Monday, September 13, 1999

Recently, Cellular One consumers received notices that they were entitled to a $15 voucher as part of a settlement. The only problem is they have to buy more services or equipment from the company to redeem the voucher.

Basically, the conditions of the settlement require customers to give the company more cash to retrieve money that they took in a questionable practice in the first place.

Settlements like these are shoddy and consumers need to start standing up for themselves, consumer legal experts say.

David Vladeck, the director of the Public Citizen Litigation Group and a visiting professor at Georgetown Law Center, joined us for an online discussion about what consumers should do if they find they are involved in a class action lawsuit and how it may affect them.

Also read my column and browse an archive of my past columns and live discussions.

Please note: We cannot offer specific personal financial advice or answer detailed questions about individual situations.

Michelle Singletary: Welcome, to another discussion. For the purposes of today's discussion let me be clear. I'm no fan of these "coupon settlement." I think they stink and we consumers should be doing everything we can to get the courts and the lawyers who are suppose to be representing our interests get better settlements or at least one that include cold, hard cash. What do you think?

Washington, D.C.: With all due respect, what shouldn't the lawyers get paid for taking on these big companies? Most consumers can't afford to hire a lawyer to win back a few bucks they are owed. Aren't these plaintiff lawyers doing some public good?

David C. Vladeck: I agree that lawyers ought to get paid for handling big consumer class action cases, and should get rewarded handsomely. As you point out, these are hard cases to win, and generally the lawyer has to finance the case out of his or her pocket.

But too often lawyers use these cases to line their own pockets, by taking a fee that is disproportionately large and getting too little relief for their clients. That is what troubles me about some of these cases, including some of the ones discussed in Ms. Singletary's columns.

Portsmouth, Va.: Why should we bother responding to these lawsuits if all we are going to end up with is a stupid voucher anyway?

David C. Vladeck: That is a tough question, because you're right that all too often class members end up with a "stupid voucher" that is essentially valueless.

But that is also the point. Unless disappointed class members register their unhappiness with sell outs, the courts are going to "go with the flow," and assume that the plaintiffs' lawyer (who is supposed to protect the class members' interests) is in fact doing his/her job.

So take the trouble to write a short letter to the court saying that you want far more than a worthless voucher to settle your case. Or propose that if class members are to get "paid" with vouchers, so too should the lawyers.

Baltimore, Md: Why have the courts allowed these type of "coupon settlement" to continue? Can't they see they aren't fair? It's outrageous.

David C. Vladeck: The courts have allowed "coupon" or "voucher" settlements because the lawyers tell them that the settlements are good for the class members. Remember, the judges who oversee these cases are hampered in gathering information on their own, and generally have little choice but to rely on the representations of counsel.

For that reason, organizations like mine (Public CItizen Litigation Group) and others (like Trial Lawyers for Public Justice) started opposing coupon settlements, with some success.

And we're making progress educating judges about the pitfalls of such settlements. But we need public opinion on this issue to turn, and columns like the one in the Washington Post help enormously.

Columbia, Md: What can I do if I've missed the deadline to respond to a class action lawsuit? Can I still participate in the class?

David C. Vladeck: This is a good question, but it is a tough one. On some occasions, the Judge will allow someone to either "opt out" (or refuse to participate) in a class action settlement where the objection is filed out of time. Generally, Judges are sympathetic to a legitimate excuse.

Where you want to object to a class action settlement, obviously, a timely objection is always preferable. But even if the date has past, don't be afraid to let the Judge know what you think about the settlement. Your opinion might not influence the current case, but it could have an impact on the judge the next time he/she confronts a similar case.

Washington, D.C.: Mr. Vladeck, what has been the most outrageous consumer settlement you've seen in recent years?

David C. Vladeck: A few years back Ford Motor Co. tried to settle a nationwide class action case on behalf of owners of Ford Bronco IIs, which were alleged to be prone to roll-over accidents. The plaintiffs alleged that the vehicles were defectively designed, and sought damages for the economic loss of having bought crummy vehicles.

