On The Case

DOJ signals new interest in policing class action settlements

(Reuters) - On Friday, the Justice Department filed a statement of interest opposing final court approval of a proposed consumer class action settlement in federal court in Camden, New Jersey. I’ll tell you below about the substance of the government’s qualms with the settlement, which resolves allegations that a website called Wines ‘Til Sold Out misrepresented the original prices of wines it sold at a purported discount. But the significance of DOJ’s filing isn’t the particular flaws it highlights in the proposed deal. It’s that the Justice Department is exercising its authority to oppose a private class action settlement – and that, based on comments from departing Justice Department official Rachel Brand, the Wines ‘Til Sold Out filing is likely to be just the first in a series from the Trump DOJ.

Congress gave the Justice Department a right to express its view of proposed class action settlements in 2005, when it passed the Class Action Fairness Act. CAFA requires defendants to notify the U.S. attorney general, as well as state AGs, of the terms of the proposed deal soon after the settlement is filed in the court docket. The Justice Department and state AGs then have 90 days to weigh in.

In the 13 years since CAFA was enacted, DOJ took a stance in only two cases before the Wines ‘Til Sold Out class action, both of them unheralded filings more than a decade ago, according to a speech that departing Associate Attorney General Rachel Brand delivered Thursday to the Federalist Society. Brand, who is leaving DOJ to become Walmart’s top lawyer, said the Justice Department’s silence wasn’t because of ideological support for private class actions but instead the result of an “almost comical story of government bureaucracy”: It took so long for CAFA notices to get through the Justice Department’s rigorous mail screening process that DOJ lawyers often didn’t receive word of proposed settlements until after they’d already been approved.

Brand, who held a senior litigation post at the U.S. Chamber’s Litigation Center before joining DOJ, told the Federalist Society that DOJ had figured out the mailroom flaw in the CAFA system and was “in a better position to review settlements. If a settlement isn’t fair or reasonable under CAFA, DOJ may file a statement of interest saying so.” She tipped lawyers at the lunch to be on the lookout for the first example – which turned out to be DOJ’s filing in the Wines ‘Til Sold Out case the very next day.

In the proposed WTSO settlement, class members are eligible for “rebate codes” they can use to receive credits of up to $2-per-bottle on future purchases from the website. Plaintiffs’ lawyers valued the total class compensation at $10.8 million and requested $1.7 million in fees. U.S. District Judge Renee Bumb of Camden granted preliminary approval of the settlement last November.

DOJ – and, for that matter, several class members who filed objections to the proposed settlement – argue that the Wines ‘Til Sold Out deal is incompatible with CAFA’s prohibition on so-called coupon settlements, in which class compensation takes the form of a discount on a future purchase from the very defendant accused of fraud. DOJ (and the objectors) also questioned the real value of the settlement, which is the basis of class counsel’s fee request. In essence, DOJ’s filing said, if consumers were actually hurt by the website’s supposedly deceptive representations, they’re being undercompensated – and if they weren’t hurt, plaintiffs’ lawyers should not receive a $1.7 million windfall for bringing unwarranted claims. (For what it’s worth, Judge Bumb partially granted and partially denied a defense motion to dismiss the case.) “The United States therefore urges the court to reject the proposed settlement in favor of a resolution that either recognizes the plaintiffs’ claims as meritless or offers consumers meaningful relief that justifies granting class counsel’s request for a significant fee,” the filing said.

The Competitive Enterprise Institute represents one of the objectors to the wine deal. I asked CEI’s Ted Frank, recently lionized by The Wall Street Journal’s Editorial Board for exposing dubious billing practices by plaintiffs’ lawyers in the Anthem data breach class action, said he welcomes the Justice Department’s filing and would be more than happy to help DOJ identify other troubling class action settlement proposals.

Frank said he did not lobby DOJ to get involved in the wine case in particular, although he said he has had informal discussions with Justice lawyers about using their CAFA power. “Nothing was set up, but they’ve said, ‘Hey, let us know if you see a settlement that’s a problem,’” Frank told me. “We are happy to do that, especially if we can’t find a client who objects … The intent of the law all along was for (DOJ) to get involved.”

Brand said in her Federalist Society speech that the Justice Department receives CAFA notices on more than 700 cases a year, so it will take DOJ lawyers considerable effort to figure out when to oppose prospective settlements. But presumably those decisions will now be based on the merits of the agreements, not on mailroom delays.

“Whatever happens, It will be better than in the first 13 years of CAFA,” Frank said.

I left phone messages for plaintiffs’ lawyers James Cecchi of Carella Byrne Cecchi Olstein Brody & Agnello and Oren Giskan of Giskan Solotaroff Anderson but didn’t hear back. Wines ‘Til Sold Out counsel James McClammer and Nicole Moshang of Manko Gold Katcher & Fox did not respond to my email requesting comment on the DOJ filing.

Judge Bumb will hear arguments on final approval of the settlement on March 19.