Colette G. Matzzie (DC Bar 451230)
Brian Wolfman (DC Bar 427491)
PUBLIC CITIZEN LITIGATION GROUP
1600 20th Street
Washington, D.C. 20009
Telephone: (202) 588-1000
Eugene N. Rosenberg (CA Bar 31439)
LAW OFFICES OF EUGENE N. ROSENBERG
1701 Franklin at California
San Francisco, CA 94109
Telephone: (415) 928-2552
Attorneys for Class Members/Objectors
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SAN FRANCISCO
Coordination Proceeding Special Title (Rule 1550(b)
JUDICIAL COUNCIL COORDINATION PROCEEDING No. 3158
COMPUTER MONITOR CASES
Hearing: June 30, 1997
Time: 10:30 a.m.
SUPPLEMENTAL OBJECTIONS TO COMPUTER MONITOR SETTLEMENT
Objectors David Halperin and David C. Vladeck hereby submit supplemental objections responding to Plaintiffs' Memorandum of Points and Authorities In Support of Application for Final Approval of Proposed Class Action Settlement (hereafter "Approval Memo"), Plaintiffs' Memorandum of Points and Authorities In Support of Plaintiffs' Joint Application for an Award of Attorneys' Fees and Reimbursement of Expenses (hereafter "Fee Memo"), and Plaintiffs' Response to Class Member Objections and Complaints Regarding Class Action Settlement (hereafter "Response Memo."). As previously noticed, Objectors intend to appear at the Fairness Hearing scheduled for June 30, 1997.
I. THE SETTLING PARTIES HAVE PRESENTED ABSOLUTELY NO EVIDENCE THAT SETTLEMENT WILL BENEFIT A SIGNIFICANT NUMBER OF CLASS MEMBERS
A. The Rebate Program. Class Counsel have now filed all of their papers in support of the settlement. Despite the volume of their submissions, they have presented absolutely no evidence that any significant portion of the class will benefit from the central feature of the settlement -- the $13 rebate and the year 2000 $6 refund. Lacking any quantifiable evidence, class counsel cite one computer trade press news article reporting that many consumers have purchased computer systems in recent years. Approval Memo. at 25. From that lone news article, they spin out their argument that it is likely that many class members will purchase new computers and, therefore, use the $13 rebate.
To rely on such "evidence" is ludicrous. Objectors do not dispute that many consumers in the United States have purchased computers recently. But that fact does not prove what the settling parties must prove: that a significant percentage of class members will actually use the $13 rebate (or the year 2000 $6 refund) to make the Court's approval of this settlement worth the burden on the class of releasing the rights of millions of class members under the laws of fifty states, and awarding the attorneys' fees and costs.
Similarly, the settling parties present no basis for their argument that non-consumer settlement class are "near certain" to purchase new equipment for which the rebate applies. Approval Memo. at 25. While it may be true that many business and governmental entities will purchase new computer equipment in the next three years, class counsel has no evidence that these class members will purchase from the same defendants that they previously purchased as the rebate program requires or that it will make economic sense to do so. For the same reason, the fact that a number of class members have inquired about the rebate program does not mean they will be able to take advantage of it. Objector David Halperin purchased his CompUSA computer for business use but has no intention of giving them repeat business. See Halperin Decl. 3 (filed June 9, 1997). And, as a business person, Halperin apparently may not transfer the rebate form and cannot collect the $6 cash refund.