Ford proposed to settle the case by giving vehicle owners a video on how to drive, a flashlight, a road atlas, an inspection of the vehicle to see if it passed Ford's standards (which gave rise to the rollover problem in the first place), and the opportunity to buy Ford's very high price cellular phone service. By the way, the genius lawyers who represented the class were to get $4 million.

In objecting, we said that the only value of the settlement was that if vehicle owners were in a rollover accident, at least now they would have a flashlight and road map so they would know where they were.

Fortunately, a federal judge rejected the settlement, and castigated Ford for engaging in collusive conduct with the plaintiffs' lawyers.

Fairfax, Va.: Come on, do you really think writing a judge, who probably has a ton of mail and cases, is really going to do any good? Isn't it better to show up and how many consumers can afford to do that?

David C. Vladeck: It is better to show up. WHile I agree that only a handful of consumers can afford to show up, even a few people can have a profound impact on a judge's thinking about a settlement. So, I agree with your point, but would suggest that a few hours of good citizenship might go a long way.

Potomac: As a Cellular One customer, I don't recall being informed about any fairness hearing on whether the court should approve the settlement. I would objected. Since the effect of the rounding up was to increase the amount of monthly call charges, the only fair way of addressing it was to give a credit to the current bill. That is what is done with utility refunds of overcharges all the time.

The only argument against that would be made by those customers who are not current CellOne customers. Something like a voucher might be useful for them.

David C. Vladeck: That makes sense, but for former customers, why couldn't Cellular One simply cut them a check. To be sure, for existing customers giving them a break on their current accounts would make up for the overcharges. But it does not take brain surgery to identify former customers who have been charged unfairly and rebate the excess amounts to them.

Michelle Singletary: Why haven't there been more legislation aimed at fixing this problem of "coupon settlements" which based end up being just a marketing ploy for the companies that settle?

David C. Vladeck: That is the $64,000 question. To date, I know of no legislative proposal aimed at curbing the abuses of coupon settlements.

There is one obstacle to a "quick fix" legislation solution that you need to keep in mind. Most "coupon" settlements take place in cases arising out of state law and being litigated in state court. Thus, each state legislature would separately have to address the question.

The US Congress is currently considering legislation to reform class action law, but I think it goes in the wrong direction.

The legislation proposes that class action cases (with very few exceptions) be channeled into federal courts, apparently on the theory that abuses occur more frequently in state courts. I don't agree with that premise; moreover, the solution just adds to the caseloads of already overburdened federal court judges.

But my guess is that there is no movement to reform the process because legislators don't see a wellspring of discontent.

Philadelphia, Pa: What do you think of the lawsuit involving GM? The one where they are offering $1,000 but only if you buy another car?

David C. Vladeck: I take it you're referring to the proposed GM settlement relating to the C/K pickup truck -- the one with the fuel tanks outside of the frame rail of the truck, so they are prone to fuel-fed fires and explosions.

My organization (Public Citizen Litigation Group) successfully argued that the settlement in that case -- which, as you described, would have given vehicle owners coupons only good to buy other GM trucks -- was no more than a marketing gimmick for GM and threw the settlement out.

But GM is trying to enter into a new settlement over the CK trucks, but with a coupon that could be sold or transferred on the open market. That settlement would at least put cash in the hands of every truck owner.

Washington DC: Not to throw the baby out with the bath water, aren't most class actions valuable ways for consumers to make sure that irresponsible companies don't rip off consumers? Can you tell us about some class actions that resulted in good results for consumers? Also what percentage of settlements are coupons or other sweet heart deals for the companies or attorneys?

David C. Vladeck: I agree that the majority of consumer class action cases are good cases that result in valuable relief to class members. I also agree that bringing and winning or settling a good case for significant relief has a strong deterrent effect that will benefit consumers in the long run. Make no mistake, I'm a fan of class action litigation. Our office has used class action cases in cases as varied as: getting notice to recipients of heart valves that their valves are defective to something as mundane to getting full value for food stamp recipients in North Dakota.

The cases we're talking about are a small fraction of consumer class actions. But the device itself -- albeit valuable -- is subject to easy abuse, and that is the problem.

If I had to guess (and there are no statistics on this point), I'd say that the bad settlements make up no more than 10 or 15 percent of the cases. But since we're dealing with hundreds of cases each year, that percentage is still way too high.

