the appeal, would do far more than an appeal bond to deter the attempt to settle a case for a quid pro quo payment to the objector without any benefit to the class. We suggested, however, that the plaintiffs' attorneys weren't really concerned about extortionate appeals (which permit them to escape appellate scrutiny at relatively low cost) so much as the fact of appeal.

Sure enough, the class counsel opposed the Center's cross-motion for injunction, though on remarkably flimsy grounds that insultingly presuppose a lack of intelligence on behalf of the magistrate; surely they don't expect that the judge will be confused by the difference between a merits injunction and an injunction regarding the conduct of the parties on appeal? You'll also note that the plaintiffs completely changed their theory behind the reasoning of the appeal bond without ever addressing the Center's arguments in their reply brief, but one hopes the district court isn't so easily fooled by sandbagging.

Relatedly, on September 22, the Third Circuit decided In re Community Bank of N. Va., which all but guarantees that we will win our appeal, given that the Dewey settlement suffers from the same fatal defect of a prejudiced subclass being unrepresented.

You may have been one of the millions of people to receive a settlement notice regarding a class action against Classmates.com; the settlement notice implied that class members would receive $9.5 million (though only $2-$3 per person, and that mostly in coupons) and the attorneys would ask for $1.3 million.

You then probably received a supplemental notice saying that the attorneys were generously only asking for $1.05 million, and that, if you sent four letters to four different addresses, you could object to the fee request.

You probably didn't object: it's hardly worth your time to spend $1.76 in postage over a $2 or $3 settlement.

What you won't see on either of the settlement notices or the settlement website is how much the class is actually recovering: out of millions of class members, there were fewer than 50,000 claims made. The class will receive only $117,374 (see page 4 of PDF). The attorneys are asking for a 895% contingency fee.

Professor Michael Krauss of George Mason Law School will be objecting to the fee award (and an attempt to rip off the class by diverting $500,000 to an unrelated charity instead of to class members); the Center for Class Action Fairness is proud to represent him.

The fact that an Internet company didn't make it possible to object over email is just an attempt to limit the number of objections. But CCAF is willing to help: we won't represent you, but if you submit a conforming objection to me over email to classmates.objection@gmail.com in a pdf by November 15, CCAF will do the mailing for you. Here is an MS Word document to make the process easier; fill in the blanks, keep or delete or add to the paragraphs as you see fit, sign, scan, e-mail (or mail yourself to the addresses indicated). (CCAF is not your attorney if you choose to have us mail your objection for you; we reserve the right not to mail any pdf that is offensive or seems to be fake.)

The trial lawyers are arguing that the low number of objections means that this is a good settlement. That's clearly false given how hard they made it to object and the fact that class members weren't told the full truth about how bad the settlement was, but let's try to take away that argument by sending the court a few dozen more objections. And tell your friends.

Note that the class attorneys in this case are Kabateck Brown Kellner, who were the attorneys in the $0 AOL Footer settlement; in that case, they took the position that it was okay to hide conflicts of interest to the court and to the class in a class notice. So we're not just objecting, we're asking for the discovery that KBK said we should have done in the AOL case.

Update, September 4: Google is leading lots of people to this page, but this post is referring to a 2010 settlement, which we successfully objected to. If you came to this page from a search engine, you are probably looking for the revised 2011 settlement.

• In Lonardo v. Travelers Insurance, our objection resulted in a $2 million improvement in the settlement. We maintained the objection, and the court approved the settlement; we straightforwardly acknowledged that the court "could" approve the improved settlement (where the attorneys got nearly as much as the class as opposed to more than twice as much) under its discretionary powers, but "shouldn't," and the court found that offensive for some reason. To add insult to injury, the court preemptively made findings that we weren't entitled to even ask for attorneys' fees for our role in improving the settlement. On a motion to reconsider, the court begrudgingly awarded attorneys' fees, and then proceeded to come up with bad dicta that suggests that objectors are obligated to engage in expensive discovery about settlement negotiations before they are completed. (The scenario where a settlement is improved by 71% on the eve of the fairness hearing is rare enough that one hopes that does not matter; it's pretty clear that settling parties would object to the discovery that would produce the evidence that the Lonardo court says is required.) The $40,000 in fees is nice, but it was unfortunate that the court felt the need to insult us along the way; we made it clear that there was substantial work we performed on the case for which we were not seeking fees, and the court repeatedly implied that the only thing we did were the few dozen hours we requested fees for. We did get the court to acknowledge that Perdue v. Kenny A. applies to class-action attorney-fee requests (though that does not explain why the court awarded a 1.4 multiplier to the plaintiffs' attorneys). If those opinions were issued today, when we have a diversified donor base, we would have appealed. At the time, we were low on funds, and had to make a triage decision to save our powder for more egregiously bad decisions. Judging by Google hits, class members have started to receive their checks, which are 71% larger than they would have been without our objection.
• In the Sears case, the court denied our motion to dismiss and our motion to intervene, the latter because we sought to appeal, and therefore were "obstructive." That reasoning begs the question when one is entitled to move to intervene for purposes of appeal; the court did not cite the leading Seventh Circuit case on the issue. We will appeal: we believe Devlin gives us standing to do so, and, in any event, the denial of the motion to intervene was clearly erroneous. I am excited about this appeal, as it will give the Seventh Circuit the chance to clarify the law of derivative shareholder lawsuits and whether it is appropriate to bring them for the primary purpose of extracting attorneys' fees.
• I'm also enthused about our chances in the Dewey v. Volkswagen appeal to the Third Circuit. The plaintiffs have requested a punitive appeal bond, and the district court will rule on that in October. I'll have a post about that later in the week.
• Alas, I will not be participating in another appeal I was confident about, the Ninth Circuit Yahoo! appeal.  As you know, the Center for Class Action Fairness refuses to settle a class action objection unless the withdrawal of the objection results in a settlement that is fair, adequate, and reasonable. Our clients disagreed with that approach, and we have withdrawn as counsel. We did not ask for and will not accept any fees in that representation.

