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.

Wednesday, April 9, 2014

Opening brief in Pearson v. NBTY, Inc., No. 14-1198 (7th Cir.)

In a settlement of several class actions over the labeling of glucosamine supplements, class counsel settled for a claims process that paid the class under $900,000, and token injunctive relief that tweaked the labels, while leaving much of the supposedly fraudulent labeling language in place (and precluding class members from ever suing on that language again). For this, class counsel asked for $4.5 million, claiming that the settlement was really worth tens of millions because 4.7 million class members could have made $3 claims. (In reality, the postcards mailed to ascertainable class members failed to inform them that they were actually class members, and the claims process demanded they provide receipts or other information already in the defendants' possession. Little wonder no money was actually distributed to the class.) Defendant NBTY was really only on the hook for $2 million, of which $1.1 million went to cy pres, though it would have been possible to distribute that money to class members.

To top it all off, the fee request was subject to a clear-sailing clause and reversion to the defendant, the sort of self-serving fee-protection clauses condemned in our Bluetooth victory.

As a class member, I objected, represented by CCAF attorney Melissa Holyoak. The district court approved the settlement, but partially agreed with us that the fee request was excessive, knocking the Rule 23(h) award down to $1.9 million.

We've appealed: we don't think that the Rule 23(e) and Rule 23(h) fairness inquiries are to be done sequentially. NBTY put $6.5 million on the table; class counsel structured the settlement so the class got only a tiny fraction of that money, and ended up costing the class $2.6 million when their excessive fee request reverted to the defendant. We filed our opening brief last week. Because this settlement has so many of the features of bad settlements we object to, it is perhaps the best 13,000-word summary of CCAF philosophy.

Entertainingly, class counsel has cross-appealed: not satisfied with their abusive $1.9 million fee, they want the full $4.5 million.

The case is Pearson v. NBTY, Inc., No. 14-1198 (7th Cir.).

Monday, April 7, 2014

In re Apple MagSafe Power Adapter Litigation oral argument in the Ninth Circuit Tuesday

Class counsel collected $3.1 million in the Apple MagSafe Power Adapter Litigation, but their putative clients received less than $900,000, and perhaps even less than $500,000—the district court never bothered to make findings. The settlement was structured to pay the attorneys double their lodestar but make it difficult for class members to make claims, and few of them did. We represent objector Marie Newhouse, who received $0 under the settlement, and appeals the approval of the self-dealing settlement and the district court's imposition of a punitive appeal bond. We've also moved for sanctions in response to class counsel Mehri & Skalet's Rule 28(j) letter that claimed Newhouse had never made an argument that was in her first issue presented.

The oral argument will be webcast live starting sometime between 10:15 and 11 am Pacific time Tuesday on the San Francisco Courtroom 1 camera; the link will be on the front page of the Ninth Circuit website, and we'll update this post with a link to the podcast of the argument after the Ninth puts it on the site.

Friday, March 28, 2014

Interested in co-authoring a law review article?

I keep a list of law review articles I'd like to write. That list has grown to thirteen, ten of which are about class action settlements. The problem is that the time it would take me to write a law review article by myself would take away from my litigating time, and I'm already in a position where I can't prosecute every appeal I would like to prosecute. There are hundreds of professors writing law review articles, and only one non-profit focusing on enforcing the law of class-action settlement fairness, so comparative advantage suggests that I shouldn't change my mind about this. But perhaps you're an academic or an aspiring academic who'd like to build upon the skeleton of my outlines and ideas and jump through the hoops of submitting to law reviews. Happy to have your name go first so long as you take the laboring oar on the second draft. Drop me a line if you're interested.

Thursday, March 6, 2014

"Muscle Milk Magnificence"

A former CCAF intern files an entertaining objection to a bad lawyer-driven settlement that doesn't comply with Ninth Circuit Law, and Above the Law is ON IT.

Wednesday, January 15, 2014

Abusive appeal bonds

(This post is by both Adam Schulman and Ted Frank.)

Over at Public Citizen's blog, Scott Michelman posts about the attempt by class attorneys in the Facebook Sponsored Stories settlement to impose $32,000 appeal bonds against each of the 15 appealing objectors in that case. (As you'll recall, CCAF represented objectors in this case, but chose not to appeal when the settlement was improved and the district court substantially cut attorneys' fees. The improvements made the settlement somewhat less objectionable, and given that we have limited resources and can only take on so many appeals each year, we'd rather devote them to a case where we can make more of a marginal difference than where there are fifteen other appellants.)

Michelman is correct that $32,000 is far beyond what the law allows under Federal Rule of Appellate Procedure 7. In multiple cases, even when the appellees violate FRAP 30 to bloat the appendix, we have yet to see a cost order greater than $3,000.  Sadly, however, this $32,000 request is not unique. In the Center's short history we have seen several attempts to abuse Rule 7, some even successful:

  • Cobell v. Salazar, 816 F. Supp. 2d 10 (D.D.C. 2011) (appeal bond request of $8.3 million denied);
  • Blessing v. Sirius XM Radio, Inc., No. 09-cv-10035-HB, 2011 WL 5873383 (S.D.N.Y. Nov. 22, 2011) (appeal bond request of $200,000 denied);
  • In re MagSafe Apple Power Adapter Litig., No. C 09-01911 JW (N.D. Cal. 2012) (appeal bond request of $200,000 against each appealing objector; court orders illegal $15,000 bond on each of five appellants); currently on appeal at the Ninth Circuit; and
  • In re EasySaver Rewards Litig., No 09-cv-2094-AJB-WVG (S.D. Cal. 2013) (appeal bond request of $60,000 before the settlement had even been approved, let alone appealed!) (court issued illegal $15,000 bond); currently on appeal at the Ninth Circuit.
Unlike a criminal bond, where one can find a bondsman to post bond in exchange for a small deposit, the cheapest way to post a $15,000 bond in a civil case is to deposit $15,000 with the district court. In both MagSafe and EasySaver, that's what we did. We posted half of a $25,000 appeal bond in Dewey v. Volkswagen after the district court decided that we had a low chance of success on appeal, and got our money back over a year later when we won at the Third Circuit.

Fortunately, most judges get it right. See, e.g., the non-CCAF case In re Navistar Diesel Engine Prod. Liab. Litig. (N.D. Ill. Aug. 12, 2013).

A particularly abusive appeal bond is pending before the 10th Circuit. Two objectors appealed an abusive settlement that the district court approved over the objection of several state attorneys general, after which the district court imposed a $1 million appeal bond. Tenille v. Western Union, 2013 U.S. Dist. LEXIS 130962 (D. Colo. Sept. 10, 2013); the Tenth Circuit will hear argument next week.

Michelman worries that "[such strong-arm tactics] play into the negative stereotype about class actions and class counsel." They certainly do—but the fact that class counsel so frequently engages in them show that the stereotypes have much truth. For all the plaintiffs' bar talks about "access to justice," many trial lawyers will not hesitate to run roughshod over a class member's right of appeal if they think it will short-circuit a meritorious appeal that would jeopardize an excessive fee award. Given that Fraley class counsel (who claims his time is worth $975/hour) will be expending more than $32,000 of lodestar to brief and argue the appeal bond motion (and any collateral litigation caused if the bond is granted), the motion is clearly a bad-faith attempt to improperly deter appeals, rather than a legitimate concern over recovering appellate costs.