Under the
settlement, Nationwide paid $6.15 million to plaintiffs, an amount greater than the unpaid
repair costs at issue. Individual recovery was estimated to be between $2,200 and $4,300.
The federal court also granted incentive awards of $10,000 to each class representative,
contingent upon a demonstration that the awards were based on the time and money the class
representatives had spent on the litigation. •In re Lorazepam & Clorazepate Antitrust Litigation40– In this case, a plaintiff class alleged that defendant pharmaceutical companies entered into illegal agreements to monopolize
markets for generic anti-anxiety drugs. Under the terms of the settlement, the defendants
paid $100 million into a settlement fund, $71 million of which was used to pay consumer
claims, and $28.2 million of which was designated to pay claims by state governments. The
federal court awarded an additional $6.8 million for attorneys’ fees. Thus, the class members
got real cash benefits, and counsel received substantial payment for their work. •In re Twinlab Corp. Securities Litigation41– In a case involving allegedly fraudulent accounting and business practices, the federal court approved a settlement under which $26.5
million in cash was paid to approximately 15,000 purchasers of Twinlab Corp. stock. The
court reduced plaintiffs’ counsel’s requested fees from $8.8 million (33 percent) to $3.2
million (12 percent). The court stated: “True, counsel undertook a risk in taking the case.
However, the determination that 12 percent is a reasonable fee follows the emerging trend
within the Second Circuit of awarding attorneys considerably less than 30 percent of the
common funds… even where there is considerable contingency risk.” •In re Telectronics Pacing Systems42– A nationwide class of 25,000 plaintiffs alleged that defendants distributed defective pacemaker leads that could fracture from metal fatigue.
After a court of appeals rejected an initial settlement, the district court approved a revised
settlement, which established a $58.2 million patient benefit fund. Patients who had properly
functioning leads received small monetary awards ($500) and were eligible to participate in a
medical monitoring program that provided ongoing screening. Patients who had undergone
lead extraction were eligible for $6,500 in damages. Patients who had suffered
complications were eligible for damages ranging from $11,500-$200,000, depending on the
severity of the complications they experienced. Nothing in the settlement prevented class
members from seeking adjustments in their remedies if their condition worsened. In
addition, the second settlement allowed class members to exclude themselves from the
settlement and pursue individual litigation. 392002 U.S. Dist. LEXIS 11288 (E.D. Pa. 2002). 40205 F.R.D. 369 (D.D.C. 2002). 41187 F. Supp. 2d 80 (E.D.N.Y. 2002). 42137 F. Supp. 2d 985 (S.D. Ohio 2001). 10•Brotherton v. Cleveland43– This class action, which settled after ten years of litigation, arose from an Ohio law that permitted county coroners to harvest corneas for medical use under
certain conditions, even where family member objected. The lead plaintiff sued after her
deceased husband’s corneas were removed against her wishes. The court approved a
settlement requiring the defendant to pay $5.2 million into a settlement fund and to agree to
cease harvesting corneas of autopsy subjects without consent by next of kin. A special
master was appointed to distribute the settlement funds among class members. Class
members received real cash. •Diamond Chemical Co. v. Azko Nobel Chemicals44– Customers brought a class action against chemical companies alleging conspiracies to fix and raise prices of monochloroacetic
acid and sodium monochloroacetate. The federal court approved a settlement that required
cash payment equal to twenty percent of the sales of the two products to be made available to
all persons or entities who purchased either product between 1995 and 1999. The bottom
line: class members are receiving real cash. •Ingram v. Coca-Cola Company45– The federal district court approved a settlement of a class action alleging race discrimination in promotions, compensation and performance
evaluations. Under the settlement, Coca-Cola was required to make payments to class
members from a Back Pay Fund of over $24 million and a Compensatory Damages Fund of
approximately $59 million (guaranteeing each class member recovery averaging
approximately $38,000), and Coca-Cola was required to create a $10 million Promotional
Achievement Award Fund to pay bonuses to class members and to make pay equity
adjustments to correct existing race-based inequities. In addition, Coca-Cola’s board was
required to review and remain informed of the company’s progress toward achieving
diversity goals, and the company had to create an outside, independent task force to evaluate
existing human resources practices and policies, making recommendations for necessary
reforms, investigating complaints and issuing written reports. The settlement also provided
that class members could decline their share of the determined back pay amount, opting to
obtain an individual hearing before a magistrate judge. Finally, the settlement provided for
attorneys’ fees and expenses of $20.7 million (approximately 20 percent of the total cash