CCAF filed its reply brief today in the Nachshin v. AOL appeal.

The principal-agent problem does not just affect class action plaintiffs' attorneys enriching themselves at the expense of their putative clients. I see it far too often in the case of class action defense attorneys beholden to the billable hour at the expense of their clients. I've had securities defense attorneys admit to me sotto voce that they don't want to see securities law reformed, because they're making money off the status quo. If I were a defense client, I'd worry about attorneys like that; they might prefer to lose their 12(b)(6) motion in the hopes of churning some billable hours in discovery disputes. In a notorious example, attorneys from defense firms lobbied the ABA to release a statement opposing preemption—something that would hurt their clients, though would certainly increase the demand for lawyers' services. (I once had a lunch date with a pharmaceutical defense attorney who made a disparaging comment to me about "you people" believing in federal preemption. That second-person-plural mystified me: she was making a lot more money arguing in favor of preemption in court on behalf of her clients than I was making writing about preemption on public-policy grounds. If one's that offended by preemption, one should go work for a plaintiffs' firm where one can make more money in the long run: it's stupid to be selling out one's principles for less than one's opportunity cost of adhering to them.)

I've long felt that general counsels should do more to insist that their outside defense firms are really defense firms that believe in their clients' rights, rather than mercenary law firms that happen to represent defendants because their lawyers don't have the entrepreneurial courage to be contingent-fee plaintiffs' attorneys.  Top-of-the-line plaintiffs' attorneys are the best trial lawyers in the business: they don't get paid if they don't win, but they're the ones with the Gulfstream jets and 5000-person Christmas parties.  If a defendant responds by hiring a coddled Ivy-League defense attorney that's afraid of the inside of a courtroom and goes home at night feeling vaguely guilty that he's working for The Man, that defendant is going to get his head handed to him nine times out of ten.  That sort of ideological accounting is surely more important to the bottom line than the racial-diversity accounting many Fortune 500 companies insist upon in their outside law firms, but it happens far less than it should.

Anyway, in response to CCAF's opening brief in the Nachshin v. AOL case, the settling parties apparently agreed that AOL's defense attorneys would do all the briefing, and the plaintiffs' attorneys would simply free ride off the finished product:

• AOL response brief.
• Plaintiffs' response brief.

The plaintiffs couldn't even be bothered to cite their roman numerals in consecutive order.

For the life of me, I can't imagine why a defense attorney with the best interests of his client in mind wouldn't simply say: "You sued us, you defend the settlement. We're paying you hundreds of thousands of dollars to go away. My client shouldn't have to pay another penny into this case." But that would mean foregoing some fees. And why would a defendant's brief say something as vapid as "Both class actions and legal aid funds facilitate the supply of justice to those who cannot otherwise afford it" (p. 25)?  Trial lawyers, come sue AOL! According to AOL's brief, you're just facilitating the supply of justice when you do! (I was similarly amused that AOL of all parties would snark about the supposed fact that our opening brief would cite "online articles." That was especially ironic given that AOL pays writers to produce online articles for them.) I briefly worked at the same firm as Paul Cappuccio, a hard-nosed lawyer's lawyer who went on to become the general counsel of AOL before he escaped on a life-raft to keep the Time Warner general counsel job.  I cannot begin to imagine a general counsel's office supervised by Cappuccio permitting a brief like this to be filed, but perhaps I'm being naive.

As you can tell for yourself, these were exceedingly weak response briefs that never really engaged with our opening brief's argument against the conflict-of-interest problems in cy pres distribution, so I'm feeling good about our reply brief and about our chances.

In the 1998 case of Felzen v. Andreas, the Seventh Circuit suggested that it was looking for an opportunity to take action against derivative shareholder strike suits, suits where a shareholder purportedly sues on behalf of the corporation, but in reality is seeking legal extortion to drop the suit:

Rule 23.1 provides for notice to shareholders only in the event of dismissal or settlement, so that other investors may contest the faithfulness or honesty of the self-appointed plaintiffs; we do not doubt that this monitoring is often useful and that intervention to facilitate an appeal could be justified. Many thoughtful students of the subject conclude, with empirical support, that derivative actions do little to promote sound management and often hurt the firm by diverting the managers' time from running the business while diverting the firm's resources to the plaintiffs' lawyers without providing a corresponding benefit. Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L.Rev. 497 (1991); Reinier Kraakman, Hyun Park & Steven Shavell, When are Shareholder Suits in Shareholder Interests?, 82 Geo. L.J. 1733 (1994); Roberta Romano, The Shareholder Suit: Litigation Without Foundation?, 7 J.L. Econ. & Org. 55 (1991); Mark L. Cross, Wallace N. Davidson & John H. Thornton, The Impact of Directors' and Officers' Liability Suits on Firm Value, 56 J. Risk & Insurance 128 (1989); Daniel R. Fischel & Michael Bradley, The Role of Liability Rules and the Derivative Suit in Corporate Law: A Theoretical and Empirical Analysis, 71 Cornell L.Rev. 261 (1986). The two shareholder-appellants in this case believe that the modest settlement, half of which will be paid to counsel, exemplifies this problem.

Unfortunately, the appeal in Felzen was thrown out on technical grounds, and no one has taken up the challenge, perhaps because it's more lucrative to agree to be paid off for withdrawing an objection to a bad settlement than for successfully challenging the bad settlement.

Until now. Plaintiffs brought a meritless derivative-shareholder suit over an alleged technical violation of the Clayton Act; the corporation found it cheaper to pay the plaintiffs' attorneys $925,000 to go away than to defend the suit. But the shareholders get nothing, so they're worse off because of the litigation.

