(Reuters) - Last month, on her way out of her high-ranking Justice Department post, Rachel Brand disclosed a new DOJ priority at a luncheon speech to the Federalist Society. The Class Action Fairness Act of 2005 requires defendants to notify the Justice Department of proposed settlements. Because of a mailroom snafu, Brand said, DOJ hadn’t been receiving notices in time to review the settlements before they were approved. But the systems had been fixed, Brand said, and the Justice Department was ready to stand up.
“If a settlement isn’t fair or reasonable under CAFA, DOJ may file a statement of interest saying so,” Brand said. “Be on the lookout in the coming days for the first example.”
Sure enough, on the very next day, the Justice Department filed a statement of interest opposing final approval of a $10.8 million consumer class action in federal court in Camden, New Jersey. DOJ’s filing marked the first time in more than a decade – and apparently only the third time since CAFA’s enactment – that the Justice Department has followed up on a CAFA notice by urging a court to reject a settlement.
Class counsel in the case, Cannon v. Ashburn, responded Monday to the Justice Department, a coalition of state attorneys general and a handful of objecting class members. The brief, from Carella Byrne Cecchi Olstein Brody & Agnello and Giskan Solotaroff Anderson, mentions some changes in the proposed settlement.
The Justice Department and other objectors had complained the deal entitled class members - consumers who bought wine from the website Wines Til Sold Out – only to coupon-like “redemption codes” discounting the price of future purchases from the website. The new proposed deal adds a $500,000 cash fund for class members who don’t redeem their discounts. It also extends the time in which wine purchasers can use the discounts and, at the judge’s suggestion, postpones consideration of plaintiffs’ lawyers’ $1.7 million fee request until class members have received their recoveries.
Most notably, the brief accuses the Justice Department of unjustified ideological meddling with a settlement that has proven popular with the allegedly deceived consumers who benefit from it. Class counsel said DOJ has no business interfering in this case – or, for that matter, in any class action in which the United States does not have an interest.
If, as Rachel Brand hinted, the Justice Department plans to step up its policing of class action settlements, the Wines Til Sold Out case could be an important test of DOJ’s authority. The class brief contends CAFA provides the federal government a right to be notified about proposed class deals, but not to influence the settlement approval process.
“DOJ selectively cherry picks language in CAFA’s legislative history which simply states that ‘the committee believes that notifying appropriate state and federal officials of proposed class action settlements will provide a check against inequitable settlements in these cases’ and ‘will also deter collusion between class counsel and defendants to craft settlements that do not benefit the injured parties,’” the brief said. “But that language does not convey a right to object to settlements. The policy is to check abuses through the obligation to report, not through an unstated right to object. DOJ essentially asks that such a right to object be inferred, which is wrong.”
The brief cited several cases, including the BP Deepwater Horizon litigation, in which federal courts have held CAFA does not confer constitutional standing on state AGs who want to object to class settlements. The brief does not mention precedent on CAFA and DOJ’s standing, but that’s to be expected given the novelty of DOJ’s filing in the wine case.
Class counsel said the Justice Department can’t claim an interest in a case asserting a violation of New Jersey consumer laws, particularly because the federal government has failed to protect consumers from deceptively advertised discounts. (The Justice Department argued that consumers weren’t injured by Wines Til Sold Out’s allegedly inflated reports of the original prices of wines it sold at a purported discount because consumers ultimately got exactly what they purchased at the price they agreed to pay. Plaintiffs’ lawyers said DOJ ignored the “real, quantifiable economic value,” under New Jersey law, of ending a so-called reference pricing scheme.)
“There are … no ‘interests of the United States,’ at stake in the application of state consumer fraud laws and state common laws, and DOJ identifies none,” the brief said.
Class counsel accused the Justice Department of making an ideological statement instead of acting in the best interests of consumers, who have already claimed $3 million in benefits. The claims rate, according to the brief, is so far 15 percent – much higher than average rates in consumer cases. “DOJ’s statement appears to be based on little more than an ideological hostility to collective litigation,” the brief said. “This is not the forum for airing such grievances. DOJ’s statement does not reasonably explain the government’s views of the laws and the facts, but instead simply presents its own self-serving and imagined set of facts to further an ideological crusade against class actions.”
In an interview, class counsel (and former federal prosecutor) James Cecchi of Carella Byrne said the Justice Department should have reached out to him before using this case to launch its new class action activism. “They filed an objection without gaining an understanding of the facts or the case, as clearly reflected in the huge take rate to date,” he said. “The most important voice, other than the court, is the class, and the class here has said clearly and unambiguously that they want the relief provided by this settlement.”
One potentially significant point: DOJ fashioned its filing in the wine class action not as an objection but as a statement of interest. Class counsel’s brief argues that under the Federal Rules of Civil Procedure, only class members can file objections to proposed settlements. “The rule and the case law thus doom DOJ’s ill-considered venture here,” the brief asserts. But technically, the Justice Department isn’t appearing as an objector.
I emailed DOJ for comment on plaintiffs’ assertion that it is not authorized to weigh in on private class actions. I didn’t immediately receive a substantive response.
The views expressed in this article are not those of Reuters News.