This Court should not approve the settlement unless and until the settling parties present affirmative evidence capable of demonstrating that this settlement has some value. Other courts have demanded no less. See In re Domestic Air Transp. Antitrust Lit. (N.D. Ga. 1993) 148 F.R.D. 297, 320-23, 350-52 (approving settlement of antitrust suit through distribution of $408 million in coupons good for obtaining discounts on future flights, but only after receipt of expert testimony establishing that those coupons had a significant present cash value to class members); see also In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig. (3d Cir.) 55 F.3d 768, 807-10, cert. denied (1995) 116 S. Ct. 88 (named plaintiffs unsuccessfully sought approval of a settlement featuring distribution of coupons worth $1000 towards the purchase of new GM pickup trucks; expert testimony in that case failing to persuade the appeals court that the coupons had significant value to many class members). (See Footnote 1)
As numerous commentators have observed, overblown claims to high redemption rates in coupon settlements must be viewed with considerable skepticism. Savvy defendants such as the ones here know how to structure coupon settlements to their advantage. And, as outlined in the Objectors' June 9 Objections, the multiple restrictions on transfer and redemption of the $13 rebate make it extremely likely that only a minuscule portion of the class will be able to take advantage of even the token benefit under the settlement. See Tharin Decl. 35-40. Class counsel's papers only magnify the problem by confirming that the rebate is completely non-transferable for business and governmental entities class members. (See Footnote 2)
Despite these deficiencies, class counsel repeatedly have stonewalled Objectors' requests to produce evidence of likely redemption rates. Instead, class counsel insist that to estimate redemption rates would be like "reading tea leaves." Similarly, they deftly avoid placing any estimated value on the claims of the class. In their Approval Memo, they recite several conceivable measures for valuing damages -- expectation damages, restitution, refund, disgorgement of profits -- but ultimately conclude that none of these measures is appropriate. Approval Memo. at 22. They call restitution "too difficult to calculate," a refund "unworkable," and a percentage refund based on the difference in screen size "unorthodox." Id. In the end, counsel never identify any benchmark for valuing the claims of the class or even attempt to compare the benefit supposedly conferred upon the class with an expected value of their claims. Instead, the settlement disposes of claims to damages for millions of class members under the laws of fifty states without identifying those laws, explaining how to measure damages under the laws of those states, or explaining how the $13 rebate option compares to an estimated value for the claims in any rational way. Compare Domestic Air, 148 F.R.D. at 319 (plaintiffs' expert on damages identified three benchmarks to measure extent to which class purchasers paid higher fees than would have paid absent controversy). There is no yardstick by which one can measure the adequacy of the settlement offer against what plaintiffs might recover at trial on their claims or that another state law enforcement authority might be able to obtain on their behalf. See General Motors, 55 F.3d at 806 ("The primary touchstone . . . is the economic valuation of the proposed settlement."); see also Manual on Complex Lit. 2d 30.44, at 252. Such cavalier treatment of the claims of the claims is irresponsible at best.
Even if the claims of the class are worth so little that it would be economically infeasible for any one class member to bring an individual suit for restitution or refund, that cannot justify settling for no benefit to the class. Nor does the fact that defendants have a large "war chest" justify settling for no or token benefit.
The profound lack of evidentiary support for the settlement is only compounded by the severe intra-class conflicts that the settling parties do not even attempt to deny. These includes potential conflicts between business and consumer class members and conflicts between Californian and non-Californian class members. Compare General Motors, 55 F.3d at 801 (identifying intra-class conflicts; $1000 coupons for the purchase of a new model GM pickup would not benefit fleet owners by comparison with individual truck owners, or benefit less wealthy class members who could not afford a new truck). And, as identified by the Michigan Attorney General's Objections, the overwhelming representation of Californians among both the named plaintiffs and the class lawyers raises serious concerns about the adequacy of representation of non California interests in settlement negotiations. Id. at 800 (adequacy of representation includes whether interests of class members are sufficiently aligned).
B. The Injunctive Relief.
Seemingly cognizant of the weakness of the token compensation of the rebate program, class counsel repeatedly trumpet the value of the injunctive relief supposedly obtained under the settlement. In doing so, however, they immodestly overstate their own role in obtaining the injunctive relief, ignore the role of the Merced County District Attorney in filing the original Acer action, mischaracterize the role of the California Attorney General's Office in conducting negotiations with the industry, and slight the role of the Federal Trade Commission's guidelines on disclosure of viewable screen size from which the Acer Judgement derives the injunctive remedy. By so doing, class counsel underestimate the significance of the changes in computer industry practice brought about by the Acer Judgment.
