Richard
P. Traulsen – State Bar #016050
BEGAM,
LEWIS, MARKS & WOLFE, P. A.
111
West Monroe Street, Suite 1400
Phoenix,
Arizona 85003-1787
(602)
254-6071
Leslie A. Brueckner – District of Columbia #429363
Michael
J. Quirk, Esq.
TRIAL LAWYERS FOR PUBLIC JUSTICE
1717 Massachusetts Avenue, NW, Suite 800
Washington, D.C. 20036
(202) 797-8600
IN
THE UNITED STATES DISTRICT COURT
DISTRICT
OF ARIZONA
COME NOW, Objecting class members Jon
Romberg and Sharon Grace (the "Romberg Objectors"), and file these
objections to the proposed class Settlement Agreement and Release (the
"Settlement Agreement") between plaintiff Christopher Boehr and
defendant Bank of America ("the Bank"). Attached hereto are the accompanying declarations of expert
witnesses Steve Gardner, Esq. (the "Gardner Declaration") and James
C. Sturdevant, Esq. (the "Sturdevant Declaration") and
objectors Jon Romberg (the "Romberg Declaration") and Sharon Grace
(the "Grace Declaration").1
These Objections shall also serve as the Romberg Objectors’ notice that
they intend to participate in this Court’s fairness hearing through their
counsel.
INTRODUCTION AND SUMMARY OF ARGUMENT
This case
presents a particularly egregious illustration of the kind of class action
settlement where the attorneys and the defendants stand to receive considerable
financial benefit, but the class members would receive almost no meaningful
compensation for their injuries.
Although the settlement creates a $1.875 million fund to be distributed
among class members, the class notice states that cardholders must prove
"by documentary evidence" that the Bank received their payments
before a certain hour on the date the payment was due. Common sense suggests that almost no class
members would realistically be able to meet this test. The settlement also caps individual claims
at $30, even though some class members may have incurred hundreds of dollars in
damages. Any money that is not
distributed to the class will be divided among five separate charitable
organizations, with the largest segment going to Bank of America’s own
"Consumer Education Fund."
Bank of America is undoubtedly pleased that it will be able to use the
money that it wrongfully obtained from its credit cardholders to fund a
philanthropic entity that bears its name and enhances the bank’s image in the
public eye.
The settlement is similarly devoid of
meaningful non-monetary benefits. The
class notice trumpets the fact that Bank of America has agreed to change the
cut‑off time for receiving cardholder payments from 9:00 a.m. to noon,
thereby allegedly saving current cardholders nearly $2 million over the next
two years. It appears, however, that
this change merely constitutes a continuation of the Bank’s current practices. The notice also advises cardholders that the
Bank has agreed to "continue its policy" of crediting consumer credit
card payments received prior to the processing cut‑off time on the
customer’s statement, but not processed until a later time, "thus saving
those customers certain finance charges and late fees." The settlement itself makes clear, however,
that the Bank has merely obligated itself to continue this practice for a two‑year
period, after which it is free to do as it likes.
Despite the lack of any meaningful
relief, the settlement releases all the class members’ claims against Bank of
America, including those not even encompassed in the class complaint; purports
to enjoin the class and future cardholders
from filing any related lawsuits against Bank of America for the next two
years; and seeks to reward class counsel with $1,583,300 in attorneys’
fees. This attempt to strip cardholders
of their rights to obtain any meaningful compensation for their injuries, while
at the same time permitting Bank of America to continue to conduct its business
as usual, renders the settlement unfair, unreasonable, and inadequate on its
face.
STATEMENT OF FACTS
This is a class
action on behalf of all current and former Bank of America cardholders whose
credit card payments were not credited on the day that they were received by
the Bank, resulting in improper finance charges and/or late fees. The class definition encompasses all present
and former cardholders – a group of
more than 8 million, according to the settling parties. Judging from class counsel’s representations
to this Court, the class members’ actual damages could amount to almost $2
million on an annual basis.2
The Proposed Settlement
Judging from the docket sheet, there
has been little actual litigation in this case. The complaint was filed in December 1999, and nothing much
happened thereafter. No answer was ever
filed, and there was no motions practice or formal discovery. Instead, in Spring of 2000, the parties
negotiated a settlement that releases all the class members’ claims in exchange
for the following relief:
1. Charitable
Fund.
