Thursday, July 24, 2014

Allen v. Dairy Farmers of America

What happens when class counsel wants to settle and the class representatives do not? Rule 23(a)(4) and the Constitution require adequate class representation before individual class members can be bound. If class counsel can hijack a class and force a settlement when no class representative approves, it would seem to unconstitutionally abrogate the Rule 23(a)(4) inquiry. If class representatives have limited power to bind a class (as the Supreme Court has held in Standard Fire Ins. Co. v. Knowles and Smith v. Bayer Corp.), how can a class without any representation do so? And if a zombie class can proceed and settle without any class representatives, why have the Rule 23(a) requirements at all, and not just allow attorneys to sue on behalf of a class without any individual standing?

This issue is about to arise in Allen v. Dairy Farmers of Am., Inc., No. 5:09-CV-00230 (D. Vt.), where class counsel moved for preliminary approval of a settlement without a single class representative agreeing to the settlement. Unfortunately for the class representatives, the Second Circuit permits this shenanigan; unless the district court steps in, they will need to persuade the Second Circuit to reverse itself and join circuits like the Seventh that hold that class representation requires class representatives, or eventually take the case to the Supreme Court. The district court has so far withheld preliminary approval, so the class representatives may be able to prevail on the merits without need for resort to the niceties of constitutional law and procedural protections for absent class members, but this will someday be an issue that the Supreme Court resolves, and almost certainly resolves against current Second Circuit law.

Thursday, July 10, 2014

Letter to Chicago Lawyer Magazine

To the editor:

Your June 2014 article "Cy pres success" contains a material misstatement of the law, when it implies that giving the class's money to legal services organizations is invariably a "recognized approach to avoid granting awards to dubious organizations." A number of decisions, including Ira Holtzman, CPA v. Turza, 728 F.3d 682 (7th Cir. 2013), have held such cy pres recipients to be inappropriate, rejecting the reasoning of the article for such distributions. 

One might overlook this statement as an excusable oversimplification of a complex area of the law, except that the author's firm, McDermott Will & Emery, currently represents the National Legal Aid and Defender Association in at least two pending appeals (including one adverse to one of my clients, Oetting v. Green Jacobson, No. 13-2620 (8th Cir.)) where it is arguing for affirmance of cy pres awards against existing precedent. This conflict is nowhere disclosed in the article.

Very truly yours,

Theodore H. Frank
Center for Class Action Fairness
Washington, DC

Friday, June 6, 2014

Eubank v. Pella Corporation (7th Cir. 2014)

Judge Posner writes a very interesting Seventh Circuit opinion reversing a settlement approval on multiple grounds. A lot of friends forwarded the decision to me. I got to write back that I had argued it.

This wasn't a Center for Class Action Fairness case; the Center is a non-profit and restricted by federal tax law to cases where the client would not be able to retain a private attorney. But an objector's counsel retained my private solo law practice to assist with the briefing for one of the objectors; I then argued the appeal in Chicago in April along with counsel for the class representatives frozen out of the deal.

But even if it's not a CCAF case, it's worth discussing here. The opinion is going to be very helpful to class members, including several CCAF cases pending on appeal. While a lot of the press coverage has focused on the scathing remarks Judge Posner had for the unique conflicts of interest of class counsel, the opinion more importantly also singled out as improper several practices the Center has repeatedly complained about: the use of separate funds for attorneys' fees with reversion to the defendant; the use of imaginary hypothetical valuations of settlements based on bogus assumptions about the number of claims that would be made; grouping disparate sets of class members (in this case, thirteen or so different categories of settlement relief) into a single settlement class; and "quickpay" provisions where class counsel takes its check early in the proceedings while the class is not entitled to relief until years down the road. And more.

Brian Wolfman points out that the opinion notes the silliness of approving settlements based on low opt-out rates.

The opinion also had kind words for the important role played by objectors in policing abusive class-action settlements. And as I joked to friends, this victory was particularly special for me, because the client wrote me a check.

