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• Shields, et al. v. Bridgestone/Firestone Inc. et al. (No. E-0167637, Jefferson County,
Texas, 2003) – This suit involves customers who had Firestone tires that were among
those that the National Highway Traffic Safety Administration investigated or recalled,
but who did not suffer any personal injury or property damage. After a federal appeals
court rejected class certification, plaintiffs’ counsel and Firestone negotiated a settlement,
which has now been approved by a Texas state court. Under the settlement, the company
has agreed to redesign certain tires (a move already underway irrespective of the suit) and
to develop a three-year consumer education and awareness campaign, but the members of
the class received nothing. The lawyers? They will get $19 million.9
• Premier Cruise Lines (No. 96-06932 CA-FN, Fla. Cir. Ct., Brevard County, Florida,
2003) – This class action alleged that a cruise line collected “port charges” that exceeded
the amount actually paid by the defendant. Under the settlement, plaintiffs will receive
$30 to $40 discounts from another cruise line on its two- and three-night cruises out of
Port Canaveral, Florida.10(Premier is no longer in business.) In other words, a company that had not even been sued and had absolutely no risk of liability agreed to offer coupons
– no doubt because they recognize that such coupons are a promotional opportunity and
not a penalty. Attorney for the plaintiffs received $887,000 in fees, costs, and
expenses.11• In Re Microsoft Litigation Settlement (No. 99 CV 17089, Johnson County, Kansas, 2003)
– Microsoft has settled antitrust class actions in ten states in which plaintiffs alleged that
Microsoft used its monopoly to gouge consumers. Based on the terms of the settlement,
consumers who bought Microsoft software will receive a $5 to $10 voucher good for
future purchases of particular computer hardware or software products. To receive the 6See www.legalreformnow.com/Favorable%20Editorials.pdf (listing editorials). 7Reforming Class Actions, Wash. Post, June 14, 2003. 8Mayhem in Madison County, Wall Street Journal, Dec. 6, 2002. 9See Miles Moore, BFS Settles Nationwide Class Action Suit; Tire Maker to Modify Certain Models, Launch Education Program, Rubber & Plastics News, August 4, 2003. 10The Law Offices of Douglas Bowdoin, for Plaintiffs, and Todd Pittenger of Lowndes, Drosdick, Doster, Kantor & Reed, P.A., for Defendant, Announce a Proposed Class Action Settlement, Business Wire, Inc., July 2,
2003. 11Premier Cruise Line Reaches Settlement, Mealey’s Litigation Report: Class Actions, July 17, 2003. 3voucher, consumers must download a form from www.microsoftproductsettlement.
com/kansas and then mail it in. To redeem the voucher, consumers must mail in the
voucher, a photocopy of an original receipt, and an original UPC code. Half of the
unclaimed settlement money will be used to donate Microsoft products to schools. A
federal judge rejected a similar settlement in part on the ground that the school donations
were intended to inflict further injury on Apple. Attorneys in these cases have sought
hundreds of millions of dollars in fees.12• Ross and Lambert v. Portillo’s Restaurant Group, Inc. (00 Ch 13612, Circuit Court of
Cook County, Illinois, Chancery Division, 2003) – In this case, consumers alleged that
the beer goblets served at a Chicago restaurant chain were misrepresented to be 12
ounces, when they held only 10.6 ounces. In settlement, the company will give away
50,000 coupons for $1 off every subsequent $5 purchase at its 22 Chicago-area
restaurants.13All cash from the settlement goes to the lawyers.
