Today, the Center for Class Action Fairness petitioned the U.S. Supreme Court to hear a case challenging an abusive class action practice where trial lawyers pay themselves the bulk of the cash recovery ($5.7 million), the class members receive just a fraction of that ($344,000), and the settlement hands out millions to third parties who are not part of the class.
The original class action lawsuit, Joshua D. Poertner v. The Gillette Co. et al., centers on seven million class members who sued over dubious advertising about Duracell batteries. Class counsel structured a settlement that paid class counsel $5.7 million in fees and expenses and provided a cy pres award of $6 million in batteries to a third-party charity, while class members were awarded $3 to $6 in claims for future battery purchases, with over 99 percent of the class receiving nothing. Class counsel also took credit for an injunction forbidding certain labeling on Duracell Ultra-brand batteries—an injunction that provided no possible benefit because the product had been discontinued before the case settled.
The settling parties attempted to justify the 1% claims rate with a declaration by the claims administrator stating that such results were consistent with the hundreds of consumer class actions in which she had been involved where class members received indirect notice. The claims administrator revealed that the median response rate in such actions was remarkably only 0.023%, which are worse odds than “getting a straight flush in a 7-card poker hand.” Because actual claims rates are often concealed by the settling parties, this revelation is a smoking gun that confirms the abysmal claims rates in consumer class actions.
In today’s cert petition, we are appealing a decision by the U.S. Court of Appeals for the Eleventh Circuit that upheld the settlement. We believe this case provides a timely opportunity for the Supreme Court to resolve a circuit split and establish a nationwide standard for evaluating class-action settlements, including the use of cy pres awards.
Cy pres awards, which we have testified about multiple times before Congressional subcommittees, are dollars given to nonprofits and universities often affiliated with the attorneys or the defendants. These awards are often used to create the illusion of relief at the expense of the class. In Poertner, class counsel sought credit and received millions of dollars in fees for donations of batteries to charity that Duracell makes as part of its regular marketing program.
In 2014, we won a Seventh Circuit case, Pearson v. NBTY, Inc., where an opinion by Judge Posner struck down a similar settlement over glucosamine pills. The Pearson settlement paid $2.1 million to the attorneys, less than $0.9 million to the class, $1.1 million to cy pres, and included an injunction involving meaningless advertising changes. The Seventh Circuit held that the settlement was a "selfish deal between class counsel and defendant" and that district courts must look at what the class actually receives rather than class counsel's exaggerated, illusory calculation. Although the Poertner settlement was in many ways worse than Pearson, the Eleventh Circuit refused to apply the same standards as Pearson.
The attorneys in Poertner received a windfall, and class counsel defended this result by saying that’s how most class-action settlements work. That “everybody does it” is a reason for the Supreme Court to step in to stop this abuse of the system. In fact, most courts confronted with such blatant abuse step in to forbid it, but the Eleventh Circuit shrugged. Unless the Supreme Court steps in now, we can expect future class-action settlements to be forum-shopped to courts in a jurisdiction that permits attorneys to extract over 90 percent of settlement value for themselves, costing consumers millions.
View the cert petition in Frank v. Poertner.
Alison Frankel (smoking gun): http://blogs.reuters.com/alison-frankel/2014/05/09/a-smoking-gun-in-debate-over-consumer-class-actions/