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(Reuters) - Few phrases are more loaded in class action litigation than “reverse auction” and “sweetheart deal.”
When a class settlement is described as a sweetheart deal, or when a defendant is accused of engaging in a reverse auction to settle on the cheap, the implication is that class counsel compromised the best interests of the class, presumably in order to collect fees for themselves. The words smack of collusion and shady motives.
The class action plaintiffs firm Altshuler Berzon used both phrases when it challenged a class action settlement struck by different plaintiffs lawyers with the dating app Tinder Inc, which was accused of violating a California’s anti-discrimination civil rights law when it charged customers over the age of 29 more money than younger users for premium subscriptions.
In a February 2020 brief on behalf of objectors to the settlement, Altshuler told the 9th U.S. Circuit Court of Appeals that after Altshuler won an important California state appellate ruling against Tinder in a state-court class action it has been litigating since 2015, the dating app made a deal with rival class action lawyers. The federal court case, Altshuler asserted, was filed only after Altshuler’s appellate win – and Tinder made a deal with the plaintiffs lawyers in federal court to evade hundreds of millions of dollars in exposure in the state-court class action.
The settlement in Los Angeles federal court, Altshuler said, was a boon for Tinder, which wound up facing only about $45,000 in claims for a cash payout, and was a windfall for plaintiffs lawyers, whose $1.2 million fee request was unopposed by Tinder. But the settlement was a bust, Altshuler said, for 240,000 Tinder users who were class members in the state case. The federal-court agreement would release their statutory damages claims of $4,000 per offense.
“The sweetheart deal ... raised numerous red flags,” Altshuler told the 9th Circuit, including “a reverse-auction situation where the parallel case had already received the imprimatur of the state court of appeal.”
The 9th Circuit on Tuesday reversed approval of the Tinder settlement, ruling in a split decision that U.S. District Judge John Walter of Los Angeles “shirked (his) independent duty to assess the value of the settlement.” The trial judge, according to the majority, wasn’t adequately skeptical about the value of the settlement, which included an injunction that plaintiffs lawyers counted as a $6 million benefit for the class even though the injunction, which bars age-based pricing for new Tinder users in California, does no good for class members who are already Tinder users.
Walter didn’t give enough weight to Altshuler’s appellate win in the state-court case when he considered the merits of plaintiffs’ claims, the 9th Circuit said. And the trial judge failed to probe for collusion based on Tinder’s agreement not to challenge the fee request by class counsel.
“We find that the district court so underrated the strength of the plaintiff's case, so overstated the settlement value and so overlooked the suggestions of collusion present as to collectively constitute an abuse of discretion,” wrote U.S. District Judge Jed Rakoff of Manhattan, sitting by designation, for the majority, which also included Judge Paul Watford. (Judge Consuelo Callahan dissented.)
Two phrases you will find nowhere in the 9th Circuit’s decision: “sweetheart deal” and “reverse auction.” Even though Altshuler’s Michael Rubin told me Wednesday that he considers the Tinder settlement a “particularly egregious case” of class counsel “not representing the interests of the class,” the 9th Circuit stopped well short of ascribing any untoward motive to plaintiffs lawyers from the Law Offices of Todd M. Friedman and Kristensen LLP, nor to Tinder counsel from Manatt, Phelps & Phillips.
Class counsel Todd Friedman and Adrian Bacon and Tinder lawyers Robert Platt and Donald Brown didn’t respond to my email queries. But their 9th Circuit briefs show why accusations about collusive class action settlements are always more complicated than settlement challengers suggest.
The class counsel brief, for example, pointed out that class settlement talks were overseen by retired California state court judge Louis Meisinger, who also supervised negotiations on a fee award for class counsel. Fee talks, the brief said, only took place after Tinder had agreed to the terms of the class deal – a chronology that, class counsel said, “was strong evidence of a lack of collusion because it showed counsel put the interests of the class first.”
Moreover, the brief said, class members received tangible benefits from the settlement, which automatically credited their Tinder accounts with 50 of Super Likes, allowing them to indicate particular interest in another user’s profile. Super Likes usually cost $1, so the settlement automatically conferred the equivalent of $50 to class members, class counsel said.
“Objectors are overly cavalier in their use of the term ‘reverse auction,’ which ... is often used inappropriately when counsel in a competing class action are displeased that they are not part of a settlement,” class counsel said.
Tinder, meanwhile, said in its brief that Altshuler never made overtures to settle the state case, so of course it talked to plaintiffs lawyers in the federal case. “Tinder's dialogue with (them) reflected a desire to resolve this serial litigation,” Tinder said. The company also emphasized that Altshuler’s appellate win in the state-court class action was no guarantee of class certification or, ultimately, classwide liability. By hyping the ruling’s significance, it said, Altshuler was just trying to salvage the leverage it lost in the federal-court settlement.
It’s not clear what happens next in the Tinder case, which has been remanded to Walter in Los Angeles. Altshuler’s Rubin said his firm believes the state-court case, which has been stayed in light of the settlement in federal court, should resume. Or Tinder can try again in federal court. Rubin said it’s virtually impossible that the trial judge will approve the original deal after reconsideration, given the 9th Circuit’s scathing assessment. But Tinder might want to restart negotiations. If it does, Rubin said, “we would want a seat at the table.”
That would be a good way for Tinder and class counsel to ward off those dread phrases.
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