class actions settlements

Class members getting a notice for this case have been writing me. Dudes: I made my name in the Grand Theft Auto class action, of course I bought Madden and am a class member here.

This is a class action certification, rather than a settlement, so there isn't an easy way for me to get involved at this stage. At the moment, the problem is one of antitrust law, rather than class action law: as the defendant, Electronic Arts already has every incentive to litigate for a reasonable interpretation of antitrust law (and, more particularly, law geeks, the Aspen Skiing or bottleneck doctrine) without me butting in. Given my limited resources and heavy caseload (five cases have filings due in the next seven days!), I prefer to save my powder for cases—like class action settlements—where none of the parties before the court have the proper incentive to ensure the right questions get before the court unless I speak up. I would like to see more courts consider Rule 23(a)(4) in antitrust cases, since many class actions involve legal theories that would make the putative clients/consumers worse off, and a class certification is effectively a merits decision that a class member would prefer to endorse the class attorney's theory of the case. And some day in some case where the conflict is clearer and the defendant hasn't alienated me with poor customer service and buggy products, I'll make that argument. But given that courts have never considered this question before, I want the first time I make the argument to be a better test case than this one.

Rest assured, however, that I'm monitoring the case, and will not hesitate to get involved if class counsel tries to pull a fast one on their clients. (I'm naively hoping that, if I'm doing my job right, my vocal presence in the class will deter class counsel from negotiating a settlement I would object to in the first place.) If you're asking me what you should do, I can't give you individual legal advice if we don't have an attorney-client relationship, but I would note that there is no reason to ever opt out of a class action unless you plan to be suing the defendant yourself. If you're still in the class when it settles, you can always object later if the lawyers turn out to be settling the case for their benefit rather than yours.

The case number is 08-cv-2820-CW (N.D. Cal.).

In January, we discussed a Center for Class Action Fairness objection to a coupon settlement involving HP inkjet printers. That settlement turned out to be even worse than the pathetic one advertised: $5 million in coupons were offered, but the multi-million member class only bothered to file claims for $1.5 million worth of the coupons, with the rest reverting to HP. And of course, a claim for a coupon is not an actual redemption of the coupon: my $2 coupon will likely go unused, since there's nothing HP sells on its website that isn't more than two dollars more expensive than what I can get it for elsewhere.

The attorneys asked for $2.9 million in fees and expenses, justifying it with a quack economic expert report valuing some token injunctive relief as being worth tens of millions of dollars. In a March 29 opinion, Judge Fogel rejected that valuation, held that the settlement was worth only $1.5 million to the class, and reduced the award of fees and expenses to $2.1 million.

Some of the language in the opinion is very good: all too often, courts divorce the fee inquiry from the relief actually won. As Russell Jackson points out, this court said, "To allow an award of attorneys' fees to outstrip the benefit to consumers in such cases would undermine the importance of focusing the efforts of class action counsel on issues that most affect consumers."

So why did the attorneys get $2.1 million? Because of the economic fiction of "fees" and "expenses," which are calculated differently. See, "expenses" cover things like travel, experts, and copying costs. But "fees," that covers things like rent and other overhead, attorney salaries, and paralegals. Attorneys will allocate a dollar received into one bucket or the other, and for some reason, courts will scrutinize the buckets differently, though at the end of the day, the attorneys get a single check for money that they can spend any way they want: the rent and the airlines are going to get paid either way. So the court held that the $2.9 million requested, consisting of $2.3 million in fees and $0.6 million in expenses, was unreasonable with respect to the fees, and reasonable with respect to the expenses—even though the fee request also includes money that goes to expenses, just a different category of expenses. So the attorneys got all of their "expense" request, and just had the "fee" request reduced—but still ended up with more than the class.

That's just business as usual, but there were a couple of other troubling things about the decision. The Class Action Fairness Act requires coupons to be valued by their redemption rate, not by the claim rate. Many of these coupons (such as the one I am scheduled to receive) are not going to be used; one institutional party received tens of thousands of unusable coupons because the terms of the settlement require a claimant to use only one coupon per order, and it would be infeasible for the company to split up its bulk orders to tens of thousands of individual orders.

Second, the court opinion says that there were only three objections, but this is false: there were hundreds of objections, but, because of a confusing notice, 99% of the objectors (including the institution discussed earlier) sent their objections to the claims administrator, the parties never passed along those objections to the court, and the court disregarded my complaint about the procedure in its opinion. Ironic for a consumer fraud case that the plaintiffs' attorneys successfully took advantage of a misleading notice they provided.

Should CCAF appeal this decision? An attorney commenting at Jackson's site suggests that the plaintiffs' attorneys will appeal, and if they do, we'll certainly cross-appeal. At some point CCAF will ask the appellate courts to create a bright-line rule forbidding attorneys from recovering more than their clients. Is this the case to do it?

