Is the government about to make it harder for companies to settle consumer class actions? The Department of Justice’s Consumer Protection Branch, in a Statement of Interest (Statement), has requested that a Judge set aside a proposed class action settlement that would enrich plaintiffs’ attorneys to the tune of nearly $2 million. Specifically, the DOJ argues that the settlement, in the form of coupons, would “transfer a massive $1.7 million windfall payment to plaintiffs’ counsel” and that such a payout outweighs the harm incurred by consumers. The DOJ, under the Class Action Fairness Act of 2005 (CAFA), receives proposed settlement notices from the participating defendants, and may issue a Statement of Interest to the presiding court if it believes a settlement is unfair or unreasonable.
In Cannon v. Ashburn Corp., No. 1:16-cv-01452, 2016 WL 7130913 (D.N.J. Dec. 7, 2016), the plaintiffs alleged that a wine distribution member website, Wines ‘Til Sold Out, violated New Jersey’s fraud and contract laws and was unjustly enriched by falsely advertising discounted prices without ever selling the wine at an original price. The proposed settlement would provide class members credits ranging from $0.20 to $2.25 per previously purchased wine bottle and permit members to put the credits towards future wine purchases on the website.
The parties claim the settlement is worth $10.8 million. The DOJ disagrees, stating that the value is “far below” $10.8 million and that the $1.7 million is, therefore, “not appropriate.” The DOJ argues that the credits are akin to coupons, and coupons are subject to more scrutiny under the CAFA. Although the DOJ acknowledges that the consumers incurred a harm, the DOJ feels the harm was minimal because the consumers “actually received the products they ordered at the prices to which they agreed.” Nonetheless, the DOJ argues, even if the court disagrees with the DOJ and finds that the consumers’ harm was beyond minimal, then the DOJ feels the proposed settlement is “even worse” because the coupons would have strict requirements and require the consumers to “navigate [an] unnecessarily complex process.” The court will hold a Fairness Hearing on March 19th.
According to then Associate Attorney General Rachel Brand, the DOJ, despite receiving about 700 class action settlement notices per year under the CAFA, has only involved itself in two cases in more than a decade because the review process has been time-consuming and inefficient. However, Ms. Brand said, “[the DOJ] has begun to fix that process, and [is] already in a better position to review settlements.” Indeed, the DOJ’s recent Statement of Interest as well as Ms. Brand’s remarks suggest that the DOJ is starting to act under the CAFA and crack down on what it believes to be unfair settlements.
*Dan Rosenzweig is admitted in New York only and is practicing under the supervision of Venable partners in Washington, DC.