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Sunday, January 31, 2016

Comments

Anonymous

Jeff, CAFA wouldn't facially prohibit such treatment. Fees attributable to coupons must be based on the value of coupons "that are redeemed," but the statute doesn't specify a particular timeframe. A fee application could be supported by whatever redemption data were available to counsel when filed.

It's a less than desirable solution, though. As a matter of practicality, Plaintiffs' counsel would wait as long as possible to file the application, and holding cases open on dockets is something courts generally frown upon.

It also gets away from CAFA's binary determination: relief either is a coupon or it isn't. This wraps back to David's article taking issue with treating things that sound like coupons as something other than coupons. The courts enforce CAFA to prohibit the type of illusory relief CAFA was passed to deter. If the relief offered is a coupon, it's subject to CAFA's restrictions. If it's not, it's because the court has determined that it's a form of relief that provides value to the class and is permissible under CAFA. As the Ninth Circuit observed, "[d]istrict courts are more than capable of ferreting out the deceitful coupon settlement that merely co-opts the term 'gift card' to avoid CAFA’s requirements."

Treating gift cards as something other than coupons or monetary relief, such as a form of equitable relief, might permit consideration of their likely redemption rates, but would also lead to less than desirable results. For example, the court in In re Countrywide Financial Corp. Customer Data Security Breach Litigation used prospective redemption rates to determine the value of opt-in credit monitoring offered to 2.4 million class members. Countrywide had previously extended a similar offer with an acceptance rate of 20%. The court found that it was not "an unreasonable estimate" that "another 10% accept the second time around." In practice, if such an analysis were used more widely adopted, as mentioned in regard to one of the objectors above, Plaintiffs would need to retain costly experts to opine on the likely redemption rate of the gift cards.

Jason, the narrative is of paramount importance. The unbiased observer generally doesn't care about the efficient allocation of societal resources. Deterrence, which is the strongest theoretical base from which to defend the class action, is one that doesn't resonate well. Sure, as a society we might prefer if there were some lawyers out there keeping Walmart from overcharging us, but we bristle when learning that any of them were paid to do so.

The more resonant argument, one that is usually given much shorter shrift, is outright restitution. If you took $1 from each of your 1Ls and asked what they were going to do about it, "just let it go" will not be the most popular answer. When their loan servicers shortchange them by a few bucks a month, you better believe they will spend hours on the phone fighting to get back the money wrongly taken from them. Even if the claims are characterized as a "minor wrong," we generally don't let other people take our money and get away with it. (And wrongs like jaywalking and dancing over the speed limit harm us as a society, not as individuals.)

The objection is not that there is a private fee at all--if an attorney an individual $12 in exchange for filling out a form and paying a $1 fee, the objective individual would run to the post office. The issue is that the attorney's recovery appears to be so much greater than the individual's recovery and that offends our sense of fairness and value. This framing make people suddenly disdain the unsolicited return of money they didn't even realize had been taken from them. But the money was taken from them. And to ignore that lets the wrongdoer win the narrative and take more of our money.

Scott Michelman

I think the comments of Anonymous and Jason are largely complementary. Anonymous explains why what looks like a gigantic award is actually reasonable in amount given the amount of work done by plaintiffs' counsel. And Jason explains why it might worthwhile having a system in which lawyers are encouraged to, and rewarded when they do, work to right wrongs through which businesses profit by cheating a lot of people a little bit each: in our deregulatory system of justice, such suits are the usually only way such wrongs can be righted at all.

Jason further asks -- and I think this is the key question -- why should we care about having such small wrongs righted? Isn't this like speeding 1 mile over the limit? Two answers come to mind.

First, the analogy to speeding 1 mile over the limit attempts to suggest that no one is truly harmed when corporations cheat consumers by only a little bit. I disagree. Little bits add up. Imagine a consumer is charged an extra dollar each time she does business with a large corporation in a month, because there is no plaintiffs' class action bar and the businesses get away with it. The grocery chain, the coffee shop, the big box store, the cable company, the credit card. Swipe, swipe, swipe, $1 extra each time. Consumers could be out $20, $30, $50 a month. That isn't nothing to most Americans. Or to take what I think is a more appropriate analogy than the speeding: Why do people care if the government wastes our tax dollars? Even a $300 million program costs everyone just $1. Same answer: it adds up.