As I discussed on our Facebook page yesterday, I wasn't given our full ten minutes to argue in the hearing, while Milberg and NVIDIA took well over ten minutes each to argue against the motion. This could mean Judge Ware didn't care what I had to say, or it could mean that he wanted to give the other side the chance to exhaust every argument before ruling against them, or it could mean nothing at all or anything in between. The judge acknowledged the difference between a 17-inch screen and the smaller replacement computer screen. Judge Ware said he'd review the technical reports, so it seems that it will come down to which experts he believes. Will the judge see that Nader Bagherzadeh's conclusions are dishonestly inconsistent with his own data or that Jon Peddie applied the wrong legal standard and contradicted his non-litigation positions? I don't know, and I don't know when the judge will rule. I have one case in Chicago where we've been waiting since October for a ruling, and a recent case in New Jersey where a ruling came in less than 24 hours.

Update: Court rules for NVIDIA. If you're a class member with questions about the case, and why your attorneys argued against your own recovery, you need to talk to your attorneys at Milberg; I cannot help you.

Our earlier post continues to update the docket, most notably with our reply brief filed today.

It's hard to believe that multiple millionaire lawyers from multiple law firms all asked the court to apply the wrong legal standard for deciding a dispute over a consent decree accidentally. I'll take it as a good sign that they didn't think they could win if the court applied the correct legal standard and that their only hope was to obfuscate. It is of some concern that lawyers think they can obfuscate like that and get away with it without getting sanctioned.

What is most remarkable is the shamelessness of the contrasting claims by NVIDIA and Milberg. When asking the court to disregard objections to the settlement, the settling parties argued that there would be hundreds of thousands of claims worth at least tens (and probably hundreds) of millions of dollars. (Milberg actually argued that there would be "exponentially" more than hundreds of thousands of claims, but I presume that was because they don't know what "exponentially" means rather than because they were arguing that there would be tens of billions of claims.)

But push has come to shove, and only 30 thousand class members have taken the preliminary steps of asking for relief—and the Settling Parties have the gall to argue that this response rate (which will correspond to less than $10 million of class benefit, less than the $13 million attorney fee) demonstrates the popularity of the settlement administration, because one couldn't reasonably expect any more claims than that. We didn't even ask for those numbers: NVIDIA shamelessly volunteered them as evidence of the success of the settlement.

This case is a poster child for why courts should not award attorneys' fees until after the claims period has ended. If we hadn't intervened in this case, no one would have ever disclosed that Milberg exaggerated class recovery twenty- to fifty-fold, and this would be recorded in some empirical study as evidence of attorneys generously restricting themselves to fees of less than 10% of class recovery, rather than 130% of class recovery.

Update: Court rules for NVIDIA. If you're a class member with questions about the case, and why your attorneys argued against your own recovery, you need to talk to your attorneys at Milberg; I cannot help you.

If there was ever any question of whether Milberg was going to side with its putative clients or its putative adversary, we now have an answer from this Litigation Daily story (behind a subscription wall, but now available for free):

Lead class counsel Jeff Westerman of Milberg said in a statement that Frank is "working against the interests of consumers who deserve to get their computers replaced."

"This settlement is providing class members with repairs and replacement computers, and thousands have already submitted claims," Westerman said in the statement. "When it comes to the replacement computers, we hired an independent expert who confirmed that we were adhering to the terms of the settlement. [Frank's] claims to the contrary reveal an anti-consumer agenda aimed at stopping the settlement from proceeding."

Three obvious points:

1. Millions of HP owners were subject to the settlement; "thousands have already submitted claims." Or, in other words, less than 1% of the class has submitted claims. And that's aside from the fact that "submitting a claim" doesn't indicate approval of the settlement administration, just an understanding that half a loaf is better than none. All of my clients have "submitted claims"; none are happy with the settlement.

2. In case it wasn't clear from my briefs, I fully support "consumers [getting] their computers replaced." One can readily look at my proposed order, and see that I am not trying to "stop[] the settlement from proceeding." There is already an existing court order for the settlement to proceed, and no one has moved to stay that order.

3. I've heard of spin, but it's remarkable that demanding that consumers get what their attorneys promised them in a class action settlement and notice is considered "an anti-consumer agenda." To review: it's the tort reform advocate who has filed papers with the court asking for consumers to get what they were promised; it's the trial lawyers who have announced their intent to file papers with the Court siding with the defendant and alleged wrongdoer insisting that the consumers—their clients—get less than what the Court has already ordered.

Leading tech blog Engadget caught wind of our motion:

Ted Frank of the Center for Class Action Fairness says that NVIDIA has no business passing off cheap laptops, and we think he might have a case -- after all, the judge ordered that NVIDIA provide "a replacement computer of like or similar kind and equal or similar value," and it doesn't take a lawyer to see that the $400 [sic] Compaq Presario CQ56-115DX that the company's offering doesn't come close to compensating owners of faulty machines. We joked that you might be better off selling your old laptop for parts on eBay, and that might not be far from the truth.

So did leading law blog Above the Law.

Update: Court rules for NVIDIA. If you're a class member with questions about the case, and why your attorneys argued against your own recovery, you need to talk to your attorneys at Milberg; I cannot help you.

