In Blackman v. Gascho, the Competitive Enterprise Institute (CEI) sought Supreme Court review for a challenge to a lopsided class action settlement agreement that left over 90 percent of the class with nothing while the lawyers got an outsized, 60 percent share of the settlement fund.
In challenging the settlement agreement, CEI’s Center for Class Action Fairness sought to protect the interests of the individuals who came together to form the class action suit against self-dealing class counsel and to deter other settlements rigged to benefit attorneys at the expense of their clients.
This case was formerly known as Gascho v. Global Fitness Holdings LLC. The original dispute involved allegations of consumer fraud over gym membership contracts with fitness club company Global Fitness Holdings, LLC. CEI challenged the 2013 settlement agreement over provisions such as:
- A $2.4 million pay-out for the class attorneys, compared to $1.6 million spread over 600,000 class members.
- A claims process that, instead of funding direct distributions to class members, distributes a share of the settlement fund only to those class members who submit a claim. That arrangement, in effect, ensures 90 percent of the class will receive nothing.
- Special protections added by attorneys to shield their fee award from any effort by the district court to reallocate that money back to class members.
In a 2-1 split decision, a three-judge panel from the United States Court of Appeals for the Sixth Circuit ruled in favor of the settlement in May 2016 after a lower court had earlier approved it. The dissent in the Sixth Circuit ruling noted the great disparity between the recovery by class counsel and the class itself, a disparity that should have “flunked any fairness inquiry” and criticized the methodology used to credit class counsel millions of dollars for claims that were never even made.
Notably, after CEI asked the Supreme Court to hear the case, attorneys general from 17 states filed a brief supporting CEI’s request for review, explaining that citizen consumers will be harmed unless the court intervenes. The high court then took the somewhat unusual step of asking for additional reply briefs. Unfortunately, the court denied CEI’s petition on February 21, 2017.