Academics don’t often have the opportunity to publish an article opining on the correctness of a pending appeal, but our appeal in EasySaver Rewards Litigation, challenging a settlement that pays attorneys nearly $9 million and the class only $225,000 and nearly worthless coupons, is one such case. The wheels of justice turn slowly in the Ninth Circuit, which is unfairly overwhelmed with thousands of appeals a year. But even for the Ninth Circuit, this case is remarkable. What began as a straightforward objection in 2012 to an absurdly bad settlement is now entering its fifth year of litigation and second appeal at the Ninth Circuit Court of Appeals; we filed our twelfth brief in the case May 1. The first Ninth Circuit appeal ended in 2015 with the Court asking the district court to take a second look instead of simply striking down the settlement. The hint was strong that the original approval was wrong, and that the Court was providing the district court a face-saving device to evaluate the settlement again under more recent precedent and avoid a published decision criticizing its reasoning. But on remand, the district court came to the same result, even in the face of new evidence of the coupons’ worthlessness, so we’re back before the Ninth Circuit to get the opinion we should have gotten the first time around.
When we filed our opening merits brief in this second go-round earlier this month, we had the privilege of citing Fordham University Law Professor Howard Erichson’s cutting-edge article not merely for its astute but abstract legal principles, but also because Erichson singled out this very settlement as a poster-child of class action settlement abuse. He wondered explicitly “how class counsel could straight-facedly ask a judge” to value this settlement as it did, “or how a district court could agree to do so.”
Professor Erichson is alluding to how to value $20-off coupons redeemable for bouquets of flowers and other sundry overpriced gifts on the defendant’s websites such as Proflowers.com. Class counsel went to the court and said all you have to do is multiply the $20 face value with the 1.3 class members that will be receiving the coupon via email, and ta-da!…you have a value of nearly $26 million. And so, by the way, don’t feel bad about awarding us the nearly $9 million in fees that we are asking for.
But wait… the coupons expire in a year? You say the coupons can’t be redeemed during Christmas? Or Mother’s Day? Or Valentine’s Day? And wait… you say the defendant already continuously offers 20%-off coupons to the general public that cannot be combined with these coupons? But wait… you say similar coupons from the defendant sell at discounts of 93% to face value on Ebay? And what, you also say there’s a provision in the Class Action Fairness Act of 2005 that requires the court to wait to value the coupons until it sees how many are actually redeemed? Maybe it’s not a $26 million benefit after all. In fact, it’s probably not even a $1 million benefit.
Nevertheless, the district court has twice preferred class counsel’s face-value methodology, prompting both Professor Erichson’s criticism and our two appeals. See, if you call a coupon an “e-credit,” settling parties can magically wave their hands and argue (again with the impressive straight face) that the coupon isn’t a “coupon” subject to statutory limitations on settlements that provide for a recovery of coupons—even when the same instrument with fewer restrictions was called a “coupon” in the complaint. We’ve previously spoken with the New York Times about similar shenanigans in coupon settlements, and have won two of the leading federal appellate cases on coupon settlement abuses, Inkjet and Redman v. RadioShack. And we’re grateful that a bipartisan coalition of thirteen state attorneys general have weighed in on the coupon question on our side, a number that we’re reliably told will be larger if this issue somehow rises again.
But remarkably, the shell game over coupons isn’t even the only fast one class counsel plays at the expense of their clients in this case. San Diego-area class counsel got the San Diego federal judge to let them use the settlement to double-dip at the class’s expense by giving away nearly $3 million of nationwide class members’ money to San Diego area universities and law schools in the name of “cy pres,” even though 99.8% of class members are getting no cash from the settlement at all. It just so happens that lead class counsel’s alma mater is University of San Diego Law School, one of the three recipients. Adding insult to injury, the class’s contributions to those universities will be used to endow professorships named after the defendant.
Isn’t that just what a class member in the 99% of the country that doesn’t live in San Diego would want? First, scam him out of eighteen bucks a month by enrolling him in a bogus online rewards program and then redress that injury by boosting the San Diego economy so California kids can learn the wisdom of the ProFlowers Distinguished Professor of Internet Studies. There’s a reason courts regularly bemoan the coincidence of a nationwide class’s money going to a geographically local set of charities in the district court’s backyard. Hey, we won one of the leading appellate cases on the question of whether money that can go to the class should instead go to a local charity, too, but the district court decided the intervening precedent while the appeal was pending wasn’t to be considered at all.
Professor Erichson is right that this settlement doesn’t pass the laugh test. Of the actual $12.5 million of real money changing hands in this settlement, somehow only $225,000 is making its way to the class members for whose benefit the case was brought in the first place. Few settlements this large are worse and so transparently constructed to benefit the attorneys at the expense of their clients.