Coverage: ForbesOverlawyeredChicago Daily Law BulletinLitigation Daily ($); Legal Newsline/Washington ExaminerABA JournalNational Law Journallaw.com; law.com; Workplace Class Action BlogBlawgletter.

Thursday, May 1, 2014

Opening brief in Redman v. RadioShack

RadioShack committed the sin of printing credit-card receipts with expiration dates on them, which exposed it to possible liability of $100 a receipt ($1000 if willful), a bankrupting sum. Class counsel settled for coupons. Our clients objected that the settlement did not comply with CAFA's limitations on coupon settlements, and was structured so that class counsel's benefit would outstrip that of the class. As is typical in coupon settlements these days, the settling parties denied that the coupons were coupons. For some reason, the district court bought the argument, and awarded $1M in attorneys' fees while the 16-million-member class will receive 83 thousand coupons with a face-value of $10, give or take. We've appealed, and filed our opening brief April 16.

Tuesday, April 29, 2014

Monday, April 28, 2014

Ninth Circuit win in Apple MagSafe case

The Apple MagSafe settlement paid the attorneys $3.1 million, but the class less than a quarter of that, yet the district court rubber-stamped settlement approval without addressing the objection to the self-dealing by class counsel, and, worse, imposed an illegal $15,000 bond to appeal the case. We posted the bond and appealed. (Briefing and oral argument here.) Thursday, the Ninth Circuit reversed and remanded for consideration under the appropriate legal standards, and was especially critical of the abusive appeal bond. The most comprehensive coverage is by Daniel Fisher at Forbes.com. There are also stories at The Recorder and Law360 behind subscription paywalls.

I'll note that three times now federal courts have imposed excessive appeal bonds on Center appeals on the non sequitur of a ground that the appeal had little chance of success, and we're two for two in such cases, with the third one pending.

We're also four for four in Ninth Circuit cases, and nine for eleven in intermediate federal courts (eight for ten as appellants).

Sunday, April 13, 2014

Wasserman on cy pres

University of Pittsburgh Law Professor Rhonda Wasserman has a paper on cy pres forthcoming in the USC Law Review, "Cy Pres in Class Action Settlements." The paper discusses in detail two CCAF cases, In re Baby Products Antitrust Litig., and Marek v. Lane.
Monies reserved to settle class action lawsuits often go unclaimed because absent class members cannot be identified or notified or because the paperwork required is too onerous. Rather than allow the unclaimed funds to revert to the defendant or escheat to the state, courts are experimenting with cy pres distributions – they award the funds to charities whose work ostensibly serves the interests of the class “as nearly as possible.” 
Although laudable in theory, cy pres distributions raise a host of problems in practice. They often stray far from the “next best use,” sometimes benefitting the defendant more than the class. Class counsel often lacks a personal financial interest in maximizing direct payments to class members because its fee is just as large if the money is paid cy pres to charity. And if the judge has discretion to select the charitable recipient of the unclaimed funds, she may select her alma mater or another favored charity, thereby creating an appearance of impropriety.
To minimize over-reliance on cy pres distributions and to tailor them to serve the best interests of the class, the Article makes four pragmatic recommendations. First, to align the interests of class counsel and the class, courts should presumptively reduce attorneys’ fees in cases in which cy pres distributions are made. Second, to ensure that class members and courts have the information they need to assess the fairness of a settlement that contemplates a cy pres distribution, class counsel should be required to make a series of disclosures when it presents the settlement for judicial approval. Third, to inject an element of adversarial conflict into the fairness hearing and to ensure that the court receives the information needed to scrutinize the proposed cy pres distribution, the court should appoint a devil’s advocate to oppose it. Finally, the court should be required to make written findings in connection with its review of any class action settlement that contemplates a cy pres distribution.
The first two proposals are arguments we make regularly; the second two are matters for a rule-making body or legislature, but are not going to be enforced in the absence of class action objectors; similar protections for class members in coupon settlements are routinely ignored.