A fund of $1,316,700 to be distributed
among five charitable organizations, with the biggest award of $500,000 slated
to go to the "Bank of America Consumer Education Fund." Settlement ¶ B(1)(1.2)(b). No information has been provided in any of
the papers filed in support of the settlement regarding the nature or work of
these organizations.
2. Damages Fund.
A fund of $1,850,000 to be allocated
toward a claims process for Bank of America cardholders. Id. ¶ B(1)(1.2)(a). To get any money from the fund, cardholders must first send away
for a separate claims form and then "show through sufficient proof that
their payment . . . was received before noon, but not credited on the day
received, and who were charged excess finance charges and/or late fees that
were never reversed, as a result."
Settlement ¶ B(1)(1.2)(a). Class
members are limited to a maximum of $30 per individual, id., even though some class members have incurred multiple late
fees amounting to hundreds of dollars in damages. See Romberg Dec. ¶
5. The costs of notice to the class and
of administering the claims will be deducted from the damages fund. Settlement ¶ B(1)(1.2)(a). Any money not distributed to the class
members will be divided up among the various charities listed above at 1.
3
Nonmonetary Benefits.
The settlement also provides that Bank
of America will change the language on its credit card statements to indicate that
12:00 noon on any processing day is the time by which payment from a cardholder
must be received by the bank in order to be deemed received on that day. Id.
at B(3). According to class counsel,
this is merely a continuation of the Bank’s existing policy. See
Memorandum of Points and Authorities filed in Support of Motion for Preliminary
Approval at 5‑6.
The Settlement Agreement also provides
that "Bank of America will continue its policy of crediting a consumer
credit card payment if received prior to the processing cut‑off time on
the statement but not processed until a later time after the due date, for a
period of two years from the date hereof.
Thereafter, the Bank will continue the same policy, unless commercially
impracticable." Settlement ¶ B(4).
4. Release.
In exchange for the foregoing relief,
the settlement "fully and forever releases" all class members’ claims
"which relate to or arise out of the pending . . . action or out of any purported
act, error or omission which any of the parties hereto or their predecessors is
alleged to have committed prior to the date of this Agreement in connection
with the allegations of damages in the form of excess finance charges and/or
late fees or penalties as a result of Bank of America’s or its predecessors’
failure to credit payments on the day they were received."
5. Injunction
Against Future Lawsuits.
The settlement includes "a two
(2) year injunction from the date of the Final Order . . against initiation or continued pursuit of
any and all suits on behalf of or by any past, present or future cardholder
related to claims in [this] action."
Settlement ¶ B(8)(vii). Thus,
the settlement seeks to enjoin litigation of future cardholders who are not even members of the class.
In exchange for this relief, class
counsel propose to receive a fee award of $1,583.300. Id. at B(1)(1.2)(c). The fee award is based on taking 33 1/3% percent of the total
estimated cash benefits of the settlement.
Strange Dec. at ¶ 2. Class
counsel has not made any attempt to justify their fee on the basis of the time
and money that they actually put into the case.
The Class Notice:
According to the
settlement, a notice was sent to current cardholders as an insert to a billing
statement. Settlement ¶ (B)(6). Former cardholders were not given any form
of direct notice; instead, the settlement agreement provided for one‑time
publication of notices in the Wall Street
Journal and Parade Magazine. Id. Bank of America did not include a claim form
along with the notice sent to its current cardholders or published in the
papers; instead, the notice advises class members that, to get any relief from
the settlement, they must first obtain a claim form by calling an "800"
number or by writing a letter to the Claims Administrator. The notice further states that class members
must prove, "by documentary evidence," that "Bank of America
received [their] payment . . . before 12:00 noon of the day that payment was
due."
