Controversial class action settlement changed after intervention from AGs, DOJ and CCAF

By Nicholas Malfitano | Mar 20, 2018


CAMDEN, N.J. (Legal Newsline) – Representatives for the Department of Justice and a group of state attorneys general showed up to a New Jersey courtroom March 19 to voice concerns with a controversial class action settlement that initially paid plaintiffs attorneys $1.7 million while providing $2 per bottle-sold coupons to class members.

After hearing five hours of argument, U.S. District Judge Renee Marie Bumb did not issue a final decision on the settlement involving a discount wine distributor. The initial iteration of the settlement attracted controversy and opposition from 19 state attorneys general nationwide and the U.S. Department of Justice’s Consumer Protection Branch.

In the case of Cannon Et.Al v. Ashburn Corp. Et.Al, Bumb provided the parties with an additional week in which to submit supplemental briefs on a revised version of the settlement, totaling no more than five pages and due March 26, after which she will approve or reject the new settlement.

Plaintiffs Kyle Cannon, Lewis Lyons, Dianne Lyons and those similarly situated claimed defendants Ashburn Corporation and Wines ‘Til Sold Out (WTSO), an online discount wine retailer, falsely advertised its prices.

An initial proposed settlement offer from the defendants awarded consumers who completed a special verification form a maximum of a $2 coupon to be used at WTSO, while class counsel would have been compensated $1.7 million.

Though the federal court in New Jersey granted preliminary approval of the initial settlement offer in November, the proposal’s opponents argued that it violated the federal Class Action Fairness Act (CAFA) of 2005.

The attorneys general of 19 states filed a joint amicus brief in opposition to the initial version of the proposed settlement. Leading the opposition group of state attorneys general is Arizona’s Attorney General, Mark Brnovich.

Brnovich and his colleagues believed the customer credits offered were considered “coupons” under the auspices of the CAFA, because they are worth “significantly less” than their face value and are only valid with a number of restrictions attached.

In addition to Brnovich, attorneys general from Alabama, Arkansas, Idaho, Indiana, Louisiana, Michigan, Mississippi, Missouri, Nevada, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Washington and Wyoming were opposed to the proposed settlement offer.

A statement of interest was also filed by the DOJ’s Consumer Protection Branch, which believed that the initial settlement proposal’s structure was more harmful to consumers than the alleged deceptive marketing and pricing scheme committed by Ashburn.

Monday’s Hearing Discusses Second Settlement Offer

During Monday’s proceeding, Bumb inquired to counsel how class members could make the determination that they were not harmed by any allegedly unfair pricing of the wines they purchased and determine if the first settlement offer on the table was a fair one.

Suzanne Ilene Schiller, counsel for WTSO, replied that consumers made the determination by drinking the wine and appreciating it, adding that out of a potential 240,000 class members, 34,000 (or 15 percent) had already filled out the verification form attached to the first settlement offer, to determine one’s eligibility for class membership. Another 4,000 claims are pending verification.

The major discussion topic of Monday’s hearing was a revised, second version of the settlement offer. Unlike the first version, which would have seen class counsel compensated to the tune of $1.7 million, the second version stipulated a counsel fee of $1.2 million, with the remaining $500,000 being put into a separate fund for class members who would rather opt for a cash disbursement instead of the coupons offered by WTSO.

When asked by Bumb how a class member would decide whether they would take the coupon credit or cash, Schiller replied, “We think our consumers want to buy wine.”

Schiller stated that 70 percent of the 34,000 class members who filled out the verification form haven’t bought further product from WTSO yet, and they wanted the sales credits and the settlement offer to be approved to begin buying again.

Plaintiff counsel Oren S. Giskan clarified that class members do not yet know of the cash option and will be notified of that settlement offer provision shortly via email, in addition to being informed that the redemption credit period has been extended by six months.

“The cash option was brought in after talking to the Arizona Attorney General,” Giskan said. “There has been a positive reaction to the settlement. [They] know this is good for the class. With this, [the class] will get something back.”

