Tuesday, February 17, 2009
Attorney Will Garner Lucre, Not Gift Cards, as Recompense for Class-Action Representation
By ROGER M. GRACE
Attorney Neil B. Fineman of Yorba Linda won’t be getting paid for his efforts in a class action lawsuit in the form of 12,500 $10 store credits at a women’s clothing chain, after all. He’ll be getting cash.
His client, class representative Jacqueline Cohen, will also get her $2,500 “incentive reward” in coin of the realm, not in gift cards.
The pay-off to the attorney and client in the unusual mode of purchasing power at the defendants’ stores was ordered on Jan. 16 by Los Angeles Superior Court Judge Brett Klein. The jurist was obviously skeptical that the class—customers of Windsor Square Fashions who were, contrary to statute, asked by sales clerks for their address, telephone number or e-mail address—actually derived benefit from the action. Each of the 43,571 consumers in the class gained entitlement to a $10 gift certificate, which simply formed an inducement to come into a Windsor Fashion store and spend money…in all probability more than $10.
So, in signing an order incorporating terms of a settlement agreement, Klein added some words which provided that Fineman would be paid in the same commodity as the consumers: $10 certificates.
This column reported on Klein’s order on Jan. 21. Following up on the story, I talked late Thursday with Windsor Fashion’s attorney, Dennis B. Kass of Manning & Marder Kass, Ellrod, Ramirez LLP. I learned from him that Judge Susan Bryant-Deason, to whom the case had been assigned for all purposes, has signed a new order incorporating the terms of the settlement agreement, without the revision. (Klein was filling in for her in her department on Jan. 16.)
Kass says his client is “satisfied” with the terms that had been worked out after “very long mediation.”
Klein, it turns out, had second thoughts about his decision after reading a case just handed down by the California Supreme Court. A Feb. 2 order issued by him says:
“On its own motion, the Court hereby orders reconsideration of the ruling (made January 16, 2009) granting the Joint Application for Final Approval of Class Action Settlement (filed January 12, 2009), in light of the decision in Meyer v. Sprint Spectrum L.P. (No. S153846, Jan. 29, 2009) Cal.4th . (See Code Civ. Proc., § 1008, subd. (c).)
“The hearing on reconsideration of the Joint Application is set for Friday, February 13, 2009, at 8:30 a.m., in Department 52. The hearing date and time and place are subject to further order of Court.”
Department 52 is where Bryant-Deason sits.
I assume that Klein questioned the correctness of his order based on a paragraph in the Supreme Court’s opinion that stresses the significance of attorney fees being available to prevailing plaintiffs in consumer actions.
The day after Klein signed his order setting a hearing before Bryant-Deason on Feb. 13 (last Friday), Bryant-Deason, by minute order, switched the date to Feb. 17 (tomorrow) since her department would be dark on the 13th. (Maybe Klein could have come over and filled in for her on Friday.)
Anyway, the parties didn’t want to wait that long. They got a status conference slated for Feb. 9, and on the 6th, they filed a “joint conference statement.”
It recites that Bryant-Deason had preliminarily approved the settlement; a “final fairness hearing” was held before Klein on Jan. 16; he took the matter under submission; his order was e-mailed to counsel that afternoon; it was assumed by counsel that the order corresponded with the settlement agreement.
Fineman was, it would seem, oblivious to the award to him of store credits until he received an e-mail from me on Saturday, the 17th, seeking comment. “Class counsel declined to comment,” the statement says. Actually, he declined to respond.
The statement declares:
“It goes without saying that Ms. Cohen and her counsel would…like to have the agreed upon compensation paid in legal tender, not gift cards.”
Windsor Fashions, Inc. agreed. It wanted the settlement put into effect rather than the litigation being prolonged. The joint statement says:
“The existing Order frustrates both the parties and the court system because Ms. Cohen will certainly have to appeal the Final Order as it stands, or ‘blowout’ the settlement entirely and continue litigating the matter because the Order entered was not the same Order that was part of the settlement. Further, it should be clear that Defendant wants nothing more than to have this matter resolved on the terms negotiated before [the mediator], agreed upon by the parties, and approved by Judge Bryant-Deason. Defendant wants to pay attorney’s fees, costs, and the incentive award in the form of currency, not gift cards. Paying class counsel and Ms. Cohen in gift cards is far more costly and cumbersome to Defendant than paying in cash as agreed upon in the settlement agreement, and will necessitate further litigation causing tremendous financial hardship during these difficult times.”
The minute order from Feb. 9 reflects that the status conference was held “in chambers off the record.” In light of public attention having been cast on Klein’s order—not only here but on the Internet in the form of blogs—such a secret proceeding was inappropriate.