With regard to the relief provided by
the settlement, the notice failed to inform class members that the costs of
notice and administration would be deducted from the damages fund and failed to
disclose that the non‑monetary portions of the settlement would only last
for two years, at best. The notice also
failed to provide any telephone number that class members can call for further
information. There is also no website
for class members to consult for further information; instead, members of this
nationwide class (including Mr. Romberg of New Jersey) are invited to inspect
the pleadings "at the Office" of the clerk of this Court in Phoenix,
Arizona.
The Objectors:
Objector Sharon Grace is an attorney
at law and has been a Bank of America VISA cardholder since 1981, incurring
various interest and late charges over the years. Grace Dec. ¶ 3. She did
not observe the notice of settlement when it first arrived in her credit card
statement, believing that it was merely an insert containing the bank’s latest
financial disclosures. Id. at 4. Just as she was dropping the insert into the file, something
caught her eye and she noticed that the paper was not a financial disclosure
statement, but instead was a class notice.
Id.
When Ms. Grace
read the notice, she was surprised to read that the Bank had agreed to change
the cut‑off time for crediting payments on the day received to noon,
instead of 9:00 a.m., because the signs at her Bank of America branch office
state that payments received after 4:00 p.m. will be credited on the next
day. Id. at ¶ 5. Thus, it
appeared to Ms. Grace that the Bank would be in a better position if the
settlement were approved than prior to the filing of the suit. Id. She was further discouraged to read that
individual recoveries under the settlement are limited to $30 per class member,
as it would take her "hours, if not days" to gather the necessary
documentation to compile her claim. Id.
Finally, Ms. Grace observed that, in exchange for this relief, Bank of
America would obtain a release far broader than the scope of the lawsuit:
"At that point I decided that somebody should object to the proposed
settlement, since the point of a consumer lawsuit should be to help consumers,
not help the defendant." Id.
Objector Jon Romberg is a law
professor and has been a Bank of America VISA cardholder since 1990. Mr. Romberg has incurred numerous late fees
over the years ranging from $25 to $29 on his credit card. Romberg Dec. ¶ 5. On a number of
occasions he has also incurred substantial finance charges because of late
payments. Id.
Even though this case was apparently
settled over a year ago, Mr. Romberg did not receive his notice until July of
this year. Id ¶ 11. Like Ms. Grace, Mr. Romberg did not see the
bill stuffer when it arrived in his July credit card bill. Part of the reason he did not observe the
notice was that it was narrower than the bill, and also narrower than the
advertisements and offers that came with the bill, so that it was tucked deeply
into the envelope and was thus very easy to overlook. Mr. Romberg only found it later after he had learned about the
settlement through other means. Id.
Upon review of
the notice, Mr. Romberg observed that he would be required to file a claim
"with documentary evidence" that Bank of America had received his
payment before noon on the date payment was due. Id. ¶ 13. In response, he called the Bank on August
14, 2001, to ask them for assistance in determining what late fees he had
incurred over the years because of payments that had arrived before noon on the
day they were due. Bank of America’s
representative responded that the Bank could not provide him with that
information and could not tell him during which months he had incurred late
charges, except for the past several months, which were still visible on the
current computer screen, showing one late payment. Id. ¶ 16.
Mr. Romberg was further advised that
he could order copies of prior bills, more than five months old, that would
list the transaction date and posting date of his payments. Id. ¶ 17.
He was further advised that, if he wished to order copies of prior
bills, the first two copies would be free, but thereafter he would be charged
$3 per bill. Id. at ¶ 24. The Bank of
America representative could not explain if or how those dates would document
what time his payments were received as the claim form required. Id at 17.