Unfortunately for the plaintiffs, not only did they sue in the Northern District of Illinois, they sued a corporation where I own shares. After attempting to foreclose objections by mailing out notice three days before objections were due, the parties agreed to a new notice schedule, and I have moved to intervene and dismiss the action for failure to meet the Rule 23.1(a) standard for shareholder representation. The case is Robert F. Booth Trust v. Crowley, No. 09-5314 (N.D. Ill.) and the fairness hearing is August 27 in Chicago.

Today's a busy day (there were filings in three different pending objections and appeals, two of them by us), but we'll have to postpone discussion of those cases to note that, on Friday, the U.S. District Court in Kansas rejected the $0-for-the-class/$10M-for-the-attorneys settlement in the Costco Fuel case that we argued in April. Alas, the court ruled on narrow technical grounds and punted on some critical economic questions, so we might see substantially the same settlement again in a couple of months if the parties can jump through the hoops the court established—but if the settlement remains unfair and unreasonable, I'm sure the objectors involved will want to object again.

Our associate, M. Frank Bednarz (Chicago '09), did much of the work on the Costco briefing, so I'm sure Friday was special to him—not least because it was also his wedding day! Mazel tov to Frank and Meridith. Go buy them some light bulbs before Frank starts at his BigLaw job in Boston in a couple of months. When Frank gets to Boston, I bet he'll be the only person there who already has a winning $10-million brief under his belt.

Have you ever heard of structured settlements? If you are a recipient of a legal settlement, you may have to wait a long time before you get the entire amount. There may be instances wherein you cannot wait a long time. If you have a need for immediate cash, this is the option to take. You will not have to wait a long time.


There are various reasons why you may receive a settlement. These cases involve the death of a family member, injury, medical malpractice, work related injuries, defective products, etc. In these cases, there will always be settlements involved. These settlements are meant to pay for the damages that the recipient is going through.

Although you receive a significant amount of money for the damages done against you, you do not get the entire amount. You have to wait a certain period before you are fully paid. The time frame for settlement can take months, years, and even an entire lifetime. If there is a need to get immediate cash, there is no way to speed up the process.

There is a reason why you do not get the money right away. Due to the damages inflicted, you may not be able to make a living for yourself. You have been temporarily injured, or you may have been permanently injured. In any case, there will be no chance for you to make a living during recovery. This is the main reason why you do not get all of the money right away.

Payment in increments will make sure that you have enough to pay for things like medical expenses and your daily needs. This way, you are guaranteed a future for you and your family. However, there will be instances when there is an immediate need for the entire amount. This is when structured settlements will be needed.

The reasons for needing the money right away may vary. You may need it for a family member’s educational needs, mortgage payments, loan payments, payment for debts, etc. In these cases, monthly or yearly payments will not be enough. This is when you will need the bulk of the settlement.

With structured settlements, a firm will offer to buy these court settlements from you. The reason why they choose to purchase them is for long term monetary gains. They offer to give you the bulk of the settlement with a few fee deductions. This fee ranges from 10 to 30 percent of the total amount.

With this option, you do not get the entire amount. However, you get the bulk of money right away. With immediate cash at hand, you will have more options to satisfy your immediate needs. You will have cash to spend for educational purposes. You will have ready cash to spend for debts. You will money to spend for emergencies whenever you experience them.

You can never tell when emergencies may come. If you a recipient of one of these court settlements, you are in luck. No longer do you need to worry. You can now take the option of structured settlements.

The Ninth Circuit’s holding in Concepcion v. AT&T Mobility, barring an arbitration clause that prohibits class actions as "unconscionable," rests upon a belief in the exceptionalism of class actions, namely, that they are a uniquely superior form of dispute resolution the availability of which is necessary to vindicate consumer rights. But, as the Center’s experience indicates, class actions are far from an exceptional vehicle for providing consumers with meaningful access to justice.  Yesterday, the Center filed an amicus brief in the Supreme Court case of AT&T Mobility v. Concepcion (No. 08-893) in support of the petitioners.  O'Melveny & Myers attorneys Brian Brooks, Charles Borden, and R. Seth Davis did a phenomenal job with the brief, and we're grateful for their help.  Public Citizen, which ironically represents the anti-consumer/anti-arbitration/pro-trial-lawyer side in the name of paternalism, has a page devoted to the case withf links and resources, though the weight of those links and resources is pro-paternalism; the left side of the blogosphere has paid far more attention to this case than the right side.  Among the briefs is one filed by a number of law professors I know and admire, including (but not limited to) Randy Barnett, Henry Butler, Richard Epstein, Michael Krauss, Geoff Manne, Michael Moreland, Larry Ribstein, and Josh Wright; it raises important points about unconscionability and freedom of contract.

Wednesday, August 4, Judge Patty Shwartz (D.N.J.) approved the Dewey v. Volkswagen settlement to which the Center for Class Action Fairness had objected.

In one sense, the decision is a partial victory for CCAF: one reason the proposed settlement was unreasonable was because of the plaintiffs' attorneys's unreasonable request for $22.5 million in fees. The court adopted some of our arguments that the plaintiffs' attorneys claim that the settlement was worth $141 million overvalued the settlement by assuming 100% class participation and double- or even triple-counting many of the class benefits. The court approved only $9.2 million in fees, a $13.c3 million reduction, though still a very healthy pay day of over $1100/hour for some of the self-appointed lawyers that negotiated a settlement that left a million of their putative clients in the cold.