A recurring theme throughout the proceeding was the judge’s inquiry of what tools were available to consumers and class members to inform and assist them of making the decision to join the class, such as their own purchasing history with WTSO, but counsel said that information was not immediately available.

“I wouldn’t want to approve a settlement where a consumer would have to greatly increase [the quantity of] their buying history to take advantage of a settlement. That wouldn’t be fair,” Bumb stated.

Giskan later said that a settlement is a compromise between parties based on the information available at the time, and that solution would not only change WTSO’s marketing practices, it would be certain to get the class members something – rather than go to trial and potentially leave class members with nothing at the end.

“The marketing practices [of Ashburn Corporation] should want to be stopped by the state attorneys general and the United States. They should not want to scuttle this, they should be on our side,” Giskan said. “We gave the attorneys general what they wanted. We should focus on the settlement we have, not the one they want or the one the objectors want.”

Arizona AG’s Representative & U.S. DOJ Attorney Comment

O.H. Skinner, an Arizona assistant attorney general, said he was helping to lead a bipartisan coalition of various state attorneys general against the settlement offer.

“We are all motivated here by a grave concern of low redemption rate [of the coupons]. Certain class members are unaware of the $2 cap on coupons. We think these coupons are very restrictive and we asked the parties to have a cash election option. The consumers should get to make that choice. People need to be told there is an available cash component [to the settlement] and an extension of the class [eligibility] period,” Skinner said.

Skinner offered his opinion that the second settlement offer was “a better deal,” but still not ideal.

“We would like to see other things loosened,” Skinner said.

Skinner specifically commented that the $500,000 cash fund under the second settlement wasn’t sufficient under CAFA, and that the class members fund should be set at a minimum amount of $1.2 million – with only $500,000 to be awarded to class counsel instead.

“We have a deep and abiding concern, between the notice structure, $500,000 fund amount and the coupon value, that consumers will be getting a low value,” Skinner stated. “The redemption rate is the ultimate arbiter in this case. In order for class members members to get [what we feel is] an appropriate percentage, 80 percent of the coupons would need to be redeemed.”

Gus Eyler, a special assistant U.S. attorney, said the DOJ was concerned with the first settlement proposal’s perceived conflict with CAFA, but that the second version remedied some of the government’s objections.

“Since we entered [the case], we feel the revised settlement has significantly improved the deal, especially the moving of class counsel fees to the end of the [credit] redemption period. Though, we have some lingering concerns,” Eyler said.

According to Eyler, such concerns had to do with the “unreasonably-restricted nature and limited capacity” of the coupons, and that the inclusion of a verification form may limit class member participation.

“We would have preferred to see direct mailing instead of a verification form,” Eyler said. “This case may be one where verification is necessary, but some additional notice is good.”

Eyler seconded Skinner’s point on the availability of more cash for the class members instead of class counsel being a good idea.

“We were pleased to see such a quick and positive response, and the proposed settlement is improved,” Eyler stated.

In addition, Bumb said she would require re-noticing of the class members, as the second version of the settlement contained “material changes” compared to the first one, and consumers should have another opportunity to opt-out or object to the settlement offer.

Eyler agreed, commenting the people who previously may not have wanted to join the class may change their minds upon receiving notice of the second settlement version’s new provisions.

Another Objector - The Center For Class Action Fairness

Another opponent is the Competitive Enterprise Institute’s Center for Class Action Fairness, which represents a member of the class who objected to the first settlement in a brief.

A CCAF press release further states, “While class members receive nominal benefits under the settlement, class counsel is seeking $1.7 million in fees and expenses, unopposed by Wines ‘Til Sold Out, without regard to the actual recovery by class members. The result is a settlement that impermissibly allocates the bulk of the settlement benefit to the class attorneys rather than class members.”

U.S. District Court for the District of New Jersey case 1:16-cv-01452

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com

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