Coupon Settlements: The Emperor's Clothes of Class Actions

Georgetown Journal of Legal Ethics, The, Fall 2005 by Hantler, Steven B, Norton, Robert E

For many plaintiffs' lawyers, this indeed is clientless law. As class action lawyer Bill Lerach candidly admitted: "I have the greatest practice of law in the world ... I have no clients."12 Certainly many of the lawsuits go unnoticed by the plaintiffs, as "[o]ften, [plaintiffs'] lawyers appoint themselves to represent a class of people, many of whom don't even know they are part of a lawsuit."13 Pinellas County, Florida Circuit Judge W. Douglas Baird wrote of one action that it "appears to be the class litigation equivalent of the 'squeegee boys' who used to frequent major urban intersections and who would run up to a stopped car, splash soapy water on its perfectly clean windshield and expect payment for the uninvited service of wiping it off."14

Second, until recently, the legitimacy of the lawsuits and merits of the settlements were rarely scrutinized. Now, many judges are aggressive in their rejection of these suits and their aims. But because class actions are by definition concentrated, they can thrive by clustering in a relatively small number of jurisdictions-many of them small, rural, and remote from the social consequences of coupon settlements and the possible economic fallout from billion dollar verdicts that bankrupt companies. Because of the disproportionate risk to the defendants of facing a class action in these jurisdictions, trial lawyers know that many companies are likely to settle once class actions are certified. Therefore, to avoid facing a judge who might deny class certification or strike down coupon settlements as unfair, trial lawyers seek to bring their cases in jurisdictions known to support this type of litigation.15

Such jurisdictions have been termed "judicial hellholes" by the American Tort Reform Association16 and "magic jurisdictions"17 by prominent plaintiffs' attorney Dick Scruggs, who has voiced growing skepticism of some recent practices. What are magic jurisdictions? They are venues, Scruggs says, "where the judiciary is elected with verdict money"18 and "[t]he trial lawyers have established relationships with the judges."19 In these courts, "it's almost impossible to get a fair trial if you're a defendant"20 and "[a]ny lawyer fresh out of law school can walk in there and win the case, so it doesn't matter what the evidence or the law is."21 These venues are critical to the class action coupon settlement industry.

Third, as noted above, the allegedly injured class members often do not receive real compensation.22 Rather, they receive coupons, which come with so many restrictions that the realization percentage is predictably low.23 In one case involving ITT Financial Corporation, only two coupons out of 96,754 were ever redeemed.24 As one civil justice commentator noted,

[A]s economists know, the true economic value of a coupon to its recipient, or true economic cost to its issuer, are by no means equivalent to its face value. If it were, the Sunday-paper supplements containing $100 worth of coupons would be as valuable as a $100 bill. Many customers never cash in coupons, and others who do are actually bringing a net profit to the issuer who would not otherwise have gotten their business.25