Recently in Class Actions Category

In the settlement of the questionable Nutella litigation, the attorneys stand to collect approximately $5 million, while class members will eventually end up with less than $2 million once deductions are made from the settlement funds for the cost of notice and administration—assuming that even 400,000 claims are made. The attorneys justify this by claiming that "injunctive relief" is worth $10 million to the class. But the injunctive relief consists of putting information that already existed on the back of the label on the front of the label, minor changes to the Nutella website, and changing the phrase "An example of a tasty yet balanced breakfast" into "Turn a balanced breakfast into a tasty one." Class counsel also justifies this fee from the work entailed in reviewing 53,000 documents and taking two depositions. [Jackson; Jackson; Lammi]

A new paper by Suzanna Sherry (h/t M.G.), argues that overreaching and greed by plaintiffs' lawyers resulted in adverse precedent:

Class action plaintiffs lost two major five-to-four cases last Term, with potentially significant consequences for future class litigation: AT&T Mobility v. Concepcion and Wal-Mart v. Dukes. The tragedy is that the impact of each of these cases might have been avoided had the plaintiffs' lawyers, the lower courts, and the dissenting Justices not overreached. In this Article, I argue that those on the losing side insisted on broad and untenable positions and thereby set themselves up for an equally broad defeat; they got greedy and suffered the inevitable consequences. Unfortunately, the consequences will redound to the detriment of many other potential litigants. And these two cases are not isolated tragedies; they provide a window into a larger problem of Rule 23. When plaintiffs' lawyers chart a course for future litigants, they may be tempted to frame issues broadly for the "big win" - with disastrous consequences. I suggest that it is up to the courts, and especially to those judges most sympathetic to the interests of class-action plaintiffs, to avoid the costs of lawyers' overreaching. That is exactly what the dissenting Justices (and the judges below) failed to do in these cases.

I'll repeat my earlier statements that the panic over Concepcion is wholly unwarranted: consumers will be far better off ex ante if vendors adopt consumer-friendly arbitration clauses like AT&T Mobility's, and many vendors will prefer the class action system to such generous arbitration clauses, so the death of the class action is a long ways away.

The Class Action Fairness Act requires additional scrutiny of coupon settlements, as well as limitations on attorneys' fees in settlements with coupon relief. With the able help of Dan Greenberg, I recently objected to a coupon settlement in a class action settlement Wal-Mart made in antitrust litigation accusing them of conspiring with Netflix to divide the online DVD market. (Netflix fought the case and won.) Plaintiffs argued that CAFA did not apply because the parties agreed to call the coupons awarded to the class "gift cards," and the district court literally rubber-stamped the settlement. I have appealed. Fierce Online Video and UPI cover the story. Earlier and see also.

The case is In re Online DVD Rental Antitrust Litigation, No. 4:09-md-2029-PJH (N.D. Cal.), appeal pending, No. 12-15705 (9th Cir.).

Unfortunately, this Fox Business story offering consumers answers to the question "Should you participate in a class-action lawsuit if you're eligible?" gets it entirely wrong: you don't have a choice whether to participate, the only question is the degree to which you participate. Opting out of the typical consumer class action is likely to only cost consumers time and money without getting them anything in return (unless a consumer has a documented claim sizable enough to be worth taking to small claims court). And the option of "objecting" to try to improve the settlement isn't mentioned at all.

If ever there is a justification for consumer fraud laws, it is surely "homepathic medicine," so you won't find any argument from me against the fact that plaintiffs brought a class action over Boiron, Inc.'s homeopathic products, which are so much snake oil. But, as snake oil goes, I'm suspicious of a settlement that (1) does not disclose how much of the $5 million fund the attorneys are going to ask for and (2) creates an extraordinary reporting burden in violation of Rule 23(e)(5) on any objectors who dare to raise questions about the division and the lack of disclosure. Press coverage unquestionably repeats the "$5 million" figure, though I strongly suspect the class will end up with less than a tenth of that amount: people who buy homepathic products are sufficiently defrauded that they don't think they're being defrauded (and the settlement and notice permits Boiron to stand by its deceptive advertising), so it's unlikely that many people will make a claim. [Top Class Actions; Lawyers and Settlements; related at The Telegram (Canada)]

Moreover, the notice and administrative costs come out of the $5 million settlement fund, which suggests the attorneys will be asking for a commission on these payments to third parties who aren't their clients.

The majority of the class members who contact the Center for Class Action Fairness LLC (which is not affiliated with the Manhattan Institute) to inquire about their settlements are highly-educated computer-literate civics-aware citizens of above-average income who find us through Google or who remember reading about me in high-end publications. It's been fascinating to see which unfair settlements generate inquiries and which don't. I can guess that, just as very few people will make claims in the Boiron settlement, few, if any will object to a settlement where there's no disclosure about how much the attorneys will be seeking. In short, settlements relating to classes with lower-end demographics are less likely to generate objections than those with higher-end demographics, and it's thus much more likely that attorneys will take advantage of poorer clients in negotiating class-action settlements and requesting attorneys' fees.

The district court here rubber-stamped a preliminary approval order that violated Rule 23(e) by failing to disclose the attorneys' fee request in the notice and placing impermissible burdens on objectors. I hope Judge John Houston of the Southern District of California will put a little more scrutiny into the Rule 23(h) fee request when it happens.

In this particular case, the negotiations and docket show a competing class action where the attorney is getting frozen out. But I haven't been impressed by the quality of objections from competing class actions to date.

