InsideCounsel » July 2008
Clipping Coupons
Ford Explorer settlement underscores importance of post-CAFA coupon restrictions.
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.”
The complaints touched on issues that were supposed to have been resolved following enactment of the Class Action Fairness Act of 2005 (CAFA), which seeks to end various abuses of the
class action system in federal court, including abuse of coupon settlements.
“Attorneys were resorting to coupon settlements as a way to inflate the value of the settlement,” says Ted Frank, director of the American Enterprise Institute’s Legal Center for the Public Interest. “Without that ability there’s no reason to resort to coupon settlements at the federal level. ... On the other hand, you still see them being used.”
Although CAFA did not apply to the settlement in Ford’s case, which was filed and remained in state court, the act’s ripple effects have spread throughout the courts, where judges increasingly are paying attention to CAFA’s provisions.
The main objective of CAFA is to prevent plaintiffs from “forum-shopping” in state courts. To that end, it removes state class actions to federal court when the aggregate value of the claims exceeds $5 million, there are at least 100 class members and any member of the class is a citizen of a different state than any defendant.
Its other goal is to ensure settlements are fair, reasonable and adequate to class members. Jason Sultzer, a litigation partner in Wilson Elser Moskowitz Edelman & Dicker, points to a 1995 settlement involving Cheerios, in which class members received a box of cereal while lawyers walked away with $1.75 million. “Those kinds of examples were fairly common before CAFA,” he adds.
Ending Abuse
Preventing such abusive settlements was a major reason CAFA was enacted. Now in federal class actions, a court must hold hearings on a proposed coupon settlement and issue a written opinion approving or rejecting it.
“CAFA doesn’t prohibit anyone from using a coupon settlement as a way to settle a case, but it closes the door a bit,” Sultzer says. “That could hurt a company.”
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.
