February 6, 2019 / 7:55 PM / 11 days ago

DOJ intensifies class action scrutiny with new appellate brief – but is case moot?

(Reuters) - The Justice Department wasn’t kidding last year when it said it was going to start exercising its power under the Class Action Fairness Act to police class action settlements. On Monday, lawyers from the Civil Division filed an amicus brief urging the 6th U.S. Circuit Court of Appeals to reverse the final approval of a settlement granting owners of allegedly defective Tristar pressure cookers a coupon to buy new products from the same company. To the best of my knowledge, this brief marks the first time that the government has cited the CAFA requirement that it be notified of prospective class action settlements to urge an appeals court to reject an approved deal.

The Justice Department, which previously protested the proposed settlement before it was approved last year by U.S. District Judge James Gwin of Cleveland, argued in the appellate amicus brief that the pressure cooker deal is precisely the sort of settlement Congress wanted to stamp out when it enacted CAFA. Class members are entitled only to $72.50 coupons for new pressure cookers. The coupons are nontransferable and have no cash value. They’re also only good for certain Tristar products, all of which cost way more than $72.50. So, according to DOJ, class members who go to the trouble of filing a claim to receive a coupon will have to pay Tristar nearly $120 to use the coupon to buy a replacement pressure cooker – even though many of the allegedly defective pressure cookers at issue in the case cost less than $100.

And that’s not the worst of it, in the Justice Department’s view. Judge Gwin awarded class counsel from Greg Coleman Law more than $1.9 million, with another $900,000 dedicated to administrative costs. That’s $3 million in cash from Tristar that, according to DOJ, could have gone to class members instead of plaintiffs’ lawyers and settlement administrators. It’s little wonder, DOJ argued, that so few class members – about 13,000 of more than 3 million class members – signed up to receive a coupon.

“The unfairness of the Tristar settlement is obvious when the dubious discounts provided to class members are compared to the multi-million-dollar cash award it provides to their counsel,” the DOJ brief said. (I should point out that Judge Gwin heard the same arguments from DOJ at an approval hearing last July and nevertheless blessed the settlement as a fair and reasonable outcome to a complex case so hard-fought that trial had actually begun before Tristar, represented by Tucker Ellis, agreed to a deal.)

DOJ’s position on the merits of the Tristar settlement is hardly a surprise, given that it made virtually the same arguments before Judge Gwin. The brief may be more notable, in fact, for what it doesn’t say than for what it does.

That’s because it’s not clear that the 6th Circuit has jurisdiction over the merits of the Tristar class action settlement. Not a single class member objected to the deal. The Justice Department and 18 state attorneys general turned up after time ran for objectors to express their qualms about the proposed agreement. After Judge Gwin signaled that he would grant final approval, Arizona and its attorney general moved to intervene in the case to appeal his ruling, arguing that Arizona has an interest in safeguarding the rights of its citizens who are class members. Judge Gwin denied the motion (2018 WL 4203533).

Arizona appealed both the denial of its motion to intervene and the decision approving the settlement to the 6th Circuit, which agreed to consolidate the two cases. So a threshold matter, as Arizona pointed out in the appellate brief it filed last week at the 6th Circuit, is whether the state even has a right to challenge Judge Gwin’s approval of the Tristar settlement because it is not a party in the case.

Arizona argues that the active engagement of state AGs in policing class action settlements serves the interests of absent class members. “Intervention and appeal here is not only warranted based on the harm the settlement does to consumer class members, it is consistent with the active role the Arizona Attorney General is playing in the class action settlement approval process across the country, helping ensure compliance with CAFA’s requirements and drive increased value to consumers,” the AG’s brief said. “In many ways this is precisely the type of class action settlement proceeding in which intervention is warranted because, absent intervention and appeal, there will be no appellate review and correction of the patent settlement approval errors.”

This is a really important issue with scant precedent directly on point, at least based on Arizona’s brief. Arizona cites lots of cases affirming states’ standing to bring parens patriae claims on behalf of residents and many examples of states filing amicus briefs to highlight problems in proposed class settlements - but offers no case law on states’ rights to intervene and become parties in class actions on behalf of their citizens. Arizona argues that Judge Gwin erroneously held it doesn’t have a protectable interest in protecting Arizona consumers from a bad settlement. It contends that under CAFA, the federal rule for class action procedure and its parens patria power, it has a protectable interest – and that it cemented its right to appeal by participating in the proceedings before Judge Gwin.

The Justice Department did not take a stand on Arizona’s right to intervene to appeal Judge Gwin’s approval of the settlement. Its brief at the 6th Circuit focused entirely on the merits of the deal and said just that it “supports the state of Arizona in asking this court to reverse the district court’s decision,” but not specifically that it backs Arizona’s right to intervene in the case to bring the appeal.

Class counsel Adam Edwards of the Coleman firm and Tristar counsel John Lewis of Tucker Ellis declined to comment on the Justice Department amicus brief. Class members have already signaled, in a brief opposing Arizona’s motion to consolidate its appeals, that they don’t think the 6th Circuit has jurisdiction to hear the state’s challenge to the merits of the settlement: “Arizona was not a party to the underlying action,” the brief said. “It did not successfully intervene in the underlying action. It was not a class member in the underlying action. It was not an objector to the settlement of the underlying action. It did not and cannot show that it has suffered any injury-in-fact. As a result, Arizona has no constitutional standing to pursue an appeal of anything other than the district court’s denial of its motion to intervene.”

I expect we will hear another version of that argument when class counsel and Tristar filed their responses to Arizona’s opening brief later this month.

The views expressed in this article are not those of Reuters News.

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