class actions settlements

• Wednesday, I argued the case of Kazman v. Frontier Oil in Houston, which raises the issue of whether Texas law permits the "deal tax": the extortionate lawsuits over merger disclosures that get settled for pricy attorneys' fees and nothing of value to the shareholders that the attorneys are supposed to be representing. Thanks to client CEI attorney Sam Kazman, and to D. Wade Carvell, who was both extraordinarily generous and effective with his pro bono time on the case. [CEI press release; Kazman podcast; earlier on POL; more on POL]
• West Virginia medical monitoring settlement: $6.62 million for attorneys, up to $6.58 million in funding for medical examinations for class, but the money is likely to go to charity, and there will be no free exams after 2014. I'm quoted, after the West Virginia Record called me up for my analysis.
• Legal Newsline covers the Southwest Airlines drink voucher class action settlement. [Legal Newsline; earlier on POL]

Southwest gives away "premium drink" (i.e., "beer") coupons worth $5 to customers who buy a Business Select ticket. Of course, not everyone drinks, and half of the coupons are thrown away. After giving out 11 million or so of these coupons, Southwest changed its policy and held that the premium drink vouchers were only good on the day of the flight for which they were sold. A class action was born, alleging bait and switch. There's a lot of publicity over the settlement; Southwest Airlines is giving away new coupons, i.e., free beer. Press coverage accepts the claim of class counsel that the coupons, which will expire in a year, and are only good in flight, are worth "perhaps more than $29 million"; papers in support of the settlement go even further and ascribe a value of up to $58 million. Thus, the attorneys will ask for $7 million. [preliminary approval order; Chi Trib; L&S; h/t LAN3]

Thing is, we know from decades of history of coupon settlements that less than $1 million of these coupons are going to get used; heck less than $1 million are likely to be claimed. The settlement is worth "perhaps more than $29 million" only in the sense that "perhaps" the atoms in the chair you are sitting on will all simultaneously shift one foot to the left. Customers are getting notified by email, but the vouchers aren't being sent to them by email. That's because Southwest wants to limit its liability, but the attorneys want to maximize their payout; they both have the incentive to exaggerate the true value of the settlement. If they told the court the settlement was worth less than $1 million to the class, the court might ask questions why a disproportionate share is reserved for the attorneys; if they asked the court to follow the strictures of the Class Action Fairness Act, which requires attorney awards to be tied to the value of redeemed coupons, the attorneys would have no chance at $7 million.

One hopes a class member sees through this misleading unfairness, and finds pro bono counsel willing to object.

 The class consists of "All Southwest customers who purchased an Eligible Drink Voucher through the purchase of a Business Select ticket or otherwise, during the time period before August 1, 2010, but who did not redeem the Eligible Drink Voucher. The Class does not include Southwest customers who obtained drink vouchers or drink coupons through the Southwest Rapid Rewards program, unless those customers separately purchased, but did not redeem, Eligible Drink Vouchers through the purchase of a Business Select ticket or otherwise." The case is In re Southwest Airlines Voucher Litigation, No. 11-cv-8176 (N.D. Ill.).

A class member contacted me to complain about the settlement in Pearce v. Acosta. At first glance, it seems troubling: as described to me, the attorneys will get $425,000, and class members will get somewhere between $55,000 and $110,000. But the objection deadline is January 22, it's in Washington state court, and my attorneys and I are more than booked up between now and March with existing cases and obligations. We can't take the case, and don't have any insights beyond what's in this post; but if you're an attorney who might be interested in having this class member contact you, please E-MAIL me; leaving a blog post comment gives me no way to contact you and makes me question your judgment.

(Update: thanks to counsel who volunteered. The class member has opted out and been directed to the appropriate attorney running a parallel opt-in federal class action.)

In addition to the objection to the Citigroup Securities settlement, we were busy in December:

• Another bad coupon settlement: In re EasySaver Rewards Litig., No. 09-cv-2094 (S.D. Cal.). The $20 face value of the coupons is illusory, because the coupons preclude the use of the normal 20% offers on the defendant's website. Of course, the class counsel is seeking fees based on the face value; the settlement has illegal cy pres, too. We objected on behalf of a class member.
• Pecover v. Electronic Arts, Inc., No. 4:08-cv-02820 (N.D. Cal.) involves a settlement that will pay about $1 million to the class, but the attorneys are seeking $9.2 million for themselves. I'm a class member in an unfair video-game class action settlement? Of course I'm objecting!
• On December 20, the Second Circuit issued a disappointing summary order affirming the $0 Blessing v. Sirius XM settlement where the attorneys walked away with $13 million. [Reuters] We'll be filing a petition for rehearing and rehearing en banc today, and are looking for pro bono Supreme Court counsel for a cert petition if the Second Circuit doesn't correct its legal error.

