class actions settlements

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.

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.

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."

A stipulation of settlement has been filed in the Dannon Activia yogurt consumer-fraud case. A $35 million fund will be established to pay claim forms with cash, and plaintiffs' lawyers (including Coughlin Stoia, the lead firm) have "clear sailing" to request $10 million plus expenses from that fund—that's over 28.5% for those of you keeping track at home. A typical contingent fee of 25% would mean a fee of $8.75 million.

Any unclaimed funds will go to charity—which means that, as the settlement is structured, the plaintiffs' firms have no incentive to ensure that the allegedly injured class members will collect the money: their fee is tied to the common fund, rather than to what consumers receive.

That's before we get to the injunctive relief. For that, I'll defer to Russell Jackson, who reports on his blog:

It's understandable that it could make economic sense for a defendant to settle a series of class actions after years of litigation. But this settlement's so-called "equitable" relief involving the defendant's advertising and labeling makes it crystal clear that these lawsuits were not based on any real fraud at all. The settlement allows Dannon to say practically the same thing it always has said. The lawsuits obviously were lawyer-invented, and although they may have survived some motions to dismiss, the settlement's equitable relief demonstrates that the defendant's statements were backed up by real science.

The court has yet to provide preliminary approval to the settlement. If you are a member of the class of Activia purchasers, and you wish to object to the settlement, please let me know.

Monday, I attended the fairness hearing for the Bluetooth MDL settlement. UCLA math professor and client Henry Towsner was in the audience.

Dozens of people filed objections with the court, but, aside from the CCAF objection, only 12 of those successfully navigated the procedural maze to file a "valid" objection. Out of those, we were the only ones to cite precedent in favor of our objection. And we were the only ones to make an appearance in court, which suggests that this would've been a quiet rubber-stamp without our appearance and filing.

After hearing from all sides, Judge Fischer took the position that settlements are favored outcomes in a world of crowded dockets, and, even if the case is meritless and unlikely to succeed, it is preferable to allow defendants to get out of the case by paying a small cy pres sum, since the plaintiffs would get nothing if the case was thrown out. The judge ruled that the settlement was fair and adequate, and approved the settlement. She postponed a ruling on the attorneys' fees (despite my argument that the fairness of the settlement was inextricably tied to the fee award). The plaintiffs have until August 5 to submit additional material in support of their fee request; the defendants will file a proposed order by July 20.

This is a settlement that is arguably fair if the fees are knocked down sufficiently so that the attorneys are not receiving more than their putative clients; though the plaintiffs negotiated a "clear sailing" clause where the defendants will not object to fees, the fee request was severable from the rest of the settlement. We will know more in August or September.

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.

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.