• DeGradi v. KB Holdings, Inc. (No. 02 CH 15838, Circuit Court of Cook County, Illinois,
Chancery Division, 2003) – In this case, consumers alleged that the KB Toys engaged in
deceptive pricing practices on certain products. Under the settlement agreement, the toy
retailer offered a 30 percent discount on selected products between October 8 and
October 14, 2003. In other words, the retailer agreed to hold a sale. According to an
independent analyst, “KB Toys will benefit from the settlement,” because “they’re
driving traffic.”14The attorneys benefited too: they received all the cash – fees and costs of $1 million.15
• Dorel Juvenile Group, Inc. (2003) – In this lawsuit, consumers alleged that the company
was selling cribs unsafe for use by infants. The class members received either a crib
repair kit or a coupon for $55, which could be used toward the future purchase of a
Dorel Juvenile Group Product.16Of course, the coupon is only valuable for consumers who plan to have another baby and still trust the company.
• Ramsey v. Nestle Waters North America, Inc. d/b/a Poland Spring Water Co. (No. 03
CHK 817, Kane County, Illinois, 2003) – This suit involved allegations that Poland
Spring water does not really come from a spring deep in the woods of Maine. The
settlement calls for discounts or free water to Poland Spring customers over five years 12Dan Voorhis, Here’s How to Claim Your Share of Microsoft Settlement, The Wichita Eagle, December 28, 2003. 13Judge Approves Portillo’s Class Action Settlement Over Mislabeled Beer, PR Newswire, Nov. 26, 2003. 14Betty Lin-Fisher, Shoppers Win In Suit; Customers Get a Jump on Holidays, Akron Beacon Journal, Oct. 14, 2003. 15Stephanie Zimmerman, KB Toys Settles Lawsuit Over “Low” Prices By Offering Discount, Chicago Sun-Times, Oct. 11, 2003. 16Dorel Juvenile Group Settles Class Action Lawsuit, PR Newswire, Oct. 6, 2003. 4and contributions of $2.75 million to charities. In addition, the named plaintiff will
receive $12,000. Plaintiffs’ lawyers received $1.35 million.17
• Chavez v. GameStop Corp. (No. CGC-02-406658, San Francisco Superior Court,
California, 2003) – In this class action, plaintiffs alleged that GameStop Corp.
misrepresented some of the video games it was selling as new, when they had actually
been previously purchased and returned. Under the settlement, GameStop agreed to post
notices in stores stating: “All software for video game consoles may have been used and
returned in accordance with (the store’s) return policy.” Further, anyone who bought a
game from particular stores on specified dates, and can produce their receipt, will receive
a coupon for 5 percent off the price of any one game. In other words, customers would
receive $1.25 off a $25 dollar game – as long as they kept receipts. The coupon can be
redeemed at retail locations, but not on the defendant’s website.18Lawyers for the plaintiffs were paid $125,000 in fees and costs.19
• Zurakov v. Register.com, Inc. (No. 2301, N.Y. Sup. Ct., App. Div., 2003) – Plaintiffs
alleged that Register.com delayed in switching purchased domains over to their
customers and continued to display the company’s “Coming Soon” page which promotes
the company and its advertisers. Under this settlement, class members receive $5
coupons to use with Register.com (assuming they ever plan to register one of the
company’s domains again). The lawyers for the class get $642,500.20In short, a small number of state courts have amassed a troubling record of approving class action settlements in which all the benefits go to the lawyers – and the consumers are left
holding the bag. And the problem is self-perpetuating. The lure of six- and seven-figure
attorneys’ fees for little or no work has led to more and more class actions being filed in
plaintiffs’ attorney-friendly magnet state courts. In one of the most notorious, Madison County,
Illinois, class action filings have increased more than 5,000 percent since 1998.21III.THE FEDERAL COURT RECORD: CLOSER SCRUTINY OF COUPON
SETTLEMENTS For the most part, federal courts have been far more consistent than their state court counterparts about scrutinizing coupon settlements. The reason for that stretches back more than
17Edward D. Murphy, et al., Conflict and Change; Maine’s Employment and Price Levels Remained Stable Last Year, but its Economy Experienced Plenty of Turmoil, Portland Press Herald, January 4, 2004; see also
www.noticeclass.com/springwatersettlement/LongFormNoticev2.pdf. 18Big Class Action: Settlements and Verdicts: Consumer Goods, available at http://www.bigclassaction. com/settlements/consumer.html. 19http://www.gamestop.com/gs/help/classaction.asp. 20Tom Perrotta, Panel Revives Case Over Domain Name Registry, Internet Newsletter, May 14, 2003. 21See John H. Beisner and Jessica Davidson Miller, They’re Making A Federal Case Out Of It . . . In State Court, 25 HARV.J.L.&PUB.POL’Y1 (Fall 2001); John H. Beisner and Jessica Davidson Miller, Class Action Magnet Courts: The Allure Intensifies, Civil Justice Report (Center for Legal Policy, July 2002); Trisha L. Howard,
Class Actions Set Record Last Year In Madison County/ Possible Change In Law Prompted Rush In Filing, St.
