Class Actions and Coupons

Law.com offers yet another insight into the sweet settlement deals where the targets of class actions pay the victims of their wrongdoing with coupons, yet compensate the class lawyers with cash:

Sacramento County Superior Court Judge David De Alba authorized the settlement of a class action that lawyers argued could be worth as much as $500 million to people who owned Ford Explorers during the 1990s.

In exchange for dropping the lawsuit that alleged rollover problems unfairly diminished the resale value of Explorers, Ford customers could receive a $500 discount coupon toward the purchase of a new SUV or a $300 coupon to buy another Ford vehicle. Consumers had until April 29, 2008 to apply for the coupons.

De Alba awarded the lawyers $25 million in fees and expenses after presiding over a 50-day trial without a jury in 2007. The case settled before the judge reached a verdict.

How has this worked out for the car owners?

A report filed with the court in June showed just 75 coupons have been redeemed for a combined $37,500.

There's something else to remember: If your compensation for something I've done to you is a coupon, valid only for a new financial transaction with me, what am I really losing? A $500 discount would be a relatively small dealer or manufacturer incentive toward the purchase of a new vehicle - had a million consumers used these coupons to purchase new Fords, do you think Ford would be sobbing about how costly this program was? Everybody wins but the consumer.

I have two proposals that could limit this type of collusive, abusive settlement:

• Keep the present system in place, but mandate that the terms of the coupons permit them to be sold and aggregated. So I could go out and buy 100 of these coupons from people who didn't want them, at $100 a pop, and use them to buy myself a $50,000 Ford.

• Pay the plaintiff's class lawyers based not upon the theoretical value of the coupons, but based upon their actual use.

I think a 25% return on the $37,500 in coupons that were actually used would be generous compensation, given the actual value of the coupons the class action lawyers negotiated for its members. Oh sure, they spent a lot of money litigating the case, and claim great surprise that the coupons weren't honored... but then, why not negotiate a backup provision - such as the distribution of any balance of the $500,000,000 supposed value of the settlement to class members who didn't use the coupons?

Another option, tried then reconsidered by a judge:

Earlier this year, for instance, a Los Angeles Superior Court judge ordered that a class action lawyer receive 12,500 $10 gift certificates for winning the discount for the roughly 43,000 customers of clothing retailer Windsor Fashions, which solicited personal information during credit card purchases. The judge later reversed himself and ordered the lawyer paid in cash.

But really, had the lawyer been able to sell those coupons to people who would want and use them, that wouldn't have been such a bad fee, would it?