“The Federal Trade Commission is asking a California judge to reject a proposed class-action settlement between consumers and the Internet DVD rental service Netflix, saying the agreement ‘appears dangerously close to being a promotional gimmick.’ … In the proposed settlement, plaintiffs’ lawyers would receive $2.5 million, but the plaintiffs — in this case, the class of current and former Netflix customers — would receive either a free service upgrade for one month or a coupon for free service for one month. However, if customers receiving the freebies do not cancel the upgrades or service before the end of the month is up, Netflix would begin charging them for the extra services.” (Candace Heckman, Seattle Post-Intelligencer, Jan. 10). Ted thoroughly examined the defects of the settlement Nov. 3. The commission’s amicus brief is here in PDF format (courtesy Skip Oliva, who comments). Update Jan. 21: settlement delayed because of large number of objections.
Posts Tagged ‘class actions’
Xbox 360 lawsuit bogus?
I’m sure you’re just shocked, shocked, to hear of shenanigans in an Illinois class action:
In [its] motion to dismiss, Microsoft notes that “Significantly, Plaintiff omits the fact that his Xbox 360, purchased in November 2005, is still covered by a 90-day warranty, under which Microsoft agreed to repair or replace it, or issue a refund. In fact, Plaintiff does not allege that he contacted anyone at Microsoft about the alleged defect, let alone that Microsoft refused to honor the terms of its warranty. Moreover, Plaintiff does not allege that his Xbox 360 ever malfunctioned. He alleges only that “members of the class have experienced malfunctions” with their Xbox 360s—not that he has.
A hearing will be held January 10.
(Update: broken link to the MS motion to dismiss fixed.)
Illinois Supreme Court reverses $10.1 billion light cigarette judgment
The Illinois Supreme Court sent Price v. Philip Morris back to the lower court with instructions to dismiss the case. Michael Greve criticized the trial court decision in his AEI Liability Project monograph “Harm-Less Lawsuits?” Full coverage is available on Point of Law.
Milberg Weiss probe, cont’d
L.A. Times and Law.com’s Recorder both bring word from inside the investigation (Myron Levin and Molly Selvin, “1995 Suit May Be Focus in Milberg Weiss Probe”, Los Angeles Times, Nov. 17; Justin Scheck, “Complexity Slows Milberg-Lerach Probe”, The Recorder, Oct. 31). See Oct. 10 and links from there, Nov. 5, PoL Nov. 13, etc.
Frank Chavez v. Netflix Class Action settlement
Netflix has settled a purported class action in California state court complaining about alleged false advertising over “unlimited” DVD rentals. One is reminded of Lionel Hutz:
“Mr. Simpson, this is the most blatant case of false advertising since my lawsuit against the movie The Neverending Story!”
Class members get a free one-month upgrade in service level (e.g., those who have a subscription entitling them to eight DVDs rented at a time may now rent nine DVDs at a time)—but will be billed for the upgrade for future months unless they remember to ask for a downgrade before the free month expires. The plaintiffs’ attorneys will ask for $2.5 million, money well spent by Netflix since a court-ordered settlement will permit them to engage in upselling marketing tactics that might not be permissible otherwise. Precisely how the class is better off remains (at a minimum) questionable. (Chavez v. Netflix, Inc. (San Francisco Superior Court No. CGC-04-434884)) (hat-tip to D.F.). More from Baude, 3YOH, and Hit & Run.
The settlement remains subject to the court’s approval, and two class members have had discussions with me about representing them in filing an objection; I’m considering it, as are they. (Threatening to take away $2.5 million from a lawyer might get him angry enough to retaliate with harassing discovery.) Of course, the Class Action Fairness Act will help to act to prevent abuses like this in the future; will the California courts protect class members from their attorneys’ neglect of fiduciary responsibilities in the present?
Update, Thursday morning: This site has links to printable opt-out forms. Note that a 5% opt-out rate doesn’t necessarily keep the settlement from being approved (and the lawyers from being paid); it just gives Netflix the option of backing out of the settlement if they think there will be further litigation from the opt-outs. If Netflix attorneys believe that, even with a high opt-out percentage, there is unlikely to be further litigation and it will be cheaper to go forward with this settlement than continuing to litigate against Frank Chavez, they will proceed with the settlement. The 5% clause is there to protect Netflix from having to deal with a second class action. Opting out may just cost you 37 cents, and lead to a new class action settlement that you probably won’t like much better.
The Netflix Fan site (via Boing Boing (hat-tip A.T.)) notes that Netflix is budgeting for $3.0 to $4.0 million in settlement expenses—which implies $2.5 million for the plaintiffs’ lawyers, a few hundred thousand in legal and administrative expenses for Netflix, and negligible benefit to class members.
Class members as a whole are clearly worse off from this settlement: if they’re happy with the company, it’s financially injured by having to pay protection money to plaintiffs’ lawyers; if they’re unhappy with the company’s service, their recovery is illusory—even if the company had done something illegal, which it doesn’t appear that it has. Worse, consumers as a whole are worse off, because the ability of the plaintiffs’ lawyers to recover millions from a meritless lawsuit will encourage them to file other meritless lawsuits, diverting money from useful endeavours to lawyers’ pockets, and raising costs for everybody.
Note that one can only object to the settlement (or join in a filed objection) if one does not opt out of the settlement. Opt-outs are no longer members in the class, and will not have “standing” to object.
Here’s the settlement website. Geektronica post and comment thread. Bond comments.
And a trenchant observation from the Metafilter comments page:
I do wonder why the plaintiffs’ attorneys agreed to it.
