It's a common complaint about class action lawsuits: they invariably result in hefty attorneys' fees while providing next to nothing for the plaintiffs, for whom the suit was ostensibly brought in the first place.
Last week, that argument spurred a federal judge to reject a proposed settlement in a suit involving misleading fuel economy claims about the Honda Civic Hybrid. The agreement -- which included $3 million in attorneys' fees and left consumers with rebates for future Honda purchases -- was apparently too much for Virginia Phillips, a U.S. District Judge in the Central District of California, to swallow.
She sided with 26 attorneys general and various consumer groups who argued that the deal provided nothing of value to the class. The ruling left Washington, D.C.-based Cuneo Gilbert & LaDuca, the firm representing the plaintiffs, scrambling to come up with a Plan B.
The court did not have enough information about the value of the settlement to approve the settlement, said Jonathan Cuneo, the firm's founding member. And the burden was on us. There is no question that she took, in my opinion, the objections to be serious.
Lead plaintiffs John True and Gonzalo Delgado filed the suit in 2007, taking issue with the car's advertised mileage of 51 miles per gallon on the highway and 49 in the city. In 6,000 miles of driving, True averaged only 31 miles per gallon in mixed highway/city driving. The suit was brought on behalf of owners of 2003-2008 Civic Hybrids, a class comprising over 150,000 consumers.
Settlement a marketing incentive
Under the terms of the settlement, Civic owners who were willing to trade in their car could receive a $1,000 coupon toward a new Honda; class members who wanted to keep their Civic were eligible for a $500 coupon. In either case, the coupon couldn't be used toward a certified used car or a new Civic Hybrid -- a bizarre and seemingly pointless restriction, especially considering that Civic Hybrids cost around $7,000 more than their standard counterparts.
Honda also generously agreed to provide each class member with a DVD containing tips on how to achieve better fuel economy.
To many observers, the deal seemed like a better deal for Honda than for the class.
It was essentially a marketing incentive program for Honda, according to Ted Frank, founder of the Center for Class Action Fairness, which filed a brief objecting to the settlement. So if you bought a Honda Civic Hybrid in 2008, the only relief was to get a coupon to buy another Honda. That's a benefit to Honda, certainly. It's not clear it's a benefit to the class members.
Michael Kirkpatrick, a lawyer for Public Citizen, which also objected to the settlement, said that, under the agreement, the class gives up their claims in exchange for basically nothing.
A victory for attorneys general
No fewer than 26 state attorneys general -- led by Greg Abbott of Texas -- said that the settlement didn't meet the heightened scrutiny required of coupon settlements. That standard, set forth in the 2005 Class Action Fairness Act, provides that the court may approve the proposed settlement only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable and adequate for class members.
Indeed, a number of courts have rejected coupon settlements that give consumers a raw deal. The U.S. District Court for the Southern District of Florida summed it up well in Figueroa v. Sharper Image, a 2007 case involving the air purifier that eventually drove Sharper Image into the ground.
The court categorized the third proposed settlement agreement -- under which consumers would receive a $19 Sharper Image coupon -- as one in which class members [receive] little more than the right to purchase more products from the defendant at a discounted price.
Where the parties will go from here is unclear. Cuneo, the plaintiffs' attorney, pointed out that Judge Phillips didn't shut the door on a new, fairer proposed settlement. An amended agreement would be fine with many of the objectors too. Kirkpatrick, the Public Citizen lawyer, is hoping for a settlement that actually gives [the class] some value.