CEI Challenges Lawyers’ Multi-Million Dollar Pay Day in Global Fitness Settlement

The Competitive Enterprise Institute (CEI) is asking the full 6th Circuit Court of Appeals for an en banc review of a challenge to a lopsided class action settlement agreement that leaves over 90 percent of the class with nothing while the lawyers get an outsized, 60 percent share of the settlement fund.

A three-judge panel from the 6th Circuit ruled in favor of the settlement this month, in a 2-1 split, after a lower court had earlier approved it. In challenging the settlement agreement, CEI aims to protect the interests of class members against self-dealing class counsel and deter other settlements rigged to benefit attorneys at the expense of their clients.

“Class counsel negotiated a $2.4 million payday for themselves, enriching themselves over their own clients. That is a breach of class counsel’s fiduciary duty,” said Ted Frank, director of CEI’s Center for Class Action Fairness. “When the parties agree to settle a case for $4 million, it is inherently unfair for the class attorneys to net the lion’s share of that amount— in this case, sixty percent.”

The original dispute involved allegations of consumer fraud over gym membership contracts with the company Global Fitness Holdings, Ltd. CEI challenged the 2013 settlement agreement over provisions such as:

  • 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.
  • A claims process that, instead of funding direct distributions to class members, ensures 90 percent of the class will receive nothing.
  • A $2.4 million pay-out for the class attorneys, compared to $1.6 million for the class.

The dissent in the ruling by the three-judge panel noted the great disparity between class counsel and the class, one that should have “flunked a fairness inquiry,” and criticized the methodology used to credit class counsel millions of dollars for claims that were never made.

View the appeal in Gascho v. Global Fitness Holdings