Clinton, Md: Sounds like to me that the lawyers representing people in these class action cases are getting all the money and consumers are getting zip. Why do the courts approve such high fees especially since many of the cases never make it to trial. Didn't the lawyers in the computer monitor case get something like $6 million? What a scam.

David C. Vladeck: Yes, the lawyers did get $6 million in the computer monitor case and in my view, to borrow your term, the consumers got "zip."

These are the bad cases that say that something is wrong with the system. I think that courts approve mammoth fees like this because there is no systematic opposition to sweetheart settlements like this, the plaintiffs' lawyers come before the court arguing that they have spent 1000s of hours on the case and endured significant risk of non-payment, and the defendant (which has to pay these lofty sums) says to the Court -- we don't object (translated into real terms -- we agree). Faced with this scenario, it is that surprising that the judge says, well, if you all agree that $6 million is fair, and you're in a better position to assess fairness than I am, why should I cut down the fees?

Michelle Singletary: So are you saying that to get things changed consumers or consumer groups have to begin lobbying in all 50 states? Is there anything you think Congress could be doing to make sure these settlements are fairer?

David C. Vladeck: Unfortunately, we both know that the idea that consumers will begin lobbying for reform in 50 states at the same time is at best fanciful. Consumer groups simply lack the muscle to mount such a substantial undertaking.

My guess is when reforms come, they will come incrementally. One big state, a NY, California, or Illinois, will have to be the path-breaker. And I suspect that legislation will follow on the heels of yet another abusive settlement, one like the Bank of Boston case, which was brought to challenge bank overcharges, but resulted in some class-members actually having their accounts DEBITED to pay legal fees.

The other hope is that Congress will wake up and consider reform legislation. But I'm skeptical that will happen because, believe it or not, big companies like the ability to settle class action cases on these terms.

Suppose you're a big company and you've made a bad product. And the product is so bad that you start getting sued -- first a few cases, then a flood of them. At that point, you're going to want to resolve your liability once and for all with everyone you've sold your product to. (Lawyers call this "liquidating your liability.") What the company wants is peace. So the company will engage in a "reverse auction" -- that is, find the plaintiffs lawyer who will settle the case on a nationwide basis as cheaply as possible. No matter what they say, big companies like the current system because it allows them to buy out of a serious liability situation at an inexpensive price.

Rocky Mountain: Why would it be worth it for anyone to pay good money to fly to some town to testify in these small cases? Isn't it just plain unfair to expect consumers to do something like that to get back the money they were ripped off from in the first place.

David C. Vladeck: It wouldn't be. For out of towners, a letter is more than adequate. But for some of the examples we've been discussing, many of the class members are "hometowners," and a trip to the courthouse is not out of the question for them.

Boston: Is there any way to find out how many people actually redeem many of these coupons?

David C. Vladeck: The answer, unfortunately, is "No." We've have tried in many cases to get information out of the parties as to participation rates, but have been unsuccessful.

There are some published reports which suggest that participation rates are woefully low. In the air-travel antitrust case (where people got coupons for low cost fares), redemption rates hovered around 10%. In one of the early automotive parts coupon cases, redemption rates were lower than 2%. Obviously, the more valuable the coupon, the higher the rate. Mercedes-Benz had a coupon worth many hundreds of dollars, and the redemption rate was 30%. In the Nissan settlement, the coupon was freely transferrable (meaning that if you had a coupon you could sell it to your neighbor or anyone else) and that one had a redemption rate of @ 30% or so.

But your point is well taken. Redemption rates are low, and the defendants know that and factor that in when deciding how to settle these cases.

Michelle Singletary: How often are there fee adjustments in these kind of cases? To your knowledge have there been any cases where judges have significantly reduced fees or tied it to the settlement?

David C. Vladeck: Yes, there have been some cases where the courts have reduced fees, but only where there has been some form of opposition to the fee.

We were involved in a celebrated case involving the Bjork-Sailey heart valve class action settlement, which involved the 65,000 recipients of a heart valve that has an unusually high fracture rate.

