Howard Erichson’s article “Aggregation As Disempowerment: Red Flags in Class Action Settlements” was quoted in Competitive Enteerprise Institure blog post regarding class action settlements.
When we filed our opening merits brief in this second go-round earlier this month, we had the privilege of citing Fordham University Law Professor Howard Erichson’s cutting-edge article not merely for its astute but abstract legal principles, but also because Erichson singled out this very settlement as a poster-child of class action settlement abuse. He wondered explicitly “how class counsel could straight-facedly ask a judge” to value this settlement as it did, “or how a district court could agree to do so.”
Professor Erichson is alluding to how to value $20-off coupons redeemable for bouquets of flowers and other sundry overpriced gifts on the defendant’s websites such as Proflowers.com. Class counsel went to the court and said all you have to do is multiply the $20 face value with the 1.3 class members that will be receiving the coupon via email, and ta-da!…you have a value of nearly $26 million. And so, by the way, don’t feel bad about awarding us the nearly $9 million in fees that we are asking for.
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Nevertheless, the district court has twice preferred class counsel’s face-value methodology, prompting both Professor Erichson’s criticism and our two appeals. See, if you call a coupon an “e-credit,” settling parties can magically wave their hands and argue (again with the impressive straight face) that the coupon isn’t a “coupon” subject to statutory limitations on settlements that provide for a recovery of coupons—even when the same instrument with fewer restrictions was called a “coupon” in the complaint. We’ve previously spoken with the New York Times about similar shenanigans in coupon settlements, and have won two of the leading federal appellate cases on coupon settlement abuses, Inkjet and Redman v. RadioShack. And we’re grateful that a bipartisan coalition of thirteen state attorneys general have weighed in on the coupon question on our side, a number that we’re reliably told will be larger if this issue somehow rises again.
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Professor Erichson is right that this settlement doesn’t pass the laugh test. Of the actual $12.5 million of real money changing hands in this settlement, somehow only $225,000 is making its way to the class members for whose benefit the case was brought in the first place. Few settlements this large are worse and so transparently constructed to benefit the attorneys at the expense of their clients.