Louis Post Dispatch, Jan. 11, 2004. 5200 years and is a testament to the foresight of the Framers. Under Article III of the
Constitution, federal judges are appointed for life.22They do not stand for re-election. They do not need to fill their campaign coffers with attorney contributions. They are confirmed by the
U.S. Senate, which means their credentials are subject to substantial public scrutiny by
congressional staffs, the national legal community, and the national media. The results speak for themselves. Federal courts are far more likely than state courts to question coupon settlements and exorbitant attorneys’ fees, and consumers in federal courts are
much more likely to receive the same type of currency as their attorneys – i.e., cash. The most egregious examples of the disparity between federal and state courts are cases in which federal courts have rejected settlements that were later approved by state courts. The
most notorious is the GM fuel tank litigation where the plaintiffs’ counsel were able to obtain
state court approval of a settlement that was harshly criticized by a federal court is inadequate.23Other examples of cases in which federal courts have rejected inadequate settlements include: •In Re Microsoft Corp. Antitrust Litigation24– Consumers and entities who acquired licenses for Microsoft operating system or applications, brought a class action against Microsoft
asserting that they were overcharged for Microsoft’s software products. The court rejected a
proposed settlement releasing all claims in return for a $400 million contribution by
Microsoft to a national “learning foundation” that would be established for the purpose of
providing computer technology to schools in economically depressed areas. The court
questioned whether the settlement agreement was adequately funded – particularly whether
funding for technical support for schools was adequate. Furthermore, the court found that the
proposed settlement would actually have anti-competitive effects because it allowed
Microsoft to flood the kindergarten through high school market with PCs running its
operating system and software products, at the expense of competitors like Apple. (As
discussed above, a substantially similar settlement was later approved in state court.) •Schwartz v. Dallas Cowboys Football Club, Ltd.25– In this antitrust case, the 1.8 million-member plaintiff class (people in the U.S. who had purchased NFL Sunday Ticket satellite
television program since 1994), challenged the NFL’s requirement that satellite television
viewers purchase all regular Sunday afternoon games. The parties proposed a settlement
agreement that required defendants to: (1) provide an additional weekly satellite television
package for one season which allows consumers to purchase all NFL regular season Sunday
afternoon games for any one Sunday; (2) establish a $7.5 settlement fund to pay damages to
class members; (3) provide class members with merchandise discounts at the NFL’s Internet
store (10 percent discount on one purchase of up to $75); (4) pay $2.3 million in
administration and notification costs; and (5) pay $3.7 million attorneys’ fees and expenses.
In return, plaintiffs agreed to release defendants from all claims regarding past broadcasting 22See U.S. Const. art. III, § 1. 23See In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 803-11 (3rd Cir. 1995). 24185 F. Supp. 2d 519 (D. Md. 2002). 25157 F. Supp. 2d 561 (E.D. Pa. 2001). 6of NFL football games. The district court rejected the settlement because: (1) the relief
provided through the sale of a single Sunday ticket was limited because consumers still could
not purchase a single game of their choice and because the defendants were only required to
offer the package for one season; (2) merchandise discounts offered as a part of consideration
for settlement were insufficient; (3) monetary value of settlement was too low; (4) release
required from viewers was overbroad; and (5) attorneys’ fees were too high in light of the
limited relief obtained. •Levell v. Monsanto Research Corp.26– In this case which involved alleged radiation exposure, the court rejected a proposed settlement that provided occupational disease
insurance for current and former employees, but did not provide benefits for class members
who received Medicare, retiree medical insurance or alternative coverage and only
guaranteed insurance for three years – the length of time that federal agencies contracting to
spend money that has not yet been appropriated may do so under the Anti-Deficiency Act.
