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Posts Tagged ‘class action objectors’

As I have noted in a series of posts recently, class action settlement objectors should not be taken lightly.  (See this August 1, 2011 post and others cited within).  Last week, the Second Circuit Court of Appeals offered an excellent case in point in its decision in In re Literary Works in Electronic Databases Copyright Litigation, No. 05-5943-cv(L) (2d Cir., Aug. 17, 2011), in which a two-judge majority sided with ten objectors in vacating the approval of a class action settlement involving copyright infringement claims by freelance authors against various publishers who provide content in online databases.   Based in part on principles limiting settlement class certification that were recognized in two well-known Supreme Court opinions from the late 1990s, Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997) and Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999), the court held that the interests of various subclasses within a proposed settlement class had interests that were too divergent to be adequately represented by a single group of class representatives and class counsel.  Andrew Trask has a good summary and some insightful commentary about the decision and its potential future impact on his blog, Class Action Countermeasures.  Alison Frankel offers additional perspective in her column for Thompson Reuters, On the Case.

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United States District Court Judge Janet C. Hall issued an order today rejecting the proposed settlement in Wilson v. DirectBuy, Inc., No. 3:09-CV-590 (JCH) (D. Conn. May 16, 2011) (Here is a link to the slip opinion).  The controversial settlement had been opposed by 39 attorneys general, a nonprofit consumer rights organization, and had been singled out by commentators for criticism as a model for class action abuse. 

Judge Hall’s order found fault with many aspects of the settlement, including both the proposed settlement’s procedural and substantive fairness.  Procedurally, Judge Hall was concerned with the nascent stage of the record at the time of the settlement and the lack of discovery performed before the settlement.  Among the court’s substantive concerns were that the in-kind benefits provided under the agreement were similar to a coupon settlement, that the parties had overstated the risks to class members of litigating the case to trial, and that the maximum value of the settlement was too low in comparison to the best possible recovery in order for the settlement to be within the range of reasonableness. 

The court’s opinion expressly does not rule on, although it does discuss, several of the other issues raised by objectors, including the sufficiency of the email notice given to class members and an order by the magistrate judge enjoining a similar lawsuit filed by the State of West Virginia.

It is important to note that the court’s opinion does not at all portend a win for the class at trial.  In fact, pointing to the potential for statewide class actions under individual state consumer protection laws and enforcement actions by individual state attorneys’ general:

[t]he court notes that these state consumer protection statutes may not be suitable for litigation on a nationwide class action basis. . . . However, it appears to the court that they may be well suited for statewide class actions, especially within the states with broadly written consumer protection statutes.  This attempt is already being made in California and Missouri. . . . Further, investigations by state attorneys general are under way in at least a couple states, and, in some states, consumer protection actions can be brought on behalf of consumers. . . .

Therefore, in light of these statutes and the evidence that public and private attorneys are prepared to enforce them, class members appear to have substantially stronger claims than the RICO claims alleged in this case. Because the parties seek to release these state claims via the Settlement Agreement, the strength of these claims must be accounted for in this court’s analysis of the fairness, adequacy, and reasonableness of the Agreement. . . .

Slip op. at 26 (internal citations omitted).

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