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Monday, March 30, 2020

State AGs ask U.S. SC to review lawyer payout in class action settlement

By Jessica Karmasek | Oct 28, 2016

The U.S. Supreme Court building in Washington, D.C.

WASHINGTON (Legal Newsline) - More than a dozen state attorneys general last week asked the U.S. Supreme Court to review a 2013 class action settlement reached over a fitness club company’s gym membership contracts and fees, arguing the agreement could put consumers nationwide at risk.

The settlement agreement in Gascho v. Global Fitness Holdings LLC was approved by the U.S. Court of Appeals for the Sixth Circuit in May.

The original dispute involved allegations of consumer fraud over gym membership contracts with fitness club company Global Fitness Holdings.

In particular, plaintiffs alleged that between 2006 and 2012, the company sold memberships and incorrectly charged fees pertaining to cancellation, facility maintenance and personal-training contracts.

The Competitive Enterprise Institute’s Center for Class Action Fairness has challenged the settlement agreement over various provisions, including:

* A $2.4 million pay-out for class attorneys, compared to $1.6 million spread over 600,000 class members;

* A claims process that instead of funding direct distributions to class members, distributes a share of the settlement fund only to those class members who submit a claim. That arrangement, CEI argues, ensures 90 percent of the class will receive nothing; and

* Special protections added by attorneys to shield their fee award from any effort by the district court to reallocate that money back to class members.

A three-judge panel of the Sixth Circuit, in a 2-1 split, ruled in favor of the settlement in its May 13 decision after the U.S. District Court for the Southern District of Ohio, at Columbus, had earlier approved it.

CEI filed its petition for writ of certiorari, or review, with the Supreme Court on Sept. 19. A month later, on Oct. 19, attorneys general from 17 states filed an amicus brief with the high court in support of the institute’s petition.

“We’re grateful that 17 state attorneys general care enough about their consumers to ask the Supreme Court to intervene to stop abusive class-action practices and resolve the circuit split created by the Sixth Circuit,” said Ted Frank, director of CEI’s Center for Class Action Fairness.

“If class action attorneys can get paid millions even when they intentionally structure settlements to prevent over 90 percent of their clients from recovering any money, it creates perverse incentives for attorneys to ensure that class actions benefit only themselves.”

The Washington, D.C.-based public-interest law firm represents class members against unfair class action procedures and settlements. In this case, it seeks to protect the interests of the individuals who have come together to form the class action lawsuit.

The attorneys general wrote in their brief that the Supreme Court’s guidance is needed in this instance, saying it is an “independently important issue that is core to properly resolving class actions across the country.”

“The Sixth Circuit’s approach places consumers nationwide at risk (including citizens in states represented by amici) by laying bare a split amongst the circuits and blessing a class action fee arrangement that allows class counsel and defendants to reach a mutually beneficial settlement arrangement to the detriment of class members,” they wrote in their 12-page brief to the court.

“Given the nature of nationwide class action litigation, and the ability of class counsel to forum shop cases, even one circuit applying an under-protective standard to class action settlements will detrimentally affect consumers across the nation and undercut any efforts (by amici or others) to protect consumers in other circuits.”

Attorneys general of Alabama, Arizona, Arkansas, Colorado, Georgia, Indiana, Louisiana, Michigan, Nebraska, Nevada, Oklahoma, South Carolina, Tennessee, Texas, Wisconsin, West Virginia and Wyoming joined the brief.

“The petition presents an ideal vehicle for the Court to address the important question presented,” the attorneys general said of CEI’s petition. “The record is clear, the legal conclusions straightforward, and resolution of the circuit split will control as to the validity of the settlement.

“Moreover, there is urgency because the circuit split, if left unresolved, threatens to harm citizens nationwide by leaving them susceptible to attorneys bargaining away their rights and claims for insufficient return in districts far from their home, where inadequate judicial scrutiny may be applied on their behalf.”

The attorneys general contend the Sixth Circuit’s approach is in direct contravention to that of the Seventh Circuit.

The Seventh Circuit, largely through the opinions of Judge Richard Posner, has taken a “hard line” against counting any money not directly provided to a class member in the calculation of allowable class counsel fee awards, the attorneys general point out.

“Had the case below proceeded in the Seventh Circuit, class counsel would have been limited to an award closer to $800,000 or $1 million, instead of receiving approval for a multi-million dollar fee award,” they wrote in their brief.

From Legal Newsline: Reach Jessica Karmasek by email at

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Organizations in this Story

Center for Class Action FairnessU.S. Court of Appeals for the Sixth CircuitU.S. Court of Appeals for the Seventh CircuitU.S. District Court for the Southern District of Ohio Columbus Division