Yet I still feel disappointment: though the opinion was 101 pages long, the court did not address our arguments that a million class members received nothing under the settlement, did not address our arguments that the settlement structure created impermissible intra-class conflicts, and did not address our arguments about the validity of the economic testimony finding value.  We argued that the settlement structure was impermissibly self-dealing; the court rejected that argument with a cite to a Third Circuit opinion that did not consider the argument we made.  The court's ultimate finding that the settlement was worth $69.3 million still reflects enormous inflation, given that only $8 million of the settlement reflects pecuniary benefits to class members; the court confused expense to the defendant with benefit to the class, encouraging future settlements that are structured inefficiently to maximize attorneys' fees at the expense of the both the class and defendants.  We were hamstrung by a jaw-dropping ruling by the court that there was no need for an objector to a settlement to cross-examine the plaintiffs' expert witness because the direct examination and the court's own questions had already asked the expert what he thought about our objection.  The cross-examination would have demonstrated severe contradictions between basic economic principles and the methodology used by the expert to calculate damages. That the court went on to entirely ignore our argument for why the expert report flunked Daubert was disturbing. All of this is reversible error in the Third Circuit: if nothing else, an appellate court cannot decide whether the rejection of an objection was an abuse of discretion unless the trial court expresses its reasons for rejecting the objection.

We have thirty days to decide whether to appeal, a decision we will make in conjunction with the four class members we represented in our objection.  Our decision may be made easier if the plaintiffs' attorneys appeal the fee decision, in which case we would cross-appeal at a minimum.

When Apple introduced its iPhone into a smartphone market where it had 0% market share, it cut a deal with AT&T Mobility to make it the exclusive provider of cell phone service.  In exchange, ATTM subsidized the price of every iPhone by $450, thus ensuring that more consumers would be able to purchase iPhones, and introducing additional competition into the smartphone market. 

Nonetheless, trial lawyers sued, bringing a class action alleging that this basic business arrangement violated the antitrust laws because it threatened to monopolize the previously non-existent market for "iPhone telephone service." 

This is ludicrous on its face.  The smartphone market is more competitive than ever: in addition to the longstanding Blackberry, there's new entrants Droid and HTC Evo (and vis-a-vis the latter, see this NSFW, but very funny, video).  Without the phone carrier subsidization, many iPhone owners (including me) would be unable to afford an iPhone, and are clearly better off because of the exclusivity deal.  Nonetheless, the Northern District of California has certified a class action over the practice—and not just any class, but a Rule 23(b)(2) mandatory class, meaning that every iPhone owner with an AT&T Mobility two-year contract is now involuntarily represented by attorneys that apparently care more about the possibility of extortionate settlement profit than the clients they purportedly represent. 

The Center for Class Action Fairness is in talks with a number of iPhone owners who are concerned about being represented by class counsel who don't have their best interest at heart, and considering filing papers moving to intervene and decertify the class.  But economic experts willing to go on the record to refute quack antitrust analysis are not cheap; before we blow a good chunk of our annual budget on one, we're curious if there's anyone out there willing to work for a discount rate or, better yet, pro bono.  (In the alternative, if there's another public-interest law firm out there who'd like to take the lead role on this, I am happy to serve pro bono as both the client class member iPhone owner and as the expert witness, as well as assist on the legal side.  Unfortunately, legal rules prohibit me from serving as both lead attorney and as a witness.)

A tiny percentage of Volkswagen and Audi sunroofs will leak into the vehicle unless care is taken to keep the plenum clear of debris; a class action was brought over this.  Let's assume for the moment that plaintiffs are correct that this is something that Volkswagen is liable for, and that there are contractual remedies for VW not foolproofing the cars against this problem.  What's remarkable is how the parties settled the case in such a way so that wildly inefficient remedies would maximize attorneys' fees at the expense of the class.  The settlement is structured as follows:

1. A million class members will get nothing but a letter telling them to check the plenum when they go for their 40,000-mile service.
2. VW will perform an expensive preventative service action on some, but not all, VWs that might suffer this problem.
3. An $8 million settlement fund is set up to pay damages for some, but not all, VWs that have suffered damage

The economic expert for the plaintiff made some remarkable calculations.  For example, he valued the letter at over $29 million.  After all, if you get a letter informing you of a potential benefit, that letter is worth just as much as the benefit itself—never mind that Volkswagen dealers charge $400 to $800 for 40,000-mile service, and can easily choose to raise the price $30 to account for the extra labor in performing the extra task during the maintenance service.  So if Apple ever settles a class action by sending you a letter telling you you can buy a $700 iPad for $700, that is, according to the expert, indistinguishable from Apple writing each consumer a check for $700.

Let's look at #2 for a second.  According to the plaintiff's own expert, VW will spend $55 million on that service action.  According to the same expert, if VW does not perform the maintenance, those vehicles will suffer $24 million in damage.  (The expert then remarkably triple-counts this as a benefit to the class: the $24 million in damage avoided, plus $55 million in VW expenses for the service action, plus another $24 million for the avoided diminution of value of the vehicle that would have occurred if the vehicles suffered damage and then weren't repaired.  Thus, according to the expert, this component of the settlement is worth over $103 million.)  Spending $55 million to avoid $24 million in damage is the very definition of economic inefficiency. 

But consumers lose out.  Some of the class members who are getting nothing but a letter—including one of my clients—have suffered actual damage from sunroof leakage.  They're not getting paid under this settlement and are being forced to release their claims, which are no less meritorious than the claims that are getting paid.

The only possible reason for plaintiffs' attorneys to insist upon this convoluted remedy is to increase attorneys' fees.  By making Volkswagen engage in wasteful spending, they pump up the alleged value of the settlement and then argue that they're entitled to over $23 million in attorneys' fees and costs, to be paid separately by Volkswagen.

It would have been very easy to structure a settlement so that Volkswagen created a $48 million fund to cover repairs to every vehicle that suffered water damage from a sunroof leak.  Every VW owner who had the problem in the past or in the future would be able to collect; Volkswagen would be out of pocket $48 million instead of $70-$90 million; the attorneys could have made a plausible claim for $10 million in attorneys' fees and costs from the fund, which would still be close to twice an exaggerated lodestar.  Instead, the parties negotiated a settlement that made everyone—consumers and Volkswagen—worse off.  Well, everyone except the attorneys, if Judge Patty Shwartz buys the quack economic testimony and awards the full fee request.