In addition, Mr. Romberg’s bank, the
Bank of New York, does not return his canceled checks to him. Id.
at 25. From prior experience, he knows
that if he wants to procure past statements or canceled checks, doing so would
cost him a few dollars for each statement or check. Id. Therefore, in order to even begin putting
together the documentary evidence required by the settlement, Mr. Romberg would
have to spend approximately $360 (ten years times twelve months times three
dollars) for prior Bank of America credit card bills, plus perhaps at least
another hundred dollars in fees to his bank, in order to submit the necessary
documentary evidence to file a claim that, by the settlement’s terms, could not
yield more than a $30 payment. Id. at 26.
ARGUMENT
THE PROPOSED SETTLEMENT AND FEE AWARD
SHOULD BE REJECTED.
Unlike settlements in normal
individual cases, class action settlements must be approved by the court. Fed. R. Civ. P. 23(e). The Court of Appeals for the Ninth Circuit
has stated that "The primary purpose of Rule 23(e) is to protect class
members . . . whose rights may not have been given due regard by the
negotiating parties." Ficalora v. Lockheed Calif. Co., 751
F.2d 995, 996 (9th Cir. 1985).
The Court’s "responsibility [is] to act as guardian of the absent
parties . . . . " Norman v. McKee, 431 F.2d 769, 774 (9th
Cir. 1970), cert. denied, 401 U.S. 912 (1971). "The burden of proving the fairness of
the proposed settlement is on the proponents." In re Matzo Food Products
Litig., 156 F.R.D. 600, 605 (D.N.J. 1994).
The Ninth Circuit has stressed that class
action settlements require careful scrutiny because of the profound differences
between them and ordinary settlements:
[T]he settlement
of a class action is fundamentally different from the settlement of traditional
litigation . . . . [C]lass members, unlike individual litigants in traditional
lawsuits, are bound by the settlement even though they do not individually
consent to its terms. Instead, consent
is given by class representatives, who derive authority to represent members
not by obtaining their consent, but by obtaining a court order designating them
the representatives.
* * *
[I]n order to
protect the rights of absent class members, the court must assume a far more
active role than it typically plays in traditional litigation.
Epstein v. MCA, Inc., 50 F.3d 644, 666‑67 (9th
Cir. 1995), rev’d on other grounds sub nom. Matsushita Elec. Indus. Co. v
Epstein, 116 S. Ct. 873 (1996).
Similarly, in Amchem Products,
Inc. v. Windsor, 521 U.S.591 (1997), the Supreme Court held that the rights
of absent class members must be "the dominant concern" of the court,
especially in the settlement context.
The Supreme Court held that courts should provide "undiluted, even
heightened attention in the settlement context" to certain Rule 23
requirements in order "to protect absentees . . . ." Id. at 621.
Class action settlements require a
higher level of scrutiny than ordinary cases because there always exists a
potential conflict of interest between the class and class counsel. See Mars
Steel v. Continental Ill. Nat. Bank & Trust, 834 F.2d 677, 681‑2
(7th Cir. 1987). Indeed, one
of the key dangers inherent in class action settlements is that class counsel
may accept a lower recovery for the class in exchange for larger attorneys’ fees.
See Richard A. Posner, An
Economic Analysis of Law 570 (4th ed. 1992) ("the absence
of a real client impairs the incentive of the lawyer for the class . . . [the
lawyer] will be tempted to offer to settle with the defendant for a small
judgment and a large legal fee").
Because the risk of collusive settlements is much greater in class
actions than in ordinary litigation, it is "imperative" that a trial
judge conduct a "careful inquiry" into the fairness of a proposed
class settlement. Mars Steel, 834 F. 2d 682.
"The primary purpose of Rule 23(e) is to protect class members . .
. . whose rights may not have been given due regard by the negotiating
parties." Ficalora v. Lockheed Calif. Co., 751 F.2d 995, 996 (9th
Cir. 1985).
I. THE
SETTLEMENT IS NOT FAIR, REASONABLE OR ADEQUATE AND SHOULD BE DISAPPROVED.
A. The Damages
Fund Will Provide Little or No Direct Benefit to the Class.