• Groupon settlement rejected on cy pres grounds last week after our objection. The attorneys would have received $2.125 million, the class maybe a twentieth of that.
• I argued the Baby Products case in the Third Circuit, and am cautiously optimistic for a good precedent in a case where the attorneys collected over $14 million and the class was due less than $3 million. Briefing.
• The fairness hearing in Johnson & Johnson has been postponed until October 18. We filed two expert reports demonstrating that the plaintiffs had failed to present Daubert-satisfactory expert evidence in support of a claim that the $0 settlement provided "substantial benefit" to shareholders.
• The Ninth Circuit, relying on opinions from two CCAF victories, struck down a settlement on cy pres grounds in Dennis v. Kellogg September 4, also holding that an attorneys' 38.9% share of a settlement ($2 million in this case) would be "clearly excessive."
• The Center filed with the IRS for stand-alone 501(c)(3) status. I'd like to express tremendous gratitude to everyone at Donors' Trust for all they did to incubate us.

Alison Frankel recently asked whether it's the end of "money-for-nothing" class actions; Ronald Barusch asks a similar question. The Center for Class Action Fairness is putting that question to the test in In re Johnson & Johnson Shareholder Derivative Litigation by asking the District of New Jersey to dismiss shareholder litigation that makes cosmetic changes to corporate governance, and then presents a $10.45 million bill to shareholders—150% of the already high "lodestar"—for the involuntary consulting arrangement. As in Robert F. Booth Trust v. Crowley, the suit "serves no goal other than to move money from the corporate treasury to the attorneys' coffers.... It is an abuse of the legal system to cram unnecessary litigation down the throats of firms ... and then use the high costs ... to extort settlements (including undeserved attorneys' fees) from the targets." As I noted then:

Under FRCP 23.1(a) and its state-law equivalents, a shareholder derivative suit isn't supposed to proceed unless the shareholders bringing the suit adequately represent the shareholders. If the suit is meant to profit the plaintiffs' lawyers at the expense of the corporation (and thus the shareholders), how can the bringers of a strike suit be adequate representatives of the shareholders? I've thus argued that the correct role for courts in such situations is to throw these cases out entirely (or approve the settlement but award only a token amount in attorneys' fees).

Good coverage at Forbes.com (noting that the lawsuits themselves are free-ride piggybacking off of J&J self-disclosure and government investigations) and Reuters (quoting plaintiffs' lawyers calling the motion "frivolous").

On July 31, district courts substantially reduced attorney fees in two class action settlements where Center for Class Action Fairness attorneys objected.

In the Nutella litigation in the District of New Jersey, Judge Wolfson agreed with our objection that the parties overstated the value of the injunctive relief, and reduced the fee award from $3,725,000 to $1,125,000. More discussion at Point of Law.

And in the remand of the Bluetooth class action settlement in the Central District of California, the court reduced the requested fee award from $850,000 to $282,729.05. The National Law Journal covered without asking me for a quote. The precision of the nickel seems a poor use of court resources, and demonstrates why we argue for recovery based on benefit to the class with lodestar to be used only as a cross-check ceiling. We also think that the court erred in failing to consider the substantial evidence that the injunctive relief was not only worthless but harmful to the class. But we're obviously less dissatisfied with a $282 thousand mistake than a $850 thousand mistake.

Unfortunately, both courts disagreed with us that the "kicker" provision in the settlement combined with the reversion to the defendant meant that the settlement was unfair because of the class attorneys' breach of fiduciary duty to the class, and granted settlement approval. We think this is legal error. When defendants are willing to put $6 million on the table complete a "clear sailing" clause to settle a lawsuit, but only have to pay a little more than half of that because of self-dealing by the class counsel, the unfairness to the class seems fairly clear to us. As the Ninth Circuit said in our Bluetooth win, there is "no apparent reason" for such a reversion. But the Center already has an appeal pending in the Ninth Circuit addressing just this issue, so will likely forgo appeals here unless a cross-appeal is necessary.

Related: district court citing Bluetooth throws out $0 Fraley v. Facebook settlement.