(Also take note of the engaging debate in the Comments.)
by Jeff Sovern
Every other week, the Sunday Times Business Section runs a column called The Haggler, written by David Segal (who may be better known to law professors as the author of several critical articles on law schools). This week's version is headed A Little Walmart Gift Card for You, A Big Payout for Lawyers, and as the headline implies, the column is critical of some class action plaintiffs' lawyers. The Haggle describes a scenario in which he says "it sound[s] as though the lawyers for Walmart and those for the plaintiffs had devised a settlement that would pump up fees for the latter while limiting outlays from the former."
I don't know if the facts are as reported in the column, though I have no reason to doubt it. And the article can be criticized on several grounds: it gives considerable space to the views of class-action critic Ted Frank without giving any space to supporters of class actions (Segal reports that the lawyers for the plaintiff class, BakerHostetler, declined his interview request). It doesn't note that even class actions that return little to the class members may benefit them and consumers generally by deterring future misconduct.
But the article makes a good case that the lawyers found a loophole in CAFA's restriction on coupons in class action settlements by agreeing to an award of gift cards instead (class members had the choice of requesting a check, but for slightly less than the gift card amount; Frank claims that class members could request the gift card online, but had to ask for a check via snail mail, and that that pushed them to get the gift card). Because, according to the article, the lawyers' fees were based on the amount awarded in checks and gift cards, rather than the amount of those gift cards redeemed, the lawyers probably got more than they would have received if fees were based only on the amounts redeemed. I don't know about you, but I have gift cards that I have never redeemed, and I bet plenty of the class members have them too.
Assuming the facts are correctly reported, I'm skeptical about whether this kind of settlement is helpful to the cause of consumer protection. Yes, it may deter misconduct, as I noted, but surely other settlements more beneficial to the class members would also have done that. I would love to hear the justification for requiring check requests to be sent by mail as opposed to gift card requests, because that sounds like a classic way of pushing consumers in a particular direction that may not be in their best interests, by inflating consumer transaction costs. I believe class actions generally are hugely beneficial to consumers, but I'm not sure this one was. I hope people will comment because I'm curious to hear more about this.
Update: The comments function is now fixed and comments are open.