Second, think of the position of the corporate executive who knows he can skim $1 per customer. If there's no enforcement, no deterrence, why not skim $2? More? Slippery slope arguments often falter because line-drawing is possible. But here, there's no clear line to be drawn. It's all in the eye of the beholder. At some point, the company skims enough that we care and wish someone would come along and enforce the law. But companies are structurally incentivized to push right up to that line if they know they can get away with it. We shouldn't give them that opportunity. That's what class actions help prevent.

Public Citizen has been on both sides of the debate between plaintiffs' counsel and objecting plaintiffs. We do step in where settlements do not seem fair or encroach on independent values. So I don't think plaintiffs' counsel should get paid just for showing up or for achieving nothing for the class. But let's not lose sight of the value in large settlements that pay lawyers who do achieve something for their clients and for society also. These lawyers are righting wrongs that wouldn't otherwise be addressed, and deterring large and powerful actors who would not otherwise be deterred.

Jason Kilborn

It seems to me that Anonymous misses the point. Accepting the premise that Walmart violated the law and caused $12 of injury to lots of people, the question that seems to occur to most unbiased observers is, "why wouldn't they just let it go?" Lots and lots of minor wrongs go unaddressed every day. The fact that lots of people suffer from those minor wrongs doesn't change this. Is it an appropriate allocation of societal resources to be spending the effort (and then sending the defendants a bill for that unrequested effort) on such a small violation? And isn't it problematic that a group of private lawyers arrogated to themselves the power to be the policemen here? Should private lawyers come down hard on jay-walkers now? And people who speed 1 mile over the limit? Most "principles of the thing" are not remotely worth the effort and expense that class counsel went to in this case to offload that expense onto the defendants. And who benefits? My sense is that most objective observers don't feel they benefitted at all from the private attorney generalism of the plaintiff bar here. It's not so much the size and nature of the fee that's objectionable--it's that there's a private fee at all, and ONLY the lawyers seem to have benefitted in any meaningful way here. Agree or disagree, that seems to me the perspective from which class actions are attacked and have to be defended.

Thanks for highlighting this interesting conversation, Jeff.

Jeff Sovern

I'm grateful for the instructive comments. Two follow-up questions: Frist, to Anonymous: to the extent that fees are based on the gift cards, why couldn't they be based on the value of the gift cards redeemed within a certain period, say six months or a year, on the assumption that only a small portion would be redeemed after that date?

Second, to Ted Frank: Assuming the facts stated by Anonymous are true, how should fees have been handled?

And others are welcome to weigh in, of course.

Anonymous

It's unfortunate that articles like David's make it necessary to "defend class actions" and "these types of settlements" by decrying a supposed "Big Payout for Lawyers." By focusing on the end of the process, it's remarkably easy to lose sight of why this suit was brought in the first place. Walmart and Netflix engaged in anti-competitive behavior damaging millions of customers. But that's not the story. Instead, we're told the lawyers who reviewed 12 million documents, took 50 depositions across 12 states, and paid for expert economists out of their own pocket were paid too much for their work.

Plaintiffs' counsel were awarded $6.8 million in fees and $1.7 million in expenses. Nobody challenges whether they performed the work. The District Court performed a lodestar cross-check on the fee application and found that it was satisfied. In fact, Plaintiffs' counsel spent more than 47,000 hours litigating the matter. If they worked for a corporate defendant, rather than the class, they would have billed more than $20.8 million in fees alone.

David's article simply ignores the realities of settlement negotiations. Would it have been better if class members could request cash refunds electronically? Of course. Would Walmart have agreed to such a settlement? No. Walmart wanted a provision that would have allowed it to withdraw from the settlement if there were too many cash requests. So asking whether everyone in the class should have been able to request $12 electronically is illusory. It was never an option. Walmart wasn't willing to offer more, and Plaintiffs wouldn't have been able to win more if they proceeded with the case. So what would you have done if you were Plaintiffs' counsel? Restructuring the deal didn't "maximize the illusion of relief," it maximized the actual relief available to the class.