The most
fundamental problem with the proposed settlement is that it will provide very
little direct benefit to the class.
Judgments or settlements in cases involving credit card late and
overlimit fees often distribute some form of cash recovery directly to the
class, both in the form of direct cash payments to former cardholders and
direct payments to the accounts of current cardholders. See
Sturdevant Dec. ¶ 14.
In this case, however, the class will
get no direct recovery at all. Instead,
the settlement creates a fund of $1,850,000 to be allocated toward a claims
process for Bank of America cardholders.3 To get any money from the fund, cardholders
must first request a claims form and
then must prove "by documentary evidence" that "Bank of America
received [their] payment . . . before 12:00 noon of the day that payment was
due."
On its face, this standard appears impossible
to meet. See generally Sturdevant Dec. ¶
18. How could a class member
ever hope to prove that Bank of America actually received his or her payment
before a particular time on a particular day?
Even if the cardholder could prove when he or she mailed the payment,
the notice requires proof as to when the payment was actually received by the Bank. Moreover, as the Romberg Declaration makes
clear, Bank of America itself is of no help to cardholders in determining how
to satisfy the test set forth in the notice.
Id. ¶¶ 16‑17. Thus, it is reasonable to expect that only a
minute percentage of the class will attempt to file claims, with a resulting
yield to the class of less than 15% of the total fund. Gardner Dec. at ¶ 26; Sturdevant Dec. ¶¶ 18‑19.
It is no answer to say (as does class
counsel) that the claims form that will be utilized if the settlement is
approved merely requires class members to allege
that their payment was received by the Bank before the cut‑off time, and
to provide a copy of their statements and canceled checks. Even if true, class members will undoubtedly
be guided by the terms of the notice, which specifically states that they must prove that Bank of America received
their payment before the due date. In
the face of this language, most class members would be chilled from requesting
a claims form in the first place (especially given that the settlement caps
individual damages at $30 regardless of the extent of a class member’s
overcharges). Even those intrepid souls
who, like Mr. Romberg, do request a claims form would likely be hard pressed to
unearth copies of their past credit card statements and canceled checks for
every overcharge unlawfully imposed by the Bank. And, as the Romberg Declaration demonstrates, for some class
members the cost of ordering copies of these materials could outstrip the
maximum possible recovery under the settlement. Romberg Dec. ¶ 26. Thus,
even if the claims process described by class counsel would be easier to
negotiate than the notice indicates, it still violates basic notions of
fairness.
Nor is it any answer to say that any
money left over from the damages fund will be distributed to the five charities
identified in the class notice. It is
true that, "[i]n a settlement context, when an aggregate class recovery
cannot economically be distributed to individual class members . . .," the
parties may appropriately designate a charitable entity as recipient of the
settlement proceeds. See H. Newberg & A. Conte, Newberg on Class Actions § 11‑20
(3d ed. 1992). However, there has been no showing in this
case that the "aggregate class recovery [could not] economically be
distributed to individual class members."
Indeed, class counsel has represented to the Court that it is possible
to identify each individual who is a member of the class. See Memorandum
of Law in Support of Motion for Preliminary Approval at 18. Yet no effort has been made to directly
reimburse any class members for their damages, and the settling parties have
not offered any explanation as to why the settlement does not allow for some
form of direct payment. Without some proof on this point, it is
impossible to conclude that the damages fund is an appropriate recovery for the
class. See Gardner Dec. ¶ 32; Sturdevant Dec. ¶ 22.
In addition, it appears that at least
three of the five designated beneficiaries have direct or indirect ties to Bank
of America, rendering the charitable distribution even more improper. See
Gardner Dec. ¶¶ 37‑40. Most troubling is the fact that the
principal charity designated in the notice is Bank of America’ s own
"Consumer Education Fund."
As Mr. Romberg observed, although this may very well be a laudable
entity, there can be no doubt that Bank of America itself will benefit from the
positive publicity from paying into its own fund. Romberg Dec. at ¶ 20. In
addition, the Bank might have made the same donation to the Fund (or to some
other charity) even absent the settlement.