The test of adequacy for the class action settlement is not whether it is better or worse than the Acer Judgment but whether it provides adequate, independent value. Class counsel claim that their settlement is superior to the Acer Judgment because it adds a few defendants and is nationwide. They also claim, as addressed above, that their settlement contains verification and enforcement procedures that the Acer Judgment lacks. And they criticize the California AG for not providing "compensation" to computer monitor purchasers throughout the nation, mocking the cy pres relief. They conclude that if the Acer Judgment passed muster, so must their class action settlement. Memo. at 27.
But class counsel's arguments do not withstand scrutiny. They criticize the Acer Judgment for not providing individual compensation but they do not produce any evidence to defend their claim that the rebate program actually provides adequate individual compensation. In fact, they boldly contend that they need not do so. Response Memo at 6. The measure of the value of the class action settlement is not how whether it is "better than" the Acer Judgment but whether it is independently adequate. Because the injunctive relief is essentially duplicative (and the rebate program essentially worthless), the settlement is not adequate to justify the release of claims or the award of fees.
In addition, class counsel ignore the fact that by approving this settlement, this Court may be in effect foreclosing other law enforcement actions by other Attorney Generals in other jurisdictions. In fact, while this Court may have the bare jurisdictional power to enforce this nationwide injunction, due deference to principles of comity and federalism counsel against entering an injunction that might cut off enforcement actions by law enforcement authorities in sister states.
Most significantly, class counsel's intimation that the California Attorney General lacks monitoring and enforcement powers under the Acer Judgment is simply untrue. The Acer Judgment is just that -- an enforceable judgment. And the California Attorney General and the District Attorneys have the power to enforce the Acer Judgment through civil or criminal contempt proceedings or by initiating a new action. (See Footnote 3) Penalties for violation of an injunction are cumulative under the California code. See Cal. Bus. & Prof. Code 17205, 17206, 17207.
Moreover, as explained in our June 9 Objections, it is unlikely that the computer companies will create different ads for inside and outside of California. Therefore, violations of the Acer Judgment are likely to appear in nationwide advertizing and the law enforcement authorities in California (or law enforcement authorities in other states) will be able to proceed if necessary. By comparison, the "verification and enforcement" touted by class counsel under the settlement promises little in the way of punishment for violations. If class counsel learns of an ad that violates the disclosure standards, they may take it up with defendants and bring it to this Court's attention. But there are no specific penalties for violation under the proposed settlement or any specific remedies.
C. The Notice Program.
The notice program cannot be counted as a benefit to the class. Giving the "best notice practicable" is a requirement of the class action rules and of due process. Eisen v. Carlisle & Jacquelin (1974) 417 U.S. 156. Complying with due process before depriving class members of substantive rights cannot possibly be claimed to be a benefit of the settlement. Moreover, as explained in our June 9 Objections, it is not surprising that the defendant computer companies were willing to incur notice costs in dispensing the rebate forms because the settlement is so clearly advantageous to their marketing interests. In the words of class counsel, " the settlement is designed to encourage use of the rebates." Response Memo. at 10. In any event, it is difficult to understand how giving notice of a sales inducements program such as the rebate program could warrant a $6.1 million payment to class lawyers.
II. PLAINTIFFS' COUNSEL HAVE NOT PRESENTED A PROPER FEE APPLICATION AND SHOULD NOT BE AWARDED THE REQUESTED FEES AND COSTS
This Court need not reach the issue of fees if this settlement is rejected, as it should be. Class counsel are not entitled to any fees for such a paltry settlement. But even if this Court is inclined to approve the settlement on the grounds that it narrowly passes an adequacy test, this Court should require class counsel to present a proper fee application. Thus far, class counsel have not done so. All they have submitted is a series of declarations stating that they worked X hours and reciting their expenses, a list of the accomplishments of their respective firms, and their argument that huge fees have been awarded in other class actions and that this Court therefore, should award these fees and not disturb a "separately negotiated" fee settlement.
