On November 1, 2018, the U.S. District Court for the Northern District of California published updated procedural guidance for class action settlements (the “Guidance”). While the court made changes to align its rules with the December 1, 2018 amendments to Federal Rule of Civil Procedure 23, the court also sought to provide better information for parties and courts in negotiating and approving settlements. It became the first federal district court to require parties to class action settlements to publicly disclose a broad range of detailed settlement information. The following is an overview of key changes.
We’ve often argued that when the principal rationale for approving a low-value class settlement is that the claims are weak, that is a signal that the case should not have been filed as a class action in the first place. The Second Circuit recently reached that exact conclusion when considering a proposed class settlement in a Fair Debt Collection Practices Act (FDCPA) case, holding that the putative class couldn’t be certified and that the FDCPA claims should be dismissed.
Proponents of class actions often contend that these lawsuits deliver substantial benefits to class members. But while media coverage of class actions often suggests that class members are receiving millions of dollars in relief, most practitioners in the class action arena know that the reality is quite different. That said, to date there has been little empirical information on the practical results of class actions.
My colleagues and I have sought to change that. At the request of the U.S. Chamber’s Institute for Legal Reform, a team of Mayer Brown lawyers (including Andy Pincus and me) have produced a study detailing how consumer and employee class actions filed in 2009 actually fared in practice. The bottom line: of the class actions we studied, only a few cases delivered tangible benefits to more than a small fraction of class members.
As readers of the blog by now know, I’m always on the lookout for examples of class-action settlements that pay off the lawyers while providing little or no benefit to the members of the putative class. The most recent example is Galloway v. Kansas City Landsmen, LLC (pdf), in which Judge Greg Kays of the U.S. District Court for the Western District of Missouri rejected a coupon-only settlement.
The claim in the case is that the defendants, a number of Budget rental car outlets, violated the Fair and Accurate Credit Transactions Act (FACTA) by failing to truncate credit card numbers and expiration dates on electronically printed receipts. The parties entered into a “claims made” settlement under which class members who submitted claims would receive coupons for use in future car rentals. The coupons would have a 120-day expiration date, be subject to blackout periods, and could not be combined with other coupons, discounts, or promotions. Meanwhile, the defendant agreed to pay $175,000 in attorneys’ fees to class counsel.
Judge Kays concluded that “few class members will likely file claims because the benefit of doing so is not worth the effort.” That was so for two reasons.
As part of our ongoing series covering class actions in which the only real beneficiaries are the plaintiffs’ lawyers, here is the Missouri Court of Appeals’ decision in Berry v. Volkswagen Group of America, Inc. (pdf), No. WD73974 (Mo. Ct. App. June 12, 2012).
The plaintiff alleged a defect in the window regulator of certain vehicles manufactured by Volkswagen. Under the settlement, the Missouri class members were eligible for payments of $75, plus repairs of the alleged defect (or reimbursement for past repairs). But only 177 members of the 22,304-member class—0.79 percent!—actually submitted claims. Thus, the total amount of money paid to the class was only $125,261. By contrast, the class’s lawyers made out like bandits: the trial court awarded them twice their hourly rates for the work they said they performed, giving them over $6 million—almost 50 times more than the class received.
Volkswagen appealed the outrageous fees awarded. The Missouri Court of Appeals ruled that the class counsel wasn’t entitled to a multiple of their hourly rate, and thus slashed the fee award in half. But at the end of the day, the plaintiff’s lawyers in this case are still walking away with almost 25 times as much money as their clients.
One of the keys to our victory in AT&T Mobility v. Concepcion (the Supreme Court case holding that courts can’t refuse to enforce arbitration provisions on the ground that they preclude class actions) was our ability to pull back the curtain on the consumer class action racket and show that often the only ones who benefit from class actions are the lawyers. Citing evidence we submitted showing that in many class actions only a minuscule number of consumers bother to file claims and those that do typically receive only pennies on the dollar, U.S. District Court Judge Dana Sabraw found that “the record before the Court demonstrates that a reasonable consumer may well prefer quick informal resolution with likely full payment over class litigation that could take months, if not years, and which may merely yield an opportunity to submit a claim for recovery of a small percentage of a few dollars.” The Supreme Court quoted this finding in rejecting the dissent’s contention that class actions are necessary to ensure that small claims do not “slip through the legal system.”
Though the plaintiffs’ bar has mounted a multi-front assault on Concepcion in the ensuing year—seeking to limit it in the courts and overturn it in the legislative and regulatory arenas—the evidence that class actions exist principally for the benefit of lawyers continues to mount. Recently, for example, a federal district court in Alabama granted final approval to a settlement in which zero—you’ve got that right—zero members of the class submitted claims, but the lawyers received $20,000. The case is called Gaylor v. Comala Credit Union. Read the order yourself (pdf) if you are having trouble believing me.
We’ll be reporting in future posts on other settlements in which the “take rate” is vanishingly low. But we’re also interested in adding to our database, which we hope to use to fend off attacks on Concepcion. So if you have any examples—new or old—please send them our way.