Although Ted's statements were facially accurate--the article's real sin is David's suspicious and derisive tone--Ted's position that the gift cards were coupons is wrong as a matter of law according to both the District Court the Ninth Circuit. Beyond their transferability or their ability to purchase anything at one of the largest low-cost retailers in the country, one aspect of the gift cards is especially relevant: their lack of an expiration date. From a procedural standpoint, if the gift cards never expire and can be redeemed at any point in the future, but are still treated as coupons under CAFA, when would Plaintiffs' counsel file their application for fees? Ted's brief simply asserted that because there was no evidence of the redemption rate, the gift cards shouldn't count toward Plaintiffs' fees at all, which dramatically understates the value of the relief made available to the class.

Other objectors failed to provide better answers. When asked by the District Court how the cards should be valued, one objector's attorney suggested that "it requires expert opinion to discuss the market, to discuss utilization *** to figure out as an economic matter how exactly you value these cases." Securing an expert opinion would easily add tens if not hundreds of thousands of dollars to Plaintiffs' expenses, which would be paid for out of the recovery to the class.

In a unanimous opinion written by Chief Judge Thomas, the Ninth Circuit concluded: "Affording over 1 million class members $12 in cash or $12 to spend at a low-priced retailer does not leave them with 'little or no value.'" In fact, the Ninth Circuit found that the $12 gift card had an actual value of $12.

There simply wasn't more for Plaintiffs to extract from Walmart. Ted conceded as much in his brief, writing: "This objection does not argue that the value of the settlement is too small."

Articles like David's paint a misleading picture of a greedy Plaintiffs' bar seeking to leverage hapless consumers for their own self-interest, a picture that this record simply does not support. So much for a column that claims to be devoted to "[c]oming to the aid of beleaguered consumers."

Jason Kilborn

Jeff, I've searched for years largely in vain for an answer to how to defend class actions generally and these types of settlements in particular, and I think you've identified the only meaningful defense: They allow private attorneys general to police corporate misconduct that regulators can't or won't pursue. This is nicely described in a 2015 NYT review of Jed Rakoff's book, Entrepreneurial Litigation: Its Rise, Fall, and Future (http://www.nybooks.com/articles/2015/11/19/cure-corporate-wrongdoing-class-actions/). Like or dislike this--especially in light of the perverse incentives this offers to class action plaintiffs' lawyers, to say nothing of extortionate strike suits in a system that almost never provides for successful defendants' recovering fees--but that's the sole advantage. And it's a fairly substantial one. It seems to me to be largely the justification for much of our federal civil rights legislation, as well, with fee-shifting provisions to encourage private plaintiffs to do what the Justice Department lacks the resources and or political will to do. We in the US have simply chosen a deregulatory approach to justice, which we (probably rightly) believe is more effective than an agency-centric European-style approach.

If you find any convincing articulation of other benefits beyond this "righting corporate wrongs" one, please do blog about it. I struggle to justify class actions to my largely suspicious Civil Procedure class every year.

Jeff Sovern

It was not problematic that the reporter talked to you. Indeed, it was desirable. I am sorry if I gave any other impression. But as I stated, the reporter didn't present the views of class actions supporters, though he attempted to speak to class counsel. I think the article would have been better if he had presented such views.

Ted Frank

Worse, the fees were based on the face value of the gift cards, and the checks, *and* the additional several million dollars of bloated administration costs incurred to process the unnecessary snail-mail applications. And the Online DVD settlement is probably one of the least objectionable of the dozens of settlements we've objected to, much less the dozens we haven't objected to because we didn't have the clients or the lawyers to do it. I hope Public Citizen will speak out on Frank v. Poertner if cert is granted.

You don't identify a single thing I told the reporter that's wrong as a matter of fact, law, or public policy. So why exactly was it problematic that the reporter talked to me?

Scott

Jeff this is a test.

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