The minute order goes on to reflect that “[o]n the record, the Court states that it reconsiders its orders of February 2, 2009 and February 3, 2009”—that is, reconsiders Klein’s order granting reconsideration and reconsiders Bryant-Deason’s order continuing the hearing on reconsideration to Feb. 17—advances the Feb. 17 hearing to right then, and “makes its orders.”
Bryant-Deason signed the order, as originally submitted, giving $125,000 to Fineman and $2,500 to Cohen.
The action by Klein drew large attention on the blogs. The comments all assume, of course, that Klein’s order would remain intact. Most notable is this posting:
“In the state of California, consumers have the right to cash out any gift card with $10 or less remaining on it. Glad I won’t be the one manning the register when the lawyer comes in to settle up.”
Actually, Civil Code § 1749.45(b)(2) provides that “any gift certificate with a cash value of less than ten dollars ($10) is redeemable in cash for its cash value.” (Emphasis added.)
Fineman could have made a purchase on each card for an item priced at less than $10 and demanded the balance in cash. The store—which appears from its website to feature cheap goods for young women—actually does offer items for less than a sawbuck; Fineman could have bought a “braided and beaded cuff” for $6.50 and received $3.50 back in cash.
Here’s a posting by Andrew Grossman on the Heritage Foundation website:
“The normal way these things work: The lawyer makes a claim for enormous damages, the targeted business settles with the lawyer for pennies on the dollar, the actual plaintiffs (i.e., those who were supposedly injured by the wrongful behavior) get maybe a few gift cards or coupons, and the lawyer gets a big chunk of change in fees for achieving this ‘victory.’ These kind of settlements are a dime a dozen, and courts usually just rubber-stamp them.”
The blogger recites Klein’s order and comments:
“A fitting end to a frivolous lawsuit.”
On overlawyer.com, one person says:
“I wonder if the IRS will accept some of those gift cards for the portion that is taxable … I am going guess not and that the lawyer is going to have to pay real cash to cover the ‘earnings’ of those gift cards.”
On Respublica, Diane Meyer remarks:
“Los Angeles Superior Court judge, Brett Klein may go down in lawsuit lore.”
The judge draws this praise from an organization:
“The Civil Justice Association of California salutes the judge for his innovation. In many class action cases, the lawyers walk away with millions — in real dollars, while the class members receive coupons.”
On Coyote Blog, this reaction is posted:
“The best part of the lawyer getting paid in gift cards is that he will have a devil of a time selling them in the secondary market. How in blazes can you tell if some citizen (i.e. not an employee in the store) trying to sell you a $10 gift card is actually selling you an activated card? Or how much the balance on the card is?”
Comments posted on the Atlantic magazine website include one from an attorney, who identifies himself only as Lee, saying in part:
“Giving an attorney the financial incentive to go after defendants who do this sort of thing is, in my book, a good thing. One, it keeps businesses honest by removing the assurance of the rip-off cushion. Two, the plaintiffs don’t have to go to any trouble themselves to be compensated for their loss. I’m guessing most of the class action plaintiffs were quite happy to receive their $10 gift certificates in the mail.”
Klein’s action strikes a blogger as what “should be standard practice,” adding:
“The number of nuisance suits that right trivial ‘wrongs’ with tiny coupons, while the lawyers collect cash, is ridiculous.”
An observer says of the wheels of justice:
“Once in a while, they do actually rotate properly....And even put a smile on your face!”
A snide blogger writes:
“Poetic justice, indeed. Hope [Fineman] looks good in a dress.”
A critic of Klein’s action retorts:
“The attorney is being punished for mediating an agreement that resulted in a windfall for him, and only gift cards for the class members. He is not being punished for bringing the class action lawsuit, which is entirely permitted by the California Civil Code. Why? Because the store was, in fact, breaking the law.”
Klein has probably heard many descriptions of his rulings, but this is one he probably hasn’t encountered: a blogger calls the order a “cute stunt.” Rob Lyman suggests that rather than Fineman appealing, he could sell the judgment “to the store at a small discount.”
If Klein thought the consumers were not actually benefited, a commentator says, his course should have been to disapprove the settlement in toto, “not to play stupid tricks with attorney compensation.” As this person sees it:
“[T]he at-fault businesses that push for coupon settlements, because coupon settlements often let the business get away with not really having to pay anybody back. Companies love to throw this kind of settlement offer out, combined with a chunk of change (call it bribery) for the plaintiff’s attorney....”
Here’s the proposal of one pragmatic blogger:
“Even better than giving the attorney 12,500 gift cards would have been to send a letter to every member of the class giving them the option to respond in writing in order to receive their gift cards. Then only give the attorney one gift card for every three class members that respond. That way, his level of compensation would be partly determined by the value of the settlement to the class members.
“That sort of system would probably eliminate the even more egregious nuisance suits, where the attorneys get millions of dollars and the class members (say, utility customers) get checks for thirty cents each.”
Klein’s order didn’t endure. But the judge made a point and stirred thinking.
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