Under Rule 23(e), a judge is not to approve a settlement unless it is "fair, adequate, and reasonable."  It is hard to see how this settlement is fair or reasonable; and it demonstrates the failure of legal ethics that the class attorneys could structure this settlement and make that fee request without fear of sanction, even as they put their own interests ahead of their clients.

The four-hour fairness hearing, consisting mostly of the economic expert rationalizing his calculation and the attorneys arguing over fees, was last Monday in a Newark federal courtroom.  I look forward to seeing how the judge will rule.

Tuesday, the Center filed its opening brief appealing the approval of a class action settlement against AOL.  We focused our appeal on the problematic cy pres award in that case:

This appeal presents a straightforward application of the Ninth Circuit precedent Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir. 1990)—a precedent that the district court entirely failed to apply. For a cy pres award to a third party to be permissible it must actually be “cy pres”—as near as possible to actual class recovery. Id. at 1308. Here, there was a nationwide class of tens of millions of AOL members allegedly victimized by AOL practices, but the vast majority of the cy pres distribution went to local charities in the Los Angeles and Oklahoma areas; all of the cy pres was entirely unrelated to the class and unrelated to the claims of the case.

The potential of cy pres to create conflicts of interest and ethical dilemmas for the judiciary have garnered increasing attention in recent years. See, e.g., Adam Liptak, Doling Out Other People’s Money, N.Y. TIMES (Nov. 26, 2007) (available at http://www.nytimes.com/2007/11/26/washington/26bar.html); Martin H. Redish, et al., Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 FLA. L. REV. __ (forthcoming 2010) (available at SSRN: http://ssrn.com/abstract=1485047); Sam Yospe, Cy Pres Distributions in Class Action Settlements, 2009 COLUMBIA BUS. L. REV. 1014 (available at SSRN: http://ssrn.com/abstract=1492105); Amanda Bronstad, Cy pres awards under scrutiny, NAT’L L. J. (Aug. 11, 2008) (available at http://is.gd/dyFk0-). If courts are going to countenance cy pres distributions in class actions settlements at all, such distributions must be strictly tethered to the standard of class benefit, lest cy pres become a slush fund for plaintiffs, defendants, attorneys, and judges that creates the appearance of impropriety—or worse, actual impropriety.

The problems of potential conflicts of interest are not just a hypothetical concern in the case at bar. Neither the court nor the class was informed of the conflict of interest that one of the plaintiffs was the assistant director of development for one of the cy pres recipients. And yet still another cy pres recipient was a local charity where the spouse of the district court judge sits on the board. It is not exaggerating to say that this case is a poster child for the problem of cy pres abuse: indeed, in a story on the issue, the Wall Street Journal singled out the very settlement in this case as an example. Nathan Koppel, Proposed Facebook Settlement Comes Under Fire, WALL ST. J. (Mar. 2, 2010) (available at http://is.gd/dyl7A-).

For both precedential and sound public-policy reasons, this court should reverse the approval of the proposed class action settlement as an abuse of discretion.

Parties in a class action agree to submit to the jurisdiction of an Article I magistrate under 28 U.S.C. § 636(c).  Then they settle the case.  Objectors show up, but have not consented to have the case heard by a magistrate.  Does the magistrate still have jurisdiction or does an Article III judge have to weigh in? 

Section 636(c) requires consent by "parties."  Are unnamed class members parties under § 636(c)?  One can't just give the answer of a blanket "no"; the statute and federal rules are silent, and Devlin v. Scardelletti, 536 U.S. 1 (2002), says that class members are sometimes "parties," and sometimes not. 

The problem, of course, is the possibility of heads-I-win/tails-you-lose gamesmanship, with an objector throwing a wrench into the proceedings by protesting after the fact that the court didn't have jurisdiction.  See, e.g., Mark I, Inc. v. Gruber, 38 F.3d 369, 370 (7th Cir. 1994) (vacating final decision of magistrate made after two years of litigation on jurisdictional grounds). To a certain extent, the Mark I problem has been eliminated by Roell v. Withrow, 538 U.S. 580, 590 (2003), which allows a court to infer consent by acquiescence. More worrying is the possibility that an objector in good faith appeals a magistrate's ruling to an appellate court, only to learn that the appellate court does not have jurisdiction and she missed the deadline for appealing to the district court.

It's an interesting academic question, but litigants don't like the uncertainty of academic questions.  It's come up in an objection CCAF made, and we've asked the court for clarification—since no one else seems to have even thought of the issue.

Well, perhaps someone did think of it.  A so-called professional objector has the incentive to sandbag, since the business model is to lose at the district court level and then threaten a colorable appeal that would delay the class counsel payday unless paid off; a defendant is likely indifferent to delay.  What astonishes me most, however, is that plaintiffs' attorneys asking the court for $2900/hour, and presumably concerned about "professional objectors" coming in and holding up the settlement and their attorneys' fees, didn't anticipate this potentially fatal flaw.  If the attorneys who think they're worth $2900/hour are missing this basic issue-spotting that I caught, maybe I'm worth $3000/hour and even more underpaid than I thought.  (And in that case, you, loyal reader, have just benefited from $1500 worth of my time.)

If you're a Sears Holding Corporation (SHLD) shareholder like me, there's a pretty big chance that you got a letter in the mail informing you of a derivative shareholder settlement where the attorneys got $925,000 and the shareholders got the privilege of paying the attorneys $925,000.  The deadline for objecting was June 25.

All well and good, except that my particular notice letter arrived on June 28.  That's because, though the settlement occurred on April 28, and the court approved notice on May 11, the parties didn't bother to ask brokers to provide a list of shareholders until June 1, and then, after receiving the list, didn't bother to mail the notice to tens of thousands of shareholders until June 22 or June 23. 

