AGs opposing class action settlement

By Jessica M. Karmasek | Apr 13, 2011


HARTFORD, Conn. (Legal Newsline) - Connecticut Attorney General George Jepsen, along with 38 other attorneys general, filed an objection Tuesday to the proposed settlement of a class action lawsuit against DirectBuy Inc.

Jepsen and the attorneys general, in the 36-page amicus brief filed in U.S. District Court in Connecticut, say the company, which claims to sell home improvement items and furnishings at a "direct insider" price through a paid membership, offered no real benefit to consumers.

The lawsuit at issue accuses DirectBuy of fraudulent misrepresentation because the company implied that its paid memberships would entitle customers to purchase goods from manufacturers and suppliers at actual cost.

However, DirectBuy allegedly received kickbacks and incentives from suppliers and manufacturers of goods purchased by DirectBuy members, which inflated the cost of the goods.

According to the lawsuit, which names DirectBuy Inc., United Consumers Club Inc. and DirectBuy Holdings Inc. as defendants, the company did not disclose this arrangement to customers until early 2009.

"The Attorneys General submit this brief to protect consumers who will be adversely affected by the approval of the proposed settlement," Jepsen said in a statement. "We urge the court not to approve a class-action settlement that has no real value to anybody but the plaintiffs' lawyers."

Jepsen says the so-called free and reduced-price memberships offered were not fair, reasonable and adequate settlement for most of the customers harmed.

"The scant relief offered under the proposed settlement to hundreds of thousands of absent class members nationwide stands in stark contrast to the $4,000 cash incentive payments to each of the named plaintiffs (totaling $28,000), the $350,000 to $1,000,000 in attorneys' fees to class counsel provided under the proposed settlement... and the initial membership fees themselves, which ranged from $1,000 to $5,000 plus additional charges with financing," the attorneys general wrote in the brief.

Also, the proposed settlement would not prohibit similar future conduct by DirectBuy, the attorneys general argue.

"The proposed settlement is, in essence, a sales vehicle for defendants designed to drive current and former customers into membership renewal contracts and to the same manufacturers and suppliers from whom defendants have acknowledged receiving kickbacks and incentives," Jepsen said. "Standing alone, the memberships have little value."

A hearing on the proposed settlement is scheduled for May.

Those other attorneys general included in the amicus brief are: Alaska, Arizona, Arkansas, Colorado, Delaware, the District of Columbia, Florida, Georgia, Idaho, Illinois, Iowa, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Mexico, New York, North Dakota, Ohio, Oklahoma, Oregon, Puerto Rico, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Washington and West Virginia.

Jepsen's office said it is believed to be the largest number of states joining in opposition to a proposed class action settlement since the passage of the Class Action Fairness Act in 2005.

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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