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Sullivan v. DB Investments: Judge Jordan's dissent was right

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(This post is co-authored with Adam Schulman of the Center for Class Action Fairness.)

Sullivan v. DB Investments, the Third Circuit en banc decision affirming a class action settlement certification, was troubling, for reasons noted by Andrew Trask last year. Class members who had no cause of action were grouped with class members who did have a cause of action in a single settlement class, and got identical relief. The Third Circuit found no intra-class conflict, despite the obvious wealth transfer. As Judge Scirica's concurrence reads:

[O]bjectors contend some class members do not have a valid cause of action, but these class members with non-repealer state law claims have lost nothing through inclusion in the class. Objectors speculate inclusion of non-repealer state law claims necessarily diminishes the settlement accrued to class members whom they contend have undisputedly valid claims. But they provided no support for their assertion.

Objectors contend they seek to protect absent class members, but fail to explain how absent class members--all of whom claim injury--are harmed by the defendants' willingness to settle all potential claims.

Judge Jordan had the obvious rejoinder:

The problem here is not that some absent class members who deserve compensation are left out by the settlement. The problem is that some class members who deserve nothing are included in the settlement and hence are diluting the recovery of those who are entitled to make claims. That harm is real, and the cause of it, the overbreadth of the class, is akin to the problem in Amchem.

Now, over a year after the decision, checks have been mailed, and, surprise, surprise, class members' claims have been diluted to near nothing: a Consumerist poster, Laura Northrup, notes that a class member with a $3000 claim (which would be trebled under the antitrust laws), received a mere $48. (This is hardly surprising, given that there were 67 million class members splitting about $200 million. If anything, $48 is surprisingly large. Of course, Ms. Northrup's friend might be in the $0 cross-subsidizing subclass, rather than the subclass whose recovery was diluted.) Meanwhile, the attorneys who won this nuisance settlement of pennies on the dollar were compensated more than in full: $73 million.

The DC Circuit rejected a similar challenge in Cobell v. Salazar; cert petitions were rejected in Cobell and voluntarily dismissed in Sullivan, so the Supreme Court has not yet addressed appellate courts' disregard of its precedents and the circuit split, but the issue is likely to arise again in some pending megasettlements.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.