I was in Chicago yesterday to object to the problematic notice.  While there I met another shareholder who didn't object to the appalling settlement because she also got her notice after the deadline.

The parties initially argued that it was alright to structure notice so that half the shareholders would receive it only after the fact, but after they gauged the judge's reaction to my argument, the parties volunteered to send new notice.  The http://www.searsholdingsderivative.com/ website has not been updated as of Saturday morning, but the new deadline will be August 20, with a new fairness hearing August 27.

The law firm involved, Vianale & Vianale, brings zero-damages lawsuits against corporations alleging technical violations of Section 8 the Clayton Act antitrust law but seeking injunctive relief, and threatens to cost the defendants millions of dollars in litigation expenses if they don't settle.  This is of no benefit to shareholders, because the law in question, when it is enforced, results in the FTC politely requesting a corporation to correct the technical violation; there has not been a government fine issued for "interlocking directorates" in my adult lifetime, and for at least several years before.  The Center will be objecting to this settlement: how can attorneys claim to represent the shareholders when rational shareholders would never agree ex ante to bring a lawsuit that is guaranteed to make them worse off, win or lose?

It generally seems that the majority of my readers are plaintiffs' law firms checking up on me, but if you happen to stumble across this post and happen to own SHLD, you might get a postcard letting you know that you have another opportunity to object.  Of course, unless you own hundreds of thousands of dollars worth of stock, it might be economically irrational to spend two 44-cent stamps to object; and if you did own that much stock, the opportunity cost of the time you spend objecting is probably pretty high, even if it's just to say "My name is X, my address and phone is Y, I own Z shares of stock, and I join in the objection of Theodore H. Frank."  But unfortunately, plaintiffs' attorneys regularly ask courts to view the rational silence of class members or shareholders as acquiescence in their extortionate theft of shareholder money.

I've previously written about the problem of cy pres, charitable donations used to expand the apparent value of class action settlements that often serve as double-compensation for the trial lawyers. One particular Ohio law firm, Dworken & Bernstein, has demonstrated this problem first-hand by regularly negotiating for cy pres awards in settlements that otherwise are pretty lackadaisical in terms of class benefits, getting the settlement approved by claiming the cy pres award is a benefit to the class (even when it benefits a charity affiliated with the judge, or is a local charity despite the fact that the money is supposed to be going to a national class), and then taking personal credit for the donation in ceremonies with oversized checks, as if the money being donated was the law firm's rather than that of their clients. (The website's stock photo of the grateful child with the flower is particularly compelling.)

Public choice aficionados would be fascinated by recent Ohio developments where the Dworken firm has lined up multiple charities to support pernicious legislation, HB 427, that would enshrine this conflict of interest and breach of fiduciary duty to one's clients into Ohio law. On May 18, I testified before an Ohio House committee on the subject. class action settlements

I'm quoted in a May 23 Maryland Daily Record story on professional objectors (and don't miss the correction at the bottom of the story).

Because class action settlements bind class members absent from court proceedings, and because class action attorneys are negotiating their fees as part of the same settlement as the class settlement (even when they engage in the fiction of negotiating seriatim), Fed. R. Civ. Proc. 23(e) requires class action settlements to receive court approval as "fair, adequate, and reasonable" to ensure that class attorneys are not breaching their fiduciary duty to the class.

This permits legitimate objections to the settlement. But it also permits holdups. If class attorneys are awarded a $4 million fee, but appeals of a class action settlement approval take two to three years, the time-value of money means that it's worth hundreds of thousands of dollars to the class attorneys to pay the objectors to go away. This leads to rent seeking.

A reform to the Federal Rules of Civil Procedure was meant to address this problem: an objection cannot be withdrawn in district court without court approval. This certainly rids the system of the more blatant holdup payments that do nothing to benefit the class—though, given that the resulting proceeding will be non-adversary and any approval will not be appealed, there's little incentive for district courts not to rubber-stamp objection withdrawals.

Of more concern is that there is no parallel rule in the Federal Rules of Appellate Procedure. Simply by filing a notice of appeal, a holdup objector can avoid the need for court approval: indeed, appellate court mediators will formally encourage settlement to lighten the appellate court's docket. There's some reduction in the value of the objection, because the buyoff comes later rather than sooner, affecting the time-value of money for both the objector and the class counsel, but there's no real reduction in the incentive for rent-seeking.

Worse, the structure leads to perverse incentives: a rent-seeking or "professional" objector is likely to be financially better off if the district court denies the objection, permitting an immediate appeal—especially since many district courts are reluctant to award attorneys' fees to objectors even if the objection improved the settlement.

This can lead to low-quality objections. Of course, even professional objectors can make legitimate objections: they object to bad settlements as well as reasonable settlements, and even win occasionally: see, e.g., Synfuel Tech. v. DHL Express, 463 F.3d 646 (7th Cir. 2006). But low-quality objections hurt consumers in four ways: first, poor objections lead to poor precedent that encourages judges to rubber-stamp bad settlements over objections; second, one would expect that class counsel anticipates the expense of buying off professional objectors, and builds that into the settlement fee, increasing the cost of class action litigation to the detriment of consumers; third, to the extent the settlement legitimately provides class members with benefits, rent-seeking delays reduce the value of the settlement to the class if the class counsel has not negotiated interest-bearing escrow accounts (which is why courts should condition findings of fairness on the establishment of such accounts); and fourth, there is a signaling problem whereby it is difficult for legitimate objections to be treated as legitimate objections because the objector cannot distinguish himself from rent-seeking objectors. (Indeed, an intelligent Bayesian would expect most objectors to be rent-seeking: for the same reasons we have class actions to aggregate litigation, an objector has no financial incentive to spend time and money petitioning the court over an unfairness to a settlement where an excessive attorneys' fee might deprive the class member of a few dollars or even less. This is why thoughtful courts do not equate lack of formal objections with class members' approval of the settlement.)

