by Scott Nelson
What if a class action settlement defined a subclass that had no class representative and no separate representation by counsel, and it purported to release the claims of all members of the subclass for nothing while giving valuable benefits to other subclasses? And what if the settlement notice didn't mention that members of this subclass had nothing to gain by staying in the settlement, and no reason not to opt out? And what if the rest of the class, and class counsel, had an obvious reason to minimize opt-outs by the members of the take-nothing class, because the settlement allowed the defendant to walk away if too many class members opted out?
Does it sound like there might be a problem?
That's what appears to be going on in a proposed settlement in a pair of consolidated cases in the U.S. District Court for the District of New Jersey called Dewey v. Volkswagen AG and DelGuercio v. Volkswagen Group of America (Nos. 07-CV-2249 and 07-CV-2361). The settlement is set for a fairness hearing in July, with objections/opt-outs due for some members of the class next week (opt-outs must be postmarked by June 15) and others a little later because of a problem with misdirected notices. (The settlement website is here.)
The case is about a problem with a number of models of Volkswagens and Audis over a number of years: They leak around their fresh air vents and sunroofs, especially when their drain systems get clogged with leaves or other debris. The result can be water damage to the vehicles, expensive cleanups and repairs, and loss of value.
The plaintiff class in the cases consists of owners and lessees of a large number of Volkswagen and Audi models spanning the years 1997-2009 and covering millions of vehicles and even more millions of class members. And for some of the class members, at least, the proposed settlement appears to provide some valuable benefits. Some vehicle owners who've incurred repair costs in the past will get to share in an $8 million fund that will reimburse them for their out-of-pocket expenditures, and owners of some vehicles are entitled to free services, including modifications to drain systems, from dealers. So far, so good (at least, maybe: I can't speak to the adequacy of the reimbursements, because the class notices and other settlement documents don't provide estimates, as far as I can tell, of how many class members are thought to have incurred repair costs and how much of the costs will be covered by the $8 million fund).
But the settlement agreement defines one subclass, consisting of owners of various models of Volkswagens and Audis for different ranges of model years, who aren't entitled to share in the reimbursement fund and aren't eligible for any free repairs. What do they get? Nothing but a one-page insert for their vehicle's maintenance manual advising them to inspect their drains every 40,000 miles and clean them if necessary (at the owner's expense, of course).
And, oh, by the way -- the free advice in the revised maintenance schedule isn't really a benefit of the settlement, because the members of the subclass get to keep it whether the settlement is approved or not, and whether they opt out of the class or not. But if the settlement is approved, and the members of this subclass don't opt out, they are bound by a very broad release of all claims against Volkswagen relating to the subject of the lawsuit.
In other words, if you're in this subclass, you don't get anything by staying in the settlement, but you give something up -- your potentially valuable claims against Volkswagen. If you stay in, VW gets something for nothing, which is a pretty neat trick.