To the extent this is true (and the parties have remained silent on the
matter), then Bank of America is obtaining a full release of liability in
exchange for money that it would have expended in any event. Plainly this will not do.
All this aside, there is no
justification for capping individual claims at $30. Given the hefty late fees and interest charged by the Bank, it is
likely that many class members have incurred hundreds of dollars in
damages. See Romberg Dec. ¶ 5. It is
impossible to imagine any legitimate reason for limiting class members’ claims
in this way, especially given that millions of dollars will be provided to
charities as a part of the same settlement.
See Gardner Dec. ¶ 36;
Sturdevant Dec. ¶ 19 ("[i]n all of the cases in which I have been
involved, card holders were entitled to receive a settlement dollar value
associated with each late payment for overlimit claim[s].") Not surprisingly, neither Bank of America
nor class counsel has said a word about – much less attempted to defend – this
arbitrary limitation on damages.
B. The
Non-Monetary Portions of the Settlement Are Also of Little Benefit to the
Class.
The non-monetary
aspects of the settlement also provide little meaningful benefit to the
class. At the outset, we note that this
aspect of the settlement is clearly of no benefit whatsoever for former Bank of America cardholders, who
will not be affected one way or the other by changes in the Bank’s
practices. For these class members, the
sole value of the settlement consists of the $1.85 million damages fund – a
dubious prize even under the most generous analysis.
Even current cardholders will derive
little benefit from the non-monetary aspects of the settlement. As for the promised change in the processing
cut‑off time from 9:00 to noon (Settlement ¶ B(3)), this provision merely
describes the Bank’s existing practices and thus cannot be attributed to the
efforts of class counsel. See Memorandum of Points and Authorities
filed in Support of Motion for Preliminary Approval at 5‑6.4 The same is true for the Bank’s accompanying
agreement to "continue its policy
of crediting a consumer credit card payment if received prior to the processing
cut‑off time on the statement but not processed until a later time after
the due date, for a period of two years from the date hereof." Id.
¶ B(4) (emphasis added). Not only is
this promise merely a recitation of Bank of America’s existing practices, but
it is restricted to a two‑year period of time, after which the Bank is
free to change its behavior for reasons of "commercial
impracticability." Id.
Thus, like the damages fund, the nonmonetary portion of the settlement
has achieved little or nothing for the class.
See Gardner Dec. ¶ 27;
Sturdevant Dec. ¶ 17.
C. The Settlement Improperly Seeks to Enjoin
Future Class Members From Suing Bank of America.
Even if the
settlement were perfect in every other respect, there is no conceivable
justification for the provision imposing a "a two (2) year injunction from
the date of the Final order . . against
initiation or continued pursuit of any and all suits on behalf of or by any
past, present or future cardholder related to claims in [this]
action." Settlement Agreement
B(8)(vii). Even assuming that this
Court has jurisdiction over such future cardholders (which it plainly does
not), any attempt to restrict the rights of such "future" victims is
flatly contrary to basic notions of due process. Cf. Amchem, 521 U.S. at
628. See also Gardner Dec. ¶ 49 ("[t]he fact that class counsel
have agreed to an injunction of this scope and breadth . . . raises serious
concerns about their continued adequacy to serve as class counsel.") If nothing else, this Court should reject
the proposed injunction and require class counsel to limit their efforts to
those individuals they actually purport to represent.
D. The Class
Notice is Fatally Inadequate.
Notice and opportunity to be heard are
essential elements of due process in class action proceedings. Mullane
v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950). Under Mullane,
the notice to class members must be "reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action and
afford them an opportunity to present their objections." Id.
at 314. These due process interests of
class members were not adequately protected by the notice provided here, which
was inadequate in several important respects.