The Center for Class Action Fairness resolves the signaling problem in a unique way: we announce in advance that we refuse to settle unless the settlement results in an objectively fair and reasonable settlement, and we refuse to request a fee for more than 4.4% of the additional pecuniary benefit to consumers resulting from our objections (with that fee coming from class attorneys' fees, rather than from consumers); to date, we've never settled an objection. Our interests are to put consumer welfare first. This hasn't stopped class counsel from trying to tar us with the "professional objector" brush, but we can demonstrate that they're being dishonest if they accuse us making a bad-faith objection for profit.

The attorneys in the case of Bachman v. A.G. Edwards, Inc. negotiated what they call a $60 million settlement. Which sounds good, until you actually look at the settlement:

• The attorneys are asking for $21 million of the $60 million, or 35%;
• 35% is actually an underestimate, because $34 million of the $60 million consist of $8.22 coupons, issued in sets of three to be used once a year to pay for mutual fund fees--assuming that the class members remember to use an $8.22 coupon in 2012;
• the attorneys' fees get paid immediately, while the class does not get paid until ninety days after all appeals are resolved;
• and even if the court reduces the attorneys' fees, the reduction goes to a charity run by A.G. Edwards's successor, Wells Fargo, rather than to the class.

In reality, the class is getting more like $8 million, and the attorneys will be getting more than twice that. This settlement is similar to a settlement against Edward D. Jones of a couple of years ago negotiated by a similar group of attorneys; I asked a co-lead counsel who was involved in both cases for evidence of the redemption rate of the Edward D. Jones coupons. Needless to say, he refused to provide a response.

Today, we filed an objection on behalf of a class member who was justifiably appalled by the settlement. And I see many others are unhappy as well. The AG Edwards Settlement Fairness Hearing will be held on May 14, 2010 at 9:30 a.m., central time at the St. Louis City Circuit Court, Civil Courts Building, 10 North Tucker Boulevard, St. Louis, MO 63101-2044.

In April 2008, the Diet Drugs MDL district court awarded $567 million the class counsel in that case, basing the award in part on representations by class counsel about future class recovery. A year later, a plaintiff's attorney requested the court reopen the question of the fee award because the class counsel had exaggerated those estimates. The district court refused, holding that the one-year delay in bringing the Rule 60(b) motion was not a "reasonable time." There has been an appeal to the Third Circuit, and, today, the Center for Class Action Fairness filed an amicus brief in support of the appeal that itself provides a short overview of the history of the fen-phen MDL. Many thanks to Chris Arfaa for his generous help in filing the brief.

We frequently cite to Professor Lester Brickman's law review article, which is on SSRN.

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.

Our objection to the AOL Footer case (currently on appeal) was covered in the March 2 Wall Street Journal:

Late last year, in a class action claiming that tech giant AOL LLC improperly inserted footers in its users' emails, Los Angeles federal judge Christina Snyder awarded $25,000 in settlement funds to a Los Angeles legal-aid organization that has the judge's husband on its board. The mediator in the case recommended the organization, along with other charitable groups that received settlement funds, said Mark Litvack, counsel to AOL.
The Virginia-based [sic] Center for Class Action Fairness objected, claiming the settlement raised a conflict of interest. Ted Frank, president of the group, said that to avoid potential conflicts, it would be better to require unclaimed settlement funds to be deposited into state coffers. "The problem is that parties can now give money to a judge's preferred charity in the hopes that it will prompt the judge to rubber stamp a settlement," he said.
Judge Snyder declined to comment. "It did not seem logical to anyone," Mr. Litvack said, "to split a $110,000 settlement among 60 million class members."

Quotes from the court's order. On the appropriateness of disparate class treatment (pp. 25-29):

Courts generally are wary of settlement agreements
where some class members are treated differently than
others. See, e.g., In re General Motors Corp. Pick-Up
Truck Fuel Tank Prods. Liability Litig. (“In re GMC Pick-
Up Litig.”), 55 F.3d 768, 808 (3rd Cir. 1995) (“One sign
that a settlement may not be fair is that some segments
of the class are treated differently from others.”).
Compare Hanlon, 150 F.3d at 1021 (rejecting objection to
settlement where settlement “does not propose different
terms for different class members”). ...

As in Acosta [v. Trans Union, LLC, 243 F.R.D. 377 (C.D.
Cal. 2007)], the settlement here draws an arbitrary
distinction among class members with identical legal
claims and injuries, and allows some to receive a cash
award, and others only a DVD and limited rebate. This is
patently unfair, and counsels against approval of the
proposed settlement.

On coupons (pp. 30-32):

The primary relief offered by this settlement is the
$500 or $1000 rebate given to class members who purchase
another Honda or Acura over the next nineteen months.
Thus, the settlement is largely a “coupon settlement.”
See Fleury v. Richemont North America, Inc., No.
C-05-4525 EMC, 2008 WL 3287154, at *2 (N.D. Cal. Aug. 6,
2008) (a coupon settlement is one where the relief
constitutes “a discount on another product or service
offered by the defendant in the lawsuit”). ...

The Court acknowledges the wide range of judicial and
scholarly criticism of coupon settlements cited by the
Objectors and amici, and concurs that such settlements
are generally disfavored. This is due to three common
problems with coupon settlements: “they often do not
provide meaningful compensation to class members; they
often fail to disgorge ill-gotten gains from the
defendant; and they often require class members to do
future business with the defendant in order to receive
compensation.” Figueroa v. Sharper Image Corp., 517 F.
Supp. 2d 1292, 1302 (S.D. Fla. 2007), citing Christopher
R. Leslie, “The Need to Study Coupon Settlements in Class
Action Litigation,” 18 Geo. J. Legal Ethics 1395, 1396-
97. See also Synfuel Techs., 463 F.3d at 654; In re
Mexico Money Transfer Litig., 267 F.3d 743, 748 (7th Cir.
2001); In re GMC Pick-Up Litig., 55 F.3d at 807-10 (3d
Cir. 1995); Kearns v. Ford Motor Co., No. CV 05-5644 GAF,
2005 WL 3967998, at *1 n. 1. ...