The court rejected the proposed settlement because it benefited current employees at the
expense of former employees and because much of the relief was contingent upon the
Department of Energy’s receipt of federal funding. For example, only current employees
were eligible for payment from the settlement fund, which was $926,000, and only current
employees would benefit from enhanced workplace radiation protection and expert review of
workplace safety practices. The court also found that an award of more than $200,000 in
attorneys’ fees adversely affected the class members’ recovery. •Sheppard v. Consolidated Edison Co.27– The court rejected the proposed settlement in this employment discrimination case brought against Consolidated Edison Company of New
York, finding that it was unfair to absent class members. The court concluded that the
settlement, which proposed to pay seven named class members $400,000 each and 2,400
unnamed class members awards ranging from $566 to $3,502, disproportionately benefited
the named class members. In addition, the court questioned the award of almost $2 million
(more than 40 percent of the $4.5 million settlement fund) to plaintiffs’ attorneys for fees and
costs. •Polar International Brokerage Corp. v. John Reeve28– Calling the proposed settlement “virtually worthless” to shareholders, U.S. District Judge Shira Scheindlin rejected a
settlement in a securities fraud class action under which plaintiffs received no money and had
to waive all future claims. According to her decision, “The settlement puts no additional
money in class members’ pockets; what it offers is reassurance that the price they received is
‘not unfair.’ This benefit is of little value.” •Martens v. Smith Barney, Inc.29– Court rejected settlement in gender discrimination case that would have established a new dispute resolution process, required Smith Barney to spend
$15 million over four years on new diversity programs and paid up to $13.2 million in 26191 F.R.D. 543 (S.D. Ohio 2000). 272000 WL 33313540 (E.D.N.Y. 2000). 28187 F.R.D. 108 (S.D.N.Y. 1999). 29181 F.R.D. 243 (S.D.N.Y. 1998). 7attorneys’ fees and expense reimbursement, as well as up to $1.9 million in incentive
payments to class representatives. The court found that the diversity programs were not
sufficiently spelled out in the proposed agreement: “So long as the settlement’s touted
diversity programs and initiatives remain admirable but amorphous aspirations rather than
reasonably defined plans of action, the court’s fiduciary duty to the class remains unfinished
business.” Because the court did not approve the settlement, it did not analyze the request for
fees. •Clarke v. Advanced Private Networks30– The court rejected a proposed settlement in this securities action because the proposed settlement released the defendants from all damages
claims even though unnamed class members did not have an opt-out right. The court
concluded that unnamed class members’ interests were not adequately represented in the
settlement. •Clement v. American Honda Fin. Corp.31– This case rejected as a marketing scheme a settlement in which class members would have received nontransferable $75 or $150
coupons as a credit against their next financed purchase or lease of a vehicle through the
defendant. •Free v. Abbott Laboratories32– In this infant formula antitrust action, the district court concluded that the proposed settlement was neither fair, nor adequate, nor reasonable,
because members of the class would receive no more than four to six dollars (a tiny fraction
of the $4.3 million dollar settlement) each, while their attorneys would receive $1.5 million
dollars. “Although a cash settlement amounting to only a fraction of the potential recovery
does not in itself render a settlement unfair or inadequate, the court finds that the members of
this class would literally be no worse off if their case were tried to an adverse verdict.” •Land v. United Telephone-Southeast, Inc.33– This case involved monopoly allegations in the area of telephone wire maintenance services. Under the proposed settlement, there was no
refund for any alleged overcharge; rather, customers who elected to discontinue the
maintenance services at issue would receive a $20 calling card for each affected access line
and a reduction in their phone bill by the amount of present and future charges for the