The attorney in that case sought a highly extravagant fee -- my recollection was that amounted to over $30 million. We objected on a variety of grounds, and the Court ended up cutting the fee in half.

Even more outrageous was an effort by a Texas lawyer to get a $120 million fee for representing people who had defective plastic pipes install in their homes. We persuaded a Texas court to cut that fee by two-thirds.

But these are exceptions. Typically, if the defendant does not object to the fee, the courts approve it.

Philadelphia, Pa: But in the GM case isn't the company fighting the idea of creating a secondary market? Or won't the certificates or coupons be worth less if sold? And, if so why would that be fair. If the consumer was to get a $1,000 should they get the full value whether they keep it or not?

David C. Vladeck: The answer is that GM is trying to fight the creation of a secondary market, and yes, the coupons would be worth far less than $1,000 if sold.

The later fact is not disturbing, however. The $1,000 is not a fair approximation of the injury the plaintiff class members have suffered; their injury is significantly less. So I would not be unhappy about that settlement assuming a secondary market can be established that assures each class member at least a couple of hundred bucks for his/her coupon. That amount seems sufficiently high to motivate people who don't want to use their coupons to sell them; high enough to motivate a financial institution (e.g., a bank making car loans) to buy them; and a couple of hundred bucks seems to be in the ballpark when it comes to calculating the plaintiffs' actual damages.

Trenton, NJ.: Do you see a trend down the road in more of these cases since the companies love them so much?

David C. Vladeck: To the extent that there is any "trend," it is that the pace of these settlements is accelerating. Do you know anyone who is Not a member of one class or another. I guess the answer to your question is that I see these cases as part of the legal landscape for the foreseeable future, and I think that reform efforts will likely stall because, although big business will say otherwise, they like the status quo and would not want to see a significant change.

Michelle Singletary: Try as I might I can't remember getting a notice from Cellular One either. Of course I had just had a baby when the letters were supposed to have been mailed. But how can consumers be assured that they were contacted at all? Do the lawyers representing the consumers even check this out? I've got tons of mail from Cellular One customers who don't remember getting anything either.

David C. Vladeck: You've raised a very thorny question -- namely, do the plaintiffs' lawyers actually make certain that class members have been notified. Here's the problem

Under class action rules, it is the plaintiffs' lawyers who are responsible for making sure that class members are notified.

But typically it is the defendant who has the names and addresses of all of the class members. Moreover, when a case is settled early on, the defendant typically agrees to take on the notice, because of the enormous expense.

The upshot is that the defendant typically handles notice, even though it has NO incentive at all to do a good job. And once a settlement has been agreed to in principle, the plaintiffs' lawyer has no interest in ensuring accurate notice, because at that point the lawyers' main interest is seeing the settlement go though.

Thus, it is not surprising that you and others have questions about the adequacy of notice in the Cellular One case.

Fairfax, Va: Mr. Vladeck what exactly does your lawyer group to do to help consumers who are party to these type of class action lawsuits?

David C. Vladeck: I work for Public Citizen Litigation Group, which is a small public interest law firm that has represented objectors in about 3 dozen class action cases. We focus on hot topics in class action law -- like "coupon" settlements, "non-opt-out" settlements (where even those class members who object cannot get out of the settlement), and other serious abuses. Our web site is "citizen.org" and there is more information there

Columbia, Md: What happens if you do opt out of one of these class action lawsuits? Isn't a coupon better than nothing?

David C. Vladeck: That is the dilemma that most people face. Many of these cases involve dollar amounts that are small enough that it would not make economic sense to handle the case on your own. Thus, because "something is better than nothing," it may make more sense to stay in the case than to opt out.

But that does not mean you cannot register your objection. Objecting to a settlement is NOT the same as opting out. By objecting, you're telling the court that you want to participate in the case, but you think that the settlement is inadequate.

By opting out, you're saying that you don't want to be bound by the settlement and want the leeway to litigate your case on your own. Those are two very different things.

Michelle Singletary: It's time to settle this issue for now at least. Thanks for the great questions and the thoughtful answers from Mr. Vladeck. I'll be following up on this issue so keep me informed if you are involved in a "coupon settlement" and are unhappy. Thanks for joining me today.

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