ST. LOUIS (Legal Newsline) - A lawyer appealing a class-action coupon settlement approved by a St. Louis judge last year is calling it "an abuse of discretion."
Lawyer Ted Frank of the Center for Class Action Fairness filed a 58-page appeal in the case -- named to the American Tort Reform Association's list of Dishonorable Mentions in its latest Judicial Hellholes report -- on Tuesday.
In 2005, Congress enacted the Class Action Fairness Act, which deals with "coupon" class action abuse.
Such abuse, according to ATRA, occurs when attorneys bring lawsuits purportedly to protect consumer rights, but often seek to push targeted defendants into settlements that provide those attorneys with millions of dollars in fees while leaving the clients with nothing more than a nominal discount on future purchases of products or services.
CAFA addressed such abuse by limiting lawyers fees relative to the value of redeemed coupons only. The federal law, however, applies only to class actions decided in federal courts. While some states have enacted similar safeguards, Missouri, in this case, has not done so.
Last May, City of St. Louis Circuit Court Judge Angela T. Quigless approved a class action settlement against mutual fund A.G. Edwards, now Wells Fargo.
According to ATRA's Judicial Hellholes report, the lawyers will receive an immediate $21 million in fees, plus about $600,000 in expenses.
Meanwhile, the 294,000 members of the class will divide $6 million among them and receive $34 million in coupons. This means each individual client will get about $20 in cash and three coupons worth $8.22 each. The coupons must be used on a set schedule, one-per-year over three years, to offset fees, according to the Judicial Hellholes report.
Despite objections, Quigless approved the settlement.
Frank, in his appeal, wrote that the parties "rationalized this untenable settlement" by claiming that it was really worth $39 million -- because of the $34 million in coupons.
"Such coupons have historically had low redemption rates of less than 10 percent," he wrote.
The settlement, Frank said, attracted numerous objectors who complained in person about the "worthlessness" of the relief.
"But the Circuit Court asserted that the coupons had a 100 percent value," he wrote.
"The Circuit Court's order approving the settlement cited no law in support of this proposition and addressed none of the objectors' arguments; it similarly denied the objectors' request for discovery of the redemption rate of the Edward D. Jones settlement coupons without explanation."
Frank said the approval of the "unethical" settlement was "an abuse of discretion" as a matter of law.
"This was a settlement negotiated for the benefit of lawyers, rather than class members," he said.
The case, Frank concluded, should be remanded and the Circuit Court instructed to reject the settlement.
From Legal Newsline: Reach Jessica Karmasek by e-mail at firstname.lastname@example.org.