This is a not a proper fee application. Chiefly, class counsel have not submitted contemporaneous time records for this Court's or Objectors' review. See Dunk, supra (chiding class counsel for not keeping contemporaneous time records). They have not provided any explanation of what they were doing during all the many thousands of hours they claim. Thus, the Court has no means of determining whether the class lawyers' hours are for duplicative work or whether the number of hours claimed is at all reasonable. There is no evidence whether the hours incurred by the many lawyers at the multiple law firms produced any benefit to the class.
The proper method for awarding fees in a class action settlement under California law is using a lodestar analysis. Dunk, supra. But, of course, the lodestar has its own pitfalls: it gives counsel an incentive to pad their hours and makes the question whether to reduce those hours or amplify them through a multiplier a difficult one for the Court. Report of the Third Circuit Task Force, Court Awarded Attorney Fees (1985) 108 F.R.D. 237, 246-50.
Nonetheless, it is axiomatic that a fee applicant must prove "the number of hours reasonably expended." Hensley v. Eckerhart (1983) 461 U.S. 424, 433. "Where the documentation of hours is inadequate, the . . . court may reduce the award accordingly." Id. Hours that were not "reasonably expended" -- hours that are excessive, redundant, or otherwise unnecessary -- should be excluded from a fee request." Id. at 434. Also, adjustments are appropriate, including downward adjustments, depending on the level of success. Id. "[T]he most critical factor is the degree of success obtained." Id. at 436.
Therefore, excessive hours must be disallowed. Id. at 434; see also Alba Conte Attorney Fee Awards 4.25 (1993). Class counsel must submit a proper fee application identifying the time spent for which compensation is sought, the particular task involved, and the dates on which services were performed. Manual for Complex Lit. 2d 24.13.
The situations in Dunk and Wing v. Sneed, 97 C.D.O.S. 4413 (9th Cir. June 12, 1997), cited by class counsel, are consistent with these precedents. In Dunk, the Court of Appeals required that class counsel submit a proper fee application to determine a lodestar fee. Id. On remand, the parties reconstructed their hours for submission to the Superior Court. In Wing v. Sneed, the Ninth Circuit affirmed a district court fee award where the Court had apparently closely reviewed the request under both a lodestar analysis and a "percentage of the fund" cross-check. Both the district court and the Ninth Circuit noted that class counsel had substantial continuing obligations including developing a plan for distribution of settlement proceeds and overseeing the distribution. In this case, by comparison, the settlement is largely self executing.
It is essential for the Court to regulate class action fee awards in order to protect against the risk that class lawyers will cut sweetheart deals with class defendants in exchange for a large and unopposed fee award. Because class actions are effectively controlled by the lawyers for the class rather than the absent (or even the named) class members, there is an ever-present danger that class counsel may sacrifice their clients' interests in exchange for a handsome fee. See General Motors, 55 F.3d at 800; Mars Steel v. Continental Illinois Nat'l Bank & Trust (7th Cir. 1987) 834 F.2d 677, 681. For these reasons, it is not enough for the Court to rely on market forces to ensure a reasonable and non collusive fee. A fee request of this magnitude should be a warning flag that the settlement is fundamentally unfair. The Third Circuit said as much in General Motors, where it overturned a settlement giving class members coupons, while class counsel would receive $9.5 million in fees and costs. 55 F.3d at 819-22. The red flags are up here too. The settlement agreement is highly beneficial to the computer company defendants, holding out as it does the possibility of extinguishing all claims by all consumers across the country for virtually nothing. The only tangible benefit one can pin down is the proposal to pay class counsel $6.1 million in attorneys' fees and costs for a case that took only a short time to litigate and where the underlying facts were never vigorously contested by the defendants. As the Third Circuit warned in General Motors, this is precisely the situation which trial courts should watch for, given the possibility that valuable legal rights of absentee litigants will be extinguished in class action settlements which cost a defendant next to nothing, net the class very little, yet benefit class counsel hugely.
In conclusion, if the Court intends to approve the settlement, it should at a minimum
(1) require class counsel to submit a proper fee application;
(2) not award a multiplier or consider applying negative multiplier, reducing the fees to reflect the inadequacy of the settlement;
(3) hold back the fees until the Court can be assured that a significant number of the rebates are actually redeemed and the cash refund obtained.