First, the notice fails to disclose
that the costs of notifying the class and administering the settlement – which
could amount to over $200,000 – will be deducted from the $1.85 million damages
fund. Second, there is no mention of
the fact that the nonmonetary aspects of the settlement merely codify Bank of
America’s existing practices. Third,
there is no disclosure of the mandatory two‑year injunction on lawsuits
described above. These inexplicable
omissions, standing alone, render it impossible for class members to make a
fully informed evaluation of the settlement.
Gardner Dec. ¶¶ 52‑54.
All this aside, the most glaring
problem with the notice is the failure to provide an accompanying copy of the
claims form. It would have imposed
virtually no additional burden on the
Bank to include a claim form with the notice sent directly to the class. Bank of America also could easily have
published a sample claim form along with the notice placed in the
newspaper. The settling parties’
failure to make even these minimal efforts to ensure that some money makes it
into the pockets of the class is simply indefensible. Gardner Dec. ¶ 55.
E. The Release Is
Overbroad.
Putting all
these other defects aside, the language detailing the scope of the release of
claims by class members in this case is unfairly overbroad. See Grace
Dec. ¶ 6; Sturdevant Dec. ¶¶ 20‑21.
It encompasses all claims, including those that were not asserted in the action.
As Mr. Sturdevant explains, a number of claims could have been asserted
on behalf of the approximately 4 million California residents who are members
of the consumer class, including claims under the California Consumer Legal
Remedies Act, Cal. Civil Code §§ 1750, et
seq., for misrepresentation about the nature of the financial services
being provided.
The remedial scheme under that statute
authorizes an award of punitive damages, emotional distress damages, injunctive
relief, attorneys fees and class certification. Id. There is simply no justification for a
release of this magnitude, especially in light of the paltry relief that is
being provided to the class.
II. THE PROPOSED
FEE AWARD IS EXCESSIVE IN RELATION TO THE RELIEF ACTUALLY PROVIDED TO THE
CLASS.
Class counsel
has asked for over $1.5 million in attorneys’ fees. Class counsel has justified this figure on the ground that it
amounts to 33.3% of the settlement’s cash value combined value of the
charitable distribution and damages fund. See
Strange Dec. ¶ 2. However, as
explained above, the settlement will actually provide very little relief to the
class itself, given that the overwhelming bulk of the money will be distributed
to the five named charities (including the Bank’s own "Consumer Education
Fund"). Thus, the proposed fee
award is based on surrogate relief that, for the most part, is not being
provided to the class at all. Given
that the settling parties have not even attempted to justify their failure to
provide any direct benefits to the class, there is no basis for approving the
requested fee. See generally Gardner Dec.
¶¶ 59‑68; Sturdevant Dec. ¶ 24.5
The fee award is even more troubling
given the lack of any meaningful effort to demonstrate that it was earned. As explained above, there was very little
actual litigation in this case. It was
basically filed and then settled shortly thereafter. According to the Strange Declaration, the efforts of the settling
parties consisted of informal discovery, some legal and factual research,
"several" phone calls, and one "intense" settlement
meeting. Id. ¶ 4. No detail was provided about the attorneys’
investigation of the Bank’s practices and policies with respect to the posting
of credit card payments. No time
records have been supplied by class counsel, or any detailed summary of the
activities they engaged in arriving at the proposed settlement. In Mr. Gardner’s estimation, based on this
record, it is likely that class counsel’s efforts did not exceed 250
hours. Gardner Dec. ¶ 67. Given the lack of any meaningful relief to
the class (and the absence of any attempt to justify this result), this level
of activity simply cannot support a fee award of this magnitude. See id.
at ¶ ¶ 59‑68; Sturdevant Dec. ¶ 24.
III. THE PROPOSED
SETTLEMENT SHOULD BE DISAPPROVED BECAUSE CLASS COUNSEL HAS NOT ADEQUATELY
REPRESENTED THE CLASS IN THIS CASE.
The proposed settlement
in this case also cannot proceed unless the class meets the various
certification criteria of Rule 23, including the requirement that a class
action may be maintained only if "the representative parties will fully
and adequately protect the interests of the class." Fed. R. Civ. P.