‘Cuz they got paid $2.5 million.
(This post is expanded and bumped from Nov. 2, 10:32 am, when it was titled “Lawyers Imitate Lionel Hutz Department.” Post title changed to be friendlier to Google searches.) Update Jan. 11, 2006 (FTC objects); Jan. 21 (settlement delayed because of large number of objections).
Globetrotting Hausfeld
Lawsuit impresario Michael Hausfeld, whose doings often figure in these pages, is on “a crusade to export America’s legal system around the world,” per one recent U.S. magazine profile. He claims to share case ideas regularly with a network of lawyers in countries around the world, according to a profile in the U.K. publication The Lawyer (Jon Robins, “Michael Hausfield [sic] brings class actions to the UK”, Oct. 24)(via Schaeffer). More on Hausfeld: Jan. 11, Apr. 13, Jul. 25, 2004; May 24, 2001; Mar. 2 and Aug. 13-14, 2000.
California’s Proposition 79
As CoyoteBlog (Oct. 18) notes, this ballot initiative on drug prices contains a sneaky, little-discussed provision that will empower trial lawyers to file bounty-hunting suits against pharmaceutical companies if the companies charge prices “that lead to any unjust and unreasonable profit”, with a minimum $100,000 plus fees guaranteed to plaintiffs if a jury agrees that they have proved this (very hazily defined) offense. California has already earned the title of “Shakedown State” because of its bounty-hunting provisions on chemicals, disabled rights, consumer, education and labor law. And the San Diego Union-Tribune editorially criticizes Consumers Union for backing the benighted measure.
“Next tobacco” watch: many Wall Street suits fizzle
After the stock market’s tech-driven bubble popped a few years back, lawyers advertised heavily for burned-investor clients, hoping to reap billions at the expense of Wall Street firms whose research had been exposed as shoddy or worse. But expectations have deflated, and now Pensacola, Fla.’s Levin, Papantonio, Thomas, Mitchell, Echsner & Proctor, whose doings are often chronicled in this space, has settled about 300 or so investor claims against Merrill Lynch “for approximately three cents on the dollar”. Although it is far from unusual for plaintiffs to recover sums in arbitration, lawyers have had trouble proving that most of their clients relied on the tainted research in making investment decisions. A Merrill Lynch spokesman claims the firm has “overwhelmingly prevailed in these cases”, while a plaintiff’s lawyer counters that “we are not doing too badly”. (Susanne Craig, “Heard on the Street: Payouts low in research suits”, Wall Street Journal/Pittsburgh Post-Gazette, Oct. 13). More: Jul. 10, 2003.
John Torkelsen in plea deal
John Torkelsen, once described by Fortune as “the damages expert of choice for the entire plaintiffs side of the securities bar”, is “expected to plead guilty to reporting false information to a government agency in a D.C. federal court Oct. 21.” The charge arises from Torkelsen’s actions in handling a venture capital fund, rather than from his courtroom work. Before now, however, Torkelsen has declined to cooperate with prosecutors, and a change in that posture could give new impetus to the ongoing federal investigation of the law firm of Milberg Weiss Bershad Hynes & Lerach, for whom Torkelsen was a “notoriously effective expert witness … in dozens of securities suits throughout the 1990s,” according to sources interviewed by Law.com. (Justin Scheck, “Charge Against Expert May Spur Probe of Milberg Weiss”, The Recorder, Oct. 10).
For more on Torkelsen and the venture capital controversy, see Barbara Fox, “Unraveling the Torkelsen Case”, U.S. 1, May 7, 2003. Peter Elkind’s Sept. 4, 2000 expose for Fortune (“The King of Pain is Hurting“) reported:
Torkelsen’s calculations of shareholder losses routinely supported the hundreds of millions of dollars Lerach sought — and he was fabulous in front of a jury should a company decide to fight….Over more than 20 years, Torkelsen’s firm, Princeton Venture Research, not only had made tens of millions working for Lerach’s firm Milberg — by far its biggest client — but also had become the damages expert of choice for the entire plaintiffs side of the securities bar….
He sent thousand-dollar gift baskets as baby presents, and he invited his many friends in the plaintiffs’ bar to an annual black-tie Christmas party that was mind-boggling in its extravagance. At one, guests arriving in Torkelsen-provided stretch limos were heralded by buglers and greeted by costumed Disney characters. Entertainment was invariably provided by a big-name act: Little Richard one year, Aretha Franklin another.
For more on the Milberg probe, see Jun. 27, Jun. 28, Aug. 29, Point of Law Aug. 8, etc. On the reliability of Torkelsen’s numbers as submitted to courts, see the Delaware Chancery Court’s memorandum (PDF) in Cinerama v. Technicolor (2004), a non-Milberg case, pp. 10 et seq.
Update: suing Madison taverns again
As readers may recall (May 2; Mar. 29, 2004) a judge this spring dismissed an antitrust class action suit filed by a Minneapolis law firm which had claimed that Madison, Wis. campus-area taverns unlawfully colluded to discontinue “happy hour” and similar discounts. As the taverns showed, the demise of the happy hour discounts came after pressure from university and government-sponsored groups which alleged that the discounts contributed to overuse of alcohol on campus. Now, nothing discouraged, the same law firm is back, suing in federal court this time. Its action “accuses 25 downtown bars of charging patrons excessive amounts for drinks, and names Chancellor John Wiley and two city officials for conspiring” in the price rises. (Daily Cardinal, Oct. 6)(via Althouse).