III. NATIONWIDE CLASS CERTIFICATION IS INAPPROPRIATE WITHOUT CONSIDERING THE ADEQUACY OF CLASS REPRESENTATIVES AND THE APPLICATION OF LAWS IN THE FIFTY STATES
Instead of testing the claims of the class and the amount offered in settlement against the laws of the various states, class counsel instead insist that California law is the only law to be applied to all of these transactions. Approval Memo. at 40. In fact, class counsel's one-sided choice of law analysis fails to weigh the interests of other states in remedying fraudulent practices that have transpired in their states. Id. And, while it may be that, even if California law does not apply, class certification could still be achieved by identifying common patterns in state law and applying them to subclasses, class counsel does not make even the barest showing to this Court of how to proceed with such an analysis. Approval Memo at 41. (See Footnote 4)
It is inappropriate to measure the claims of the class and the settlement only against the law of California, as class counsel advises. Approval Memo at 39. The settlement seeks to resolve the claims of consumers nationwide, even though the laws of their home states vary. There is nothing in the record to show that these variations have been addressed.
IV. REACTION OF THE CLASS AND THIS COURT'S ROLE IN EVALUATING THE SETTLEMENT.
The role of the courts in class action approval is to safeguard the interests of class members. The Court must reach an independent evaluation of the settlement. It is not enough for the settling parties to bring a settlement before the Court and to contend that it is the result of uncompromised negotiations. The Court should make its own independent determination of the settlement's fairness and whether there has been any overreaching by class counsel.
The reaction of the class is one factor for this Court to weigh. But a low number of objectors does not demonstrate a high level of acceptance of the settlement's terms. Judge Posner of the Seventh Circuit has explained that "where notice of the class action is . . . sent simultaneously with the notice of the settlement itself, the class members are presented with what looks like a fait accompli." Mars Steel, 834 F.2d at 681. Absolute numbers of objectors is not dispositive of class reaction. General Motors, 55 F.3d at 812-13. So too, expressions of interest in the rebate program cannot be viewed as unequivocal support for the settlement, particularly where the parties provide no evidence of whether they apprised interested callers of the restrictions on transfer and redemption, particularly severe for business and governmental entities.
1 Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794 does not stand for the proposition that proof of redemption rates is never required. While the court there held that the settlement had sufficient value to warrant approval, id. at 1804, that holding does not create any bright line rule for evaluating other proposed settlements. Each proposed class action settlement must still be fair, reasonable and adequate, a standard that incorporates both legal and factual elements.
2 Our June 9 Objections explain that the restriction on transfer for businesses and governmental entities conflicts with the actual terms of the Settlement Agreement as approved by this Court. When Objectors pointed this out to lawyers for the class, however, their only response was that they did not realize that was what the Settlement Agreement said. They insisted that the Rebate Form was actually correct and that businesses and governmental entities may not transfer their Rebate Forms. The restrictions on transfer and redemption for business and governmental entities harm consumers in turn by making it unlikely that a market in the rebate options can be created. See June 9 Objections at 17-18.
3 The California Attorney General's Office will be submitting a supplemental declaration clarifying that its office reserves the right and the power to enforce the Acer Judgment as necessary.
4 Another important point in considering class certification: class counsel does nothing to show that the named plaintiffs are adequate representatives of the class. As discussed above, the intra-class conflicts in the settlement may have arisen from the lack of consideration given to the interests of non-California class members and non consumer class members in negotiations.
For the reasons stated in the June 9, 1997 Objections and for herein, Objectors request that this Court deny the applications for approval of class action settlement and award of fees and costs
Colette G. Matzzie
PUBLIC CITIZEN LITIGATION GROUP
1600 20th Street
Washington, DC 20009
Eugene N. Rosenberg
LAW OFFICES OF EUGENE N. ROSENBERG
1701 Franklin at California
San Francisco, CA 94109