optional maintenance services. At the same time, plaintiff’s counsel would have received
$1.1 million in fees, and the defendant was released from all causes of action and future
injuries. In rejecting the proposed settlement, the court held: “Based on the de minimis
recovery by class members, in comparison to the large fee to be received by plaintiff’s
counsel, and in comparison to the extensive, far-reaching release from liability obtained by
the defendant, the Court does not find that the proposed settlement is fair, adequate, or
reasonable. These federal court cases rejecting abusive settlements tell only part of the story. Not 30173 F.R.D. 521 (D. Nev. 1997). 31176 F.R.D. 15 (E.D. Conn. 1997). 32953 F. Supp. 751 (M.D. La. 1997). 331997 WL 599506 (E.D. Tenn. 1997). 8enough attention is paid in the class action debate to the numerous federal court-approved class
action settlements in which the class members received real benefits and their lawyers secured a
reasonable return for their litigation efforts. Put simply, these are cases where the class action
device worked. The following are examples of recent federal court-approved class action
settlements in which the allegedly injured class members obtained real relief, and their attorneys
were compensated fairly: •In re Linerboard Antitrust Litigation34– In this antitrust action plaintiffs alleged that a number of U.S. manufacturers of linerboard (corrugated paperboard) engaged in a continuing
combination and conspiracy restraining trade. The court approved settlements totaling
$202.5 million – the sixth largest reported antitrust settlement. •Parks v. Portnoff Law Associates 35– Property owners sued a law office that mailed letters that violated the Fair Debt Collection Practices Act and Pennsylvania law by threatening that
the plaintiffs’ town would place liens on recipients’ homes unless they paid overdue trash,
sewer, and water bills, possibly resulting in the sale of their properties. The collection letters
failed to include notices that the defendant was a debt collector. The fifty-two class members
agreed to a settlement in which each class member received real cash payments, and the
plaintiffs’ attorneys were awarded $56,000 for fees and expenses. •In re Sterling Foster & Co., Inc., Securities Litigation36– Defendants were sued for making misstatements and omissions regarding their public stock and for engaging in market
manipulation. The court approved the proposed settlement of $2,200,000, ensuring that each
class member would have access to real cash payments. However, the court rejected the
plaintiffs’ counsel’s request for a fee of 30% of the fund. The court awarded the plaintiffs’
lawyers 25% of the settlement, stating that, although attorneys are entitled to a reasonable fee
taken from the fund, courts should consider the overarching concern for moderation when
approving the portion of the settlement to be taken by plaintiffs’ counsel. •Oslan v. Law Offices of Mitchell N. Kay37– In this action, class members were sent letters by the defendant attorney, who knew that recipients would wrongly believe that the law firm
and lawyers were participating in the collection of debts. The plaintiff class also alleged that
the letters contained deceptive and false statements. The court approved a settlement of
$20,000 for each class member, noting the amount far exceeded the Fair Debt Collection
Practices Act statutory award, which is limited to $290.00 per plaintiff. •In re First Databank Antitrust Litigation38– The class alleged that the defendant illegally monopolized and increased prices in the drug information database market after it acquired
its principal competitor. The approved settlement consisted of a payment of $23.25 million 34321 F. Supp. 2d 619 (E.D. Pa. 2004). 35243 F. Supp. 2d 244 (E.D. Pa. 2003). 36238 F. Supp. 2d 480 (E.D.N.Y. 2002). 37232 F. Supp 2d 436 (E.D. Pa. 2002). 38205 F.R.D 408 (D.D.C. 2002). 9plus interest to members of the class, which was distributed based on “overcharges” that the
members of plaintiff class had made to the defendant. •Roessler v. Nationwide Mutual Insurance Co.39– Homeowners sued an insurance company that refused to pay claims for water or steam damage caused by an appliance.
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