23(a)(4). This provision has been found
to constitute a minimum requirement of due process. See Amchem Products, Inc. v. Windsor, 521
U.S. 591 (1997); Fed. R. Civ. P. 23(a)(4).
As Justice Ginsberg wrote in her concurrence in Matsushita Elec. Indus. Co., Ltd. v. Epstein, 516 U.S. 367, 388
(1996), "adequate representation is among the due process ingredients that
must be supplied if the judgment is to bind absent class members." See
also Herbert Newberg & Alba Conte, Newberg
on Class Actions § 1.13 (3d ed. 1992).
Even if the provisions of a class
action settlement agreement appear to be substantively fair, moreover, it cannot be approved if counsel did not
adequately represent the class. See In re General Motors Corp. Engine
Interchange Litig., 594 F.2d 1106, 1125 n.24 (7th Cir.), cert. denied , 444 U.S. 870 (1979)
("No one can tell whether a compromise found to be ‘fair’' might not have
been ‘fairer’ had the negotiating [attorney] . . . been animated by undivided
loyalty to the cause of the class.") (citation omitted).
In this case, class counsel have agree
to a settlement wherein (1) the only money set aside for the class is hostage
to a seemingly unnecessary and insurmountable claims process, with claims
capped at an amount far below the level of some class members’ actual damages;
(2) the claimed nonmonetary benefits of the deal merely codify existing
practices of the defendant; (3) the largest portion of the recovery will go
directly to a charitable entity that bears the defendant’s own name; (4) the
release encompasses claims that were never even asserted as part of the case;
(5) the settlement seeks to enjoin all past, present, and even future
cardholders from suing the defendant for a two‑year period; and (6) numerous
salient details about the settlement were never even disclosed to the
class. It should go with out saying
that, under these circumstances, class counsel have not adequately represented
the class.6
CONCLUSION
In light of the
foregoing, the Romberg Objectors ask the Court to (a) reject the proposed
Settlement Agreement as unreasonable, unfair, and inadequate; (b) deny class
counsel’s fee request as excessive; and (c) find that class counsel has not
adequately represented the class.
RESPECTFULLY SUBMITTED this 20th day of August, 2001.
BEGAM, LEWIS, MARKS & WOLFE, P. A.
By__________________________________
Richard P. Traulsen
111 West Monroe Street, Suite 1400
Phoenix, Arizona 85003‑1787
(602) 254‑6071
TRIAL LAWYERS FOR PUBLIC JUSTICE
Leslie A. Brueckner
Michael J. Quirk
1717 Massachusetts Avenue, NW
Suite 800
Washington, D.C. 20036
(202) 797‑8600
Attorneys for Movants
ORIGINAL FILED
WITH THE CLERK AND COPY
OF THE FOREGOING
HAND‑DELIVERED THIS
20th
DAY OF AUGUST, 2001, TO:
The Honorable
Paul G. Rosenblatt
U.S. District
Judge
United States
District Court
District of
Arizona
230 North First
Avenue
Phoenix, AZ
85025
COPY OF THE
FOREGOING MAILED THIS
20th
DAY OF AUGUST, 2001, TO:
Brian R.
Strange, Esq.
Strange &
Carpenter
12100 Wilshire
Blvd., Suite 1900
Los Angeles, CA
90025
Arne Wagner,
Esq.
Morrison &
Foerster
425 Market
Street
San Francisco, CA 94105
By___________________________________
1 Mr. Gardner is a recognized expert on the ethics of class actions. He has worked as an Assistant Attorney General in Texas and New York, has been an Assistant Dean at Southern Methodist University Law School, has lectured and written about class action issues, and has represented objectors in several precedent‑setting cases of class action abuse. He was a principal author of the National Association of Consumer Advocates’ Standards and Guidelines for Litigating and Settling Consumer Class Actions, 176 F.R.D. 375 (1998). Mr. Sturdevant is an experienced attorney with an extensive background in litigating class