Clipping Coupons

To access the full text of the Class Action Fairness Act of 2005 and its provision on coupon settlements, click here.

When Ford Motor Co. offered a coupon to settle claims related its Explorer, commentators in the media latched onto the story as another example of unfair coupon settlements. Class members claimed that reports of rollovers had negatively impacted the retail value of their vehicles. The deal, which won final approval in April, resolved claims in four consolidated cases. It provided class members with a $500 coupon toward a new Ford Explorer or a $300 coupon to purchase or lease any Ford, Lincoln or Mercury. Meanwhile, class counsel collected fees of $25 million.

Clarence Ditlow, executive director of the consumers' group Center for Auto Safety, lambasted the settlement in the Sacramento (Calif.) Bee, commenting, "They should pay the lawyers in coupons."
An Explorer owner told an ABC affiliate in Sacramento, "They get $25 million, all I get is this lousy coupon, which I'm not going to use."

That's because for companies that offer goods and services, coupon settlements can have numerous benefits, allowing companies to gain promotional value and customer awareness rather than paying out large cash settlements. They are a good fit for companies that may face financial uncertainties, such as Ford, and for products that garner repeat customers.

New restrictions on coupon settlements don't just apply to cases removed to federal court under CAFA. Any civil class action filed in federal district court is subject to CAFA requirements, including those on coupon settlements. And the effects of CAFA are spreading so that judges in general are scrutinizing coupon settlements at a higher level than they did just five to 10 years ago, even when CAFA does not apply. For instance, Brian Procel, an associate with Miller Barondess, is currently awaiting final approval of a coupon settlement. Although his case is a state class action to which CAFA does not apply, he still finds that judicial scrutiny of the coupon is heightened.

Still, Lloyd's analysis of the settlement did not differ much from the analysis of a coupon settlement, and attorneys' fees were calculated with the same methods used for a coupon settlement. Lloyd did not, however, discuss increased scrutiny of the settlement under CAFA.

Sharp Scrutiny
"The new measures that CAFA puts on these coupon settlements could actually prevent a class action from settling even when both parties want it to settle," Sultzer says. "The court can say the settlement isn't fair for whatever reason."

Associate Editor

Melissa Maleske

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