AGs succeed in opposing class action settlement

By Jessica M. Karmasek | May 16, 2011


NASHVILLE, Tenn. (Legal Newsline) - A federal judge in Connecticut issued an order Monday rejecting a proposed class action settlement with wholesale buying club DirectBuy Inc.

Tennessee Attorney General Robert E. Cooper led the 40-state effort opposing the settlement with the company, which claims to sell home improvement items and furnishings at a "direct insider" price through a paid membership.

The attorneys general, in a 36-page amicus brief filed in U.S. District Court in Connecticut last month, said the company 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.

Under the proposed DirectBuy agreement, current and former customers would be eligible to receive a "free" two-month membership to DirectBuy.

The attorneys general argued the 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 million 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 last month's brief.

The attorneys general also had argued the proposed settlement would not prohibit similar future conduct by DirectBuy.

According to the Tennessee Attorney General's Office, the multistate effort is the largest collective action by the attorneys general opposing a class-action settlement since the passage of the Class Action Fairness Act in 2005.

"I want to make sure that consumers are treated fairly in class-action settlements," Cooper said in a statement Monday.

From Legal Newsline: Reach Jessica Karmasek by e-mail at

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