SAN DIEGO (Legal Newsline) - In a victory for objectors who complain that class-action settlements too often feature cash fees for the lawyers but worthless coupons for their clients, a federal judge has put a law firm’s million-dollar fee on hold until he sees how many coupons consumers actually redeem.
A federal judge in California approved the settlement of lawsuit against The Children’s Place for allegedly misleading consumers about the value of “sale” items. But U.S. District Judge Gonzalo P. Curiel in California rejected a request from lawyers at Carlson Lynch Sweet Kilpela & Carpenter for $1.1 million in fees and expenses, saying the vouchers and coupons they negotiated for their clients may go largely unused.
The March 31 ruling represents a rare example of a judge enforcing the Class Action Fairness Act, a 2005 law that requires courts to award fees in class-action settlements based upon the value of coupons redeemed, not their theoretical gross value. Otherwise, plaintiff lawyers and the companies they are suing have an incentive to collude on settlements that cost the defendants little more than the cash value of legal fees since only a tiny percentage of consumers ever participate in consumer class action settlements, let alone redeem coupons.
In this case, the lawyers at Carlson Lynch negotiated a settlement that featured up to 800,000 vouchers that provide either $6 off any purchase or 25% off a purchase up to $100. The coupons are transferrable but expire in six months and can’t be combined with other offers.
A class member represented by the Hamilton-Lincoln Law Institute’s Center for Class Action Fairness objected to the fee request, saying the settlement was covered by the CAFA restrictions.
Plaintiff attorneys and The Children’s Place argued the $6 coupon was a “voucher” not subject to CAFA, because it had cash value and could be used to purchase more than 40% of the items at the chain, which sells inexpensive children’s clothing and baby items.
The U.S. Court of Appeals for the Ninth Circuit has laid out a three-part test, including whether vouchers have expiration dates and restrictions on what they can be used to buy, that courts are supposed to use to determine if CAFA applies. CCAF attorney Ted Frank said courts too often find a way around those rules.
“These were obviously coupons, and the fact that an attorney could get up with a straight face and claim they weren’t coupons and try to trick a judge in an ex parte hearing without worrying about losing his license shows the problem with the Ninth Circuit’s atextual and ahistorical test in practice,” Frank said, referring to a hearing that was attended only by attorneys supporting the settlement. Frank said his group is fighting a case with nearly similar facts in another federal court in California, “where the judge rubber-stamped a similarly silly claim that vouchers weren’t coupons.”
Todd Carpenter of Carlson Lynch disagreed, saying the coupons were “a better alternative to resolve the case than small cash payments.”
The average damages per consumer were 50-75 cents per item, Carpenter said, meaning class members were even less likely to bother filing a claim and cashing a 50-cent check than to use a coupon worth $6. He said more than 100,000 class members have made claims.
“Mr. Frank’s real concern is obviously with the payment of attorneys’ fees,” Carpenter said. “He would prefer large corporations keep their money when they have screwed everyday consumers”
Under the terms of the settlement, lead plaintiff Monica Real stands to earn $2,500 in cash for representing the class. As with many class actions, this wasn’t the only case where Rael served as a plaintiff for the same law firm. Carlson Lynch represented her in a lawsuit against Coach in 2016 making similar allegations about false price discounts.
In his ruling, Judge Curiel said the 25% off coupons were definitely coupons under CAFA. The limitations on the $6 coupons also placed them under the law, they “increase the likelihood that the vouchers will not be used and will not benefit the class members.”
The limits “create a significant risk that a large number of vouchers will not be redeemed and will not benefit the class which would then allow class counsel to disproportionally benefit from an attorney’s fee award based upon the face value of the vouchers and not the value realized by the class,” the judge concluded.