The case is Gallucci v. Boiron, Inc., Case No. 11-cv-02039 (S.D. Cal.).

On Tuesday, the First Circuit issued a landmark decision on cy pres, In re Lupron Marketing. Though odd litigation decisions by the objectors led to affirmance in that case, the First Circuit (quoting CCAF's victory in Nachshin v. AOL) made clear that it had "unease" with cy pres, and set a precedent generally requiring compliance with §3.07 of the ALI Principles of the Law of Aggregate Litigation. [Legal Newsline; FindLaw]

Coincidentally, the same day, the Center for Class Action Fairness filed its opening brief relating to the yet-to-be-proposed multi-million-dollar cy pres distribution in In re Baby Products, asking the Third Circuit to adopt §3.07; the district court held that the class wasn't even entitled to an opportunity to object to the as-yet-to-be-proposed recipients. Baby Products presents the additional problem of the sort of settlement where class members were artificially deterred from making claims to expand the amount available for cy pres; indeed, under the district court's order, the class counsel will walk away with over $14 million of the $35.5 million fund, and the class millions of dollars less, likely less than half of what the attorneys got. (Note that under the Brian Fitzpatrick methodology, this would count as a "33.3%" fee award, though that percentage in reality is off by at least a factor of two, and no one in the world will ever know how much the class actually receives; and under the district court's procedure, the class counsel might well be doubly compensated if the cy pres goes to a charity related to the class counsel.)

(CCAF is not affiliated with the Manhattan Institute.)

Consumer Reports actually ran the numbers and calls the theory that gasoline is a better bargain in the early morning because of cooler temperatures a myth; underground tanks change temperature very very little over the course of a day. Nevertheless, trial lawyers have proceeded with a gigantic putative class action against virtually every fuel retailer in the United States on the theory that they have committed consumer fraud by failing to disclose to consumers the basic law of physics that liquid expands with temperature, and thus a higher-temperature gallon has slightly fewer molecules than a lower-temperature gallon. Costco was the first to settle: $0 for supposedly injured consumers, and up to $10 million for the attorneys. The Center for Class Action Fairness objected, and that settlement is under review in the district court, with the plaintiffs using junk economics to argue that the settlement is worth $100 million to the class. Meanwhile, with trial scheduled to start next month, Shell, BP, and ConocoPhillips have announced settlements, though details are not available. One suspects, however, that they will similarly unfairly award the attorneys far more than consumers.

As I note in our featured discussion, and Lester Brickman notes in Lawyer Barons, one of the popular ways to exaggerate the value of a settlement is through a claims-made process. The settling parties tell the court that all of the class members are eligible for relief, then create a claims process that is sufficiently burdensome that only 3% of the class actually recovers, but ask the court to evaluate the settlement on the fiction that the entire class collected. In the pending appeal of Brazil v. Dell, No. 11-17799, the Center for Class Action Fairness LLC is asking the Ninth Circuit to put a stop to this abuse of the class action process.

The case has an interesting twist. Three weeks after the CCAF brief was filed in March, but before the appellees' briefs have been filed, the district court issued a new opinion changing its reasoning and fact-finding from the oral and written opinions it had previously issued. As a friend clerking on a different circuit tells me, the technical term for that is "shenanigans." We've asked the Ninth Circuit to intercede.

(CCAF is not affiliated with the Manhattan Institute.)

James R. Copland
Director of Manhattan Institute's Center for Legal Policy

We're proud to have Ted Frank as a Manhattan Institute adjunct fellow and editor of Point of Law, but most of our readers also know that Ted's primary job these days is running the Center for Class Action Fairness, a non-profit entity Ted founded that challenges class action settlements that, in Ted's view, unfairly compensate plaintiffs' counsel at the expense of the class. Scholars at the Manhattan Institute's Center for Legal Policy (CLP) have long worried about abuses of the modern American class action, which have become ubiquitous since Rule 23 of the Federal Rules of Civil Procedure was changed in 1966 to treat all potential class members as class litigants unless they affirmatively opted out of litigation.

In 2002, CLP visiting scholar Richard Epstein, now of NYU law school, articulated the merits and pitfalls of class action practice in a Civil Justice Report and concluded that "we cannot make a uniform assessment of the overall effects of class action practices," since they are "benevolent in some cases and harmful in others." In his 2010 book Lawyer Barons, CLP visiting scholar Lester Brickman, of Cardozo Law School, discussed in depth the degree to which class counsel, operating without a true client, can collude with defendant companies to expropriate unjust fees in class action settlements, in many cases negotiating away plaintiffs' legitimate legal rights.

Like Professor Epstein, Ted is not opposed to all class actions, but he's particularly concerned about the fee abuses Professor Brickman highlights. Other legal scholars, however, have defended current class action practice, including fee awards, as essential to deterring corporate misconduct. Foremost among these academics is Brian Fitzpatrick of Vanderbilt Law School, who has argued that class counsel should receive as much as 100% of awards as fees in small stakes cases. Ted and Brian have been sparring about this issue recently in many live forums, and we are happy to welcome Professor Fitzpatrick to Point of Law to debate the issue here, with our editor.

Both the Center for Individual Rights and PLF have filed Second Circuit amicus briefs arguing against Judge Harold Baer's requirements that class counsel meet racial quotas in Blessing v. Sirius XM. (Oddly, neither brief was online; I was waiting for the organizations to publicize their January filings before posting. I've now uploaded them: PLF; CIR.

Meanwhile, Judge Baer is still demanding racial quotas in class certification orders. [PERS of Mississippi v. Goldman Sachs; earlier and also]