Our January 13 post on the NVIDIA GPU settlement, where class members were promised a “replacement HP notebook computer … of similar kind and value as their eligible malfunctioning notebook computer" as part of a settlement, but are instead getting a $330 Compaq CQ56 notebook, has generated several updates and over 100 comments. Though class counsel suggested to me that patience would result in a fix to the settlement, it did not for the vast majority of aggrieved class members, and we ended up losing five weeks. I've started this post now that the court filings have started, and will update as new filings come in. The court granted our motion to expedite the hearing schedule, but expediting means a March 28 hearing. Over 100 HP owners have asked for the opportunity to provide a declaration to the court. One of my clients has a website with more information: fairnvidiasettlement.com.

• 343. HP Owners' emergency motion to shorten time
• 344. Frank declaration in support of emergency motion
• 345. Plaintiffs' status report and response to emergency motion
• 346. NVIDIA response to emergency motion (Note: NVIDIA says I was not authorized to represent their non-opposition. That's my fault: I incorrectly assumed that when Robert Varian of Orrick e-mailed me to say that there was an "Agreement not to oppose" the motion, that meant there was an agreement not to oppose the motion. Similarly, plaintiffs surprised me when they sat on my proposed schedule for over 24 hours without telling me they changed their minds not to oppose. Live and learn.)
• 347. Court order scheduling briefing and hearing
• 348. Motion to enforce settlement
• 349. Memorandum in support of motion to enforce settlement
• 349-12. Proposed order
• 350. Frank declaration in support of motion to enforce settlement
• 351. Ram/Edelson objectors kibitz on motion
• 352. Brown class members' response to Ram/Edelson objectors
• 353. [Transcript ordering relating to objectors' appeal; not relevant to this motion]
• 354. NVIDIA response to [348] motion
• 355. Jon Peddie (NVIDIA) declaration
• 356. Keith Katchor (NVIDIA) declaration
• 357. Dan Rosenthal (NVIDIA/settlement administrator) declaration
• 358. Milberg response to [348] motion
• 358.1. Westerman declaration
• 358.2. Bagherzadeh declaration
• 358.4. Laratro declaration
• 359. Certificate of service
• 360. Unrelated docket entry regarding procedural step in objector appeal
• 361. Lichterman (NVIDIA/Orrick) declaration
• 362. Reply brief in support of motion to enforce settlement
• 363. Zilles declaration
• 364. Frank supplemental declaration
• 365. Vlastone supplemental declaration and report
• 366. Notice of settling parties' alteration of settlement website
• 367. NVIDIA response to notice of settling parties' alteration of settlement website
• 368. Supplemental Bagherzadeh declaration
• 369. Supplemental Laratro declaration
• 370. Certificate of service
• 371. Supplemental Zilles declaration
• 372. Supplemental Frank declaration
• 373. Docket entry noting hearing and motion under submission
• 374. Horton declaration

You will recall that a class action is pending in Kansas over gasoline retailers' failure to disclose the laws of physics to customers, i.e., gasoline, like all other liquids, expands in higher temperatures. Since a "gallon" is a measure of volume rather than power, someone buying gasoline when it's warm is getting less mileage than someone who buys the same volume of gasoline when it's cool. To some extent, the retailers are being hoist by their own petard, because they pulled the same class action nonsense on wholesalers, but it's still socially wasteful litigation that benefits no one but the lawyers; when I argued at a fairness hearing in Kansas City last April, I had several dozen witnesses, likely each billing an average of over $400/hour. Costco decided to get the uncertainty off of its books, and agreed to pay the lawyers to go away. But the class members, the ones putatively injured by Costco's conduct, got nothing. The plaintiffs had the chutzpah to claim that Costco's agreement to "temperature-adjust" their fuel sales was a benefit to consumers, but that's clearly not so. If Costco's average "gallon" happens to increase in size a cubic inch or two, that doesn't mean that consumers are getting free gas any more than it would mean that consumers would get free eggs if the government suddenly mandated that a "dozen" was now equal to eighteen.

The court threw out the settlement on a technicality, and the parties are now back with an amended settlement that fixes the technicality, but still doesn't do anything for the class. So my clients renewed their objection to the settlement. Last time around, we challenged the quack economic report that plaintiffs submitted that claimed changing the size of a gallon would magically result in consumers getting tens of millions of dollars of free gasoline; the other side protested that I was just a mere lawyer who wasn't qualified to use big words like "cross-subsidization." Over the last few months, I've discussed this case with several economists, many of whom fell over laughing as I described the testimony of Dr. Andrew Safir; the distinguished Dr. David Henderson was kind enough to charge us a reduced rate to provide a simple rebuttal on short notice this time around.

When is injunctive relief a benefit to the class? So many plaintiffs' lawyers seem confused about this issue: they forget that they represent clients, and the injunctive relief needs to benefit their clients if one is to count it towards determining the fairness of the settlement. Few courts consider the issue because few objectors raise it, but the ones that do consider it consistently distinguish between retrospective injunctive relief (say, a recall that fixes an automobile or a computer) and prospective injunctive relief (a company agrees to change its business practices). Even when there is consumer fraud, prospective injunctive relief doesn't benefit consumers unless they engage in new business with the vendor. And even then, the consumers will not benefit if the vendor simply raises its prices to account for the new costs in the change in business practices.