CHICAGO (Legal Newsline) - A federal appeals court has declared a settlement between class members and RadioShack void after deciding the actual benefits were too low in comparison to the proposed legal fees.
The opinion was filed Sept. 19 in the U.S. Court of Appeals for the Seventh Circuit. Judges Richard Posner, Diane Pamela Wood, David Hamilton voted in the majority, with Posner authoring the opinion.
"Unfortunately the magistrate judge in approving the settlement in RadioShack failed to analyze the issues properly," the opinion states. "Let’s begin with the value of the award to the class members. The judge accepted the settlors' contention that the defendant’s entire expenditures should be aggregated in determining the size of the settlement; it was this aggregation that reduced the award of attorneys’ fees to class counsel to a respectable‐seeming 25 percent."
But the roughly $2.2 million in administrative costs should not have been included in calculating the division of the spoils between class counsel and class members, according to the opinion.
Those costs are part of the settlement but not part of the value received from the settlement by the members of the class, and, according to the opinion, the costs shed no light on the fairness of the division of the "settlement pie" between class counsel and class members.
"Of course without administration and therefore administrative costs, notably the costs of notice to the class, the class would get nothing," the opinion states. "But also without those costs class counsel would get nothing, because the class, not having learned of the proposed settlement (or in all likelihood of the existence of a class action), would have derived no benefit from class counsel’s activity."
The settlement in the class action was intended as a resolution to customers who opposed RadioShack’s printing of credit and debit card expiration dates on receipts.
Class members claimed Radio Shack violated the Fair and Accurate Credit Transactions Act as this practice put them at an increased risk of identity theft in case the receipt was lost.
"At most (the class) received $830,000," the opinion states. "That translates into a ratio of attorneys’ fees to the sum of those fees plus the face value of the coupons of 1 to 1.83, which equates to a contingent fee of 55%..."
No attempt was made by the magistrate judge or the parties to the proposed settlement to estimate the actual value of the nominal $830,000 worth of coupons, the court ruled.
"The magistrate judge, in approving the inadequate settlement proposal, may have been concerned with the cost of litigation to fragile RadioShack if the settlement was disapproved and the case had to be tried," the opinion states. "But very few class actions are tried... and this one would not have been an exception. RadioShack can’t afford costly litigation, and class counsel can’t afford to risk a delay in settling, lest RadioShack declare bankruptcy."
A renegotiated settlement will simply shift some fraction of the exorbitant attorneys’ fee awarded class counsel in the existing settlement that we are disapproving to the class members, according to the opinion.
The case is reversed and remanded back to the U.S. District Court for the Northern District of Illinois for further proceedings
U.S. Court of Appeals for the Seventh Circuit case numbers: 14-1470, 14-1471, 14-1658
From Legal Newsline: Kyla Asbury can be reached at email@example.com.