Interesting Class Action Settlement Ruling from North Carolina

by Nick Pace

Nick Pace, a researcher at the RAND Institute for Civil Justice, kindly agreed to post his thoughts on a recent class action settlement decision.

I thought CL&P blog readers might find interesting the recent opinion in a North Carolina state court class action, Moody v. Sears, N.C. Superior Court, 02-CVS-4892 (May 7, 2007).  The opinion contains an fascinating discussion of the judge's role in overseeing consumer class action settlements. 

The decision by Judge Ben Tennille (Special Superior Court Judge for Complex Business Cases) came in the context of a class action against Sears for selling more expensive "four wheel" alignments to folks with rear wheel drives (they're only needed for four wheel or front wheel drive vehicles; I believe that a local repair shop here in L.A. once burned me on that little trick as well).  A nationwide class action was filed in Illinois four days after the N.C.-only suit was initiated.  Ultimately, a nationwide settlement, approved by a Cook County judge in December 2004, was supposed to provide the estimated class of 1,500,000 customers with either a $10 refund or a $4 coupon depending on the date of the alignment.  Sears also agreed to pay class counsel about $1 million in cash and $50,000 in coupons.  Notice of the settlement was effected through publication in 25 newspapers across the country as well as Parade and USA Weekend magazines.  Consumers learning of the settlement called or wrote in for a claim form.  All in all, this was a fairly standard notice and claiming plan.

Following the settlement approval, the parties sought to dismiss the North Carolina suit.  In January of 2005, Tennille preliminarily granted dismissal but made it conditional on the parties filing a detailed accounting of the distribution of the settlement benefits (no such accounting had been required by the Illinois court).  In response, the parties petitioned the N.C. Court of Appeals for a writ of mandamus and also sought to dismiss the case, arguing that the Full Faith and Credit Clause required Tennille to give deference to the Illinois settlement.

Eventually Tennille was successful in getting the claims management firm to report on the distribution.  By April 2005, just 1,015 claim forms had been received and, of those, only 317 were eligible for payment for a projected payout of $2,402. Tennille was incensed (and sensing his anger throughout the 25 page opinion is not difficult) because, as is too often the case, the parties making the joint application for settlement approval oversold the likely claiming rates.  The opinion is filled with excerpts from the fairness hearing suggesting that no small amount of smoke was being blown in the direction of the Illinois judge who reviewed the settlement.  Once Tennille started asking questions, there were after-the-fact offers by the defendant and class counsel to donate some money to cy pres recipients but the bottom line is that this legitimate class action was settled for basically attorneys' fees and few meaningful benefits to the individual members of the class.  Even more illuminating, parallel litigation in New Jersey brought by its AG on the exact same issue yielded tangible compensation to class members because the deal reached there required direct payment to consumers using Sears' own records. 

Reacting to the poor performance of the notice and distribution plan in this case as well as the lack of reliable information on the claiming process that was provided to the Illinois judge, Tennille's May 2007 order dismissed, without prejudice, the class action allegations in the North Carolina litigation, presumably opening up the possibility that residents of that state would not be bound by the Illinois settlement.

I think the opinion is fascinating on two levels.  First, Tennille asserts that judges should review and approve consumer class action settlements based on realistic projections of the benefits that will ultimately be provided to class members, not merely made available.  That's a subject near and dear to my heart and one touched on in a recent RAND report on insurance class actions.  Tennille quotes extensively from the National Association of Consumer Advocates Guidelines for Litigating and Settling Consumer Class Actions as well as insurance class action report and an earlier RAND study on class actions in general as persuasive authority.  Second, I think some readers will love the opinion because it triggers law school exam-like questions regarding the complex application of the Full Faith and Credit Clause to situations where state court judges deal with nationwide class actions in other jurisdictions.  Not my thing but I suspect that you folks lie awake late at night mulling over such weighty issues.

Comments

[Howard Strong]

Has anyone drawn this North Carolina opinion to the attention of the consumer beat reporters at, say, the Chicago Tribune or the Sun-Times?

[Brian]

Not that I know of. But you could.