On valuation of coupon settlements:

Courts have generally rejected the idea
that the face value of coupons or rebates should be used
for settlement valuation purposes; “[c]ompensation in
kind is worth less than cash of the same nominal value.”
Acosta, 243 F.R.D. at 390, quoting In re Mexico Money
Transfer Litig., 267 F.3d at 748. See also In re GMC
Pick-Up Litig., 55 F.3d at 807. Where a coupon or rebate
is not freely transferable on the open market, as is the
case here, it has even less value. See In re Compact
Disc Minimum Advertised Price Antitrust Litig., 216
F.R.D. 197, 221 n. 58 (D. Me. 2003); In re Lloyd’s Am.
Trust Fund Litig., No. 96 Civ. 1262 RWS, 2002 WL
31663577, at *16 (S.D.N.Y. Nov. 26, 2002); Clement v. Am.
Honda Finance Corp., 176 F.R.D. 15, 27 (D. Conn. 1997).
Compare In re Mexico Money Transfer Litig., 267 F.3d at
748 (analyzing value of transferable coupons).

Plaintiffs’ argument that face value is the proper
measure ignores the basic economics of coupons and
rebates. “Coupons promote sales without lowering the
price to everyone (that is, holding a ‘sale’).” Menasha
Corp. v. News America Marketing In-Store, Inc., 354 F.3d
661, 662 (7th Cir. 2004). In the automobile context,
“[r]ebates are given to encourage purchases by reducing
the total amount of money the buyer needs to acquire the
new car or by providing the debtor a premium that can be
used for some purpose other than acquiring the new car.”
In re Gray, 382 B.R. 438, 442 (Bankr. E.D. Tenn. 2008).
Since rebates and coupons aim to facilitate a sale to a
purchaser who would not otherwise purchase a product at a
higher price, the Court cannot, as Plaintiffs do, assume
that every sale to a class members “would have happened
anyway.” (Pls.’ Resp. to Objs. at 15.) Class members
may purchase new Honda or Acura vehicles only “because
they fe[el] beholden to use the certificates,” not
because they would have otherwise. In re GMC Pick-Up
Litig., 55 F.3d at 808.

The Court also notes that the coupons are not only
worth less than face value to class members, but they
cost AHM less as well. If many class members do in fact
take advantage of the rebates offered by Options A and B,
the Settlement can result in a “tremendous sales bonanza”
for AHM. In re GMC Pick-Up Litig., 55 F.3d at 808,
quoting Bloyed v. General Motors Corp., 881 S.W.2d 422,
431 (Tex. Ct. App. 1994). For each class member who
purchases another Honda or Acura who would not have done
so without the settlement rebate, AHM will experience a
net benefit.

On the use of lodestar to calculate fees:

While the lodestar method of awarding fees is permissible under
CAFA, the Court has the discretion to use either a
percentage or lodestar method in awarding fees, and is
particularly wary of using the lodestar method here. See
Hanlon, 150 F.3d at 1029; Fleury, 2008 WL 3287154, at *2-
*3. The lodestar amount is particularly inappropriate
where, as here, the benefit achieved for the class is
small and the lodestar award large. See, e.g., Create-ACard,
Inc. v. Intuit, Inc., No. C 07-06452 WHA, 2009 WL
3073920 (N.D. Cal. Sept. 22, 2009). ...

Under the terms
of the settlement, there is no certainty that class
members will receive any cash payments or rebates at all,
but class counsel will receive a three million dollar
payment regardless of whether one or 10,000
class members file valid claims. Since there is no guarantee that AHMwill pay any money out of the settlement to either class
members or a cy pres beneficiary, to award three million
dollars to class counsel who may have achieved no
financial recovery for the class would be unconscionable.

Does a small number of objectors demonstrate approval?

“However, a combination
of observations about the practical realities of class
actions has led a number of courts to be considerably
more cautious about inferring support from a small number
of objectors to a sophisticated settlement.” In re GMC
Pick-Up Litig., 55 F.3d at 812, citing In re Corrugated
Container Antitrust Litig., 643 F.2d 195, 217-18 (5th
Cir. 1981); In re General Motors Corp. Engine Interchange
Litig., 594 F.2d 1106, 1137 (7th Cir. 1979). “[A] low
number of objectors is almost guaranteed by an opt-out
regime, especially one in which the putative class
members receive notice of the action and notice of the
settlement offer simultaneously.” Ellis v. Edward D.
Jones & Co., L.P., 527 F. Supp. 2d 439, 446 (W.D. Pa.
2007). ...

Plaintiffs attack many of the Objectors’
counsel because they have represented objectors in other
actions in the past. (Id. at 17.) This has no greater
bearing on the merits of the objections raised than a
plaintiff’s counsel’s experience in filing class action
suits speaks to the merits of claims he brings.

Excellent article in Forbes on liberal professor Martin Redish's take on class actions.

Redish sees similar constitutional difficulties with so-called cy pres (pronounced "see pray") awards, where judges accept the fact that nobody is going to spend 20 minutes filling out a form to receive a $2 settlement check and award the money to a charity instead. Some argue this doctrine has a noble lineage going back to Norman times (the term is Old French for "as near as possible"). But Redish traces its use in class actions to a student article in the University of Chicago Law Review in 1972, which gave lawyers and judges the idea for how to dispose of money nobody would claim.

Cy pres awards are troubling because they raise the specter of favoritism. Is the judge approving payment to the Red Cross because it's the right thing to do, or because it's the pet charity of the admissions director at a school he wants his kids to attend? They also bring a party into the litigation that doesn't belong there. "The law doesn't say anything about the charity," Redish says. "The charity hasn't been injured."