settlement fund). The class members received real money, and the class counsel received
compensation for their efforts proportionate with what they achieved for the class. •Cullen v. Whitman Medical Corp.46– The federal district court approved the settlement of a class action alleging fraudulent misrepresentation by a vocational school that taught
sonography. The settlement provided $5.97 million in cash and approximately $1.3 million
in loan forgiveness for delinquent obligations owed by students to the school. The settlement
also included prospective relief that would be enforced by a court-appointed ombudsman,
such as screening of faculty and a cooling-off period for admitted students to withdraw. The
court approved class counsel’s request for an award of about 30% of the class compensation. 43141 F. Supp. 2d 894 (S.D. Ohio 2001). 44205 F.R.D. 33 (D.D.C. 2001). 45200 F.R.D. 685 (N.D. Ga. 2001). 46197 F.R.D. 136 (E.D. Pa. 2000). 11The class received real monetary benefits, and counsel were adequately compensated for
their efforts. •In re American Family Enterprises47– In this case alleging fraud in sweepstakes mailings, a federal multidistrict litigation court approved a limited fund settlement of $32 million, from
which eligible class members would receive, on average, more than $500 in refunds. •In re Motorsports Merchandise Antitrust Litigation48– In this case, a 50,000-member class of purchasers of souvenirs and merchandise sold by defendants alleged that defendants
engaged in a combination and conspiracy to fix and maintain prices for merchandise sold at
professional stock car races. After extensive discovery, the parties reached settlement
agreements proposing to pay class members in both cash ($5.6 million) and coupons (valued
at $5.7 million). The federal district court concluded that the settlement was in the best
interest of the class because establishing a class was difficult insofar as the items purchased
were small and many class members did not retain proof of purchase. In addition, the court
concluded that the coupon award was beneficial because: (1) the coupons were fully
transferable to others; (2) defendants agreed to continue issuing coupons until the face value
of each of the settlements was reached in redemptions; (3) the coupons were for small,
frequently purchased items and would be redeemable for a year; (4) the coupons represented
a sizeable discount on small, fungible items; and (5) coupons could be aggregated for higher
discounts on items. In addition, the court determined that class members could not easily
prove that they had suffered an injury as a result of defendants’ conduct. “It is the Court’s
belief that the coupon program combined with the cash settlement and taking into account the
risks and expenses of proceeding to trial with the possibility of no recovery, is well within
the range of a fair, adequate and reasonable recovery.” Furthermore, the court authorized an
award of attorneys’ fees based on the percentage of the cash recovery only so that class
members would receive the full value of the coupon portion of the settlement. •Varljen v. H.J. Meyers & Co49– A federal district court approved a settlement of $4.04 million in cash and $1 million in stock in this securities class action. The class of 24,461
plaintiffs alleged that the defendants artificially inflated and manipulated prices and spread
false and misleading reports about the company. The court carefully considered attorneys’
fees and costs and reduced the plaintiffs’ counsel’s request from $1.6 million to $800,000.
Furthermore, the court reduced the request of additional law firms beyond lead counsel from
$240,454 to $60,000, after reviewing the firms’ descriptions of their work. “This amount
reflects an amount between an unexamined lodestar figure for principal counsel – albeit one
without any enhancement – and the 33 percent fee requested and, I believe, adequately
recognizes the efforts of counsel and the risks and complexities of this litigation while
ensuring sufficient remaining funds for distribution to class members.” In short, the federal court record speaks for itself. Federal courts do not reject coupon settlements a priori; however, they do engage in closer scrutiny of coupon settlements, are more 47256 B.R. 377 (D. N.J. 2000). 48112 F. Supp. 2d 1329 (N.D. Ga. 2000). 492000 U.S. Dist. LEXIS 16205 (S.D.N.Y. 2000). 12likely to question attorneys’ fees, and produce settlements in which the consumers get cash far
more frequently than their state court counterparts. IV.THE CLASS ACTION FAIRNESS ACT OF 2004 ILR supports the Class Action Fairness Act of 2004 and believes that this bipartisan compromise legislation would go a long way to resolving much of the class action abuse
occurring throughout the country.50The Class Action Fairness Act would achieve this goal in a number of ways. First, it would allow federal courts to adjudicate more class actions in order to
ensure that a small number of magnet state courts do not continue their abusive practice of
simply rubber-stamping coupon settlements in which the vast majority of recovery goes to the
lawyers as opposed to the plaintiffs. Second, it includes a “Class Action Consumer Bill of
Rights” that would address many of the concerns that have been raised about coupon settlements.
Among other things, the “bill of rights” would: •Limit Attorneys’ Fees In Coupon Settlements. One of the troubling phenomena that the
FTC has noted in its amicus briefs is the growing number of class actions in which all the
relief goes to the lawyers. The Class Action Fairness Act addresses this problem by
requiring, in cases where the contingency fees in coupon settlements are based on the value
of the coupons awarded to class members, that the fees be based on the value of coupons
actually redeemed.51Thus, if a settlement agreement promises $5 million in coupons but only 1/5 of potential class members actually redeem the coupons at issue, then the lawyer’s
contingency fee should be based on a recovery of $1 million – not a recovery of $5 million.
The provision also allows a court to hear expert testimony on the actual value of redeemed
coupons to assist the court in determining the proper contingent fee. This provision
addresses the situation where the actual value of the coupons differs from their face value.
For example, a coupon for $250 off a vehicle purchase may not really be worth $250. The
provision also allows for the attorneys to be paid based on an hourly rate (with a multiplier)
and for achieving equitable relief in addition to any coupons. •Require Adequate Review of Coupon Settlements. Under the bill, a federal judge may not
approve a coupon or other similar noncash settlement without first conducting a hearing and
determining that the settlement terms are fair, reasonable, and adequate for class members.
In making that determination, the judge should consider, among other things, the real
monetary value and likely utilization rate of the coupons provided by the settlement. A
federal court may, in its discretion, require that a proposed settlement provide for the
distribution of a portion of the value of unclaimed coupons to a charitable organization or
government entity; however, any such distribution shall not be used as the basis for the award
of any attorneys’ fees.525050The U.S. House of Representatives passed H.R. 1115 on June 12, 2003. Although more than 60 Senators have expressed support for the Senate version of the bill, S. 2062, the Senate has not yet voted on the legislation
because of a disagreement between Democrats and Republicans regarding non-germane amendments that led to a
filibuster. See Senate Abandons Class Action Lawsuit Bill, Associated Press, July 8, 2004. 51See S. 2062, 108th Cong. § 3 (2004). 52Id. The House bill has a similar provision but does not include the provision regarding charitable organizations. See H.R. 1115, 108th Cong. § 3 (2003). 13•Protect Consumers Against Net Loss Settlements. One of the most notorious class action
settlements in history was the Bank of Boston in which the settlement provided that class
members (many of whom had no actual knowledge of the suit) would receive credits of up to
$8.76 to their bank accounts – while the accounts were debited up to $90 to pay their
attorneys’ fees. The bill addresses this concern by providing that a federal judge may not
approve a class action settlement in which a class member will be required to pay attorneys’
fees that would result in a net loss to the class members unless the judge makes a written
finding that the benefits to the class members “substantially outweigh” the monetary loss.53•Protect Against Discrimination Based On Geographic Location. This provision states that
a federal court settlement may not award some class members a larger recovery than others
simply because the favored members of the class live closer to the courthouse in which the
settlement is filed than do the disfavored class members. The provision, which responds to
cases in which settlements have discriminated on the basis of geography, provides assurance
that out-of-state class members are not disadvantaged by the parochialism of local judges.54•Require Notice Of Proposed Settlements To Appropriate Federal And State Officials. The
notification provision of the Class Action Fairness Act is designed to ensure that a
responsible state and/or federal official receives information about proposed class action
settlements and is in a position to react if the settlement appears unfair to some or all class
members or inconsistent with applicable regulatory policies. Section 1715 requires each
defendant, within 10 days after a proposed class action settlement is filed in federal court, to
provide notice of the proposed settlement to: (1) the U.S. Attorney General (or for banks and
thrifts, the entity with primary regulatory or supervisory responsibility over the defendant);
and (2) the state official that has primary regulatory or supervisory responsibility over the
defendant or who licenses or otherwise authorizes the defendant to conduct business in the
state (or for state depository institutions, the state bank supervisor in the state in which the
defendant is incorporated or chartered).55V.CONCLUSION The Institute for Legal Reform is pleased to have the opportunity to participate in the important debate about how to reform the class action system and ensure that class actions are a
tool to redress legitimate consumer grievances rather than a vehicle for the enrichment of
lawyers. The FTC’s efforts to date – both through the filing of amicus briefs and in sponsoring
this important workshop – demonstrate a strong commitment to addressing a problem that is
hurting consumers, dragging the American economy and undermining confidence in the judicial
system. 53See S. 2062, § 3; H.R. 1115 § 3. 54Id. 55See S. 2062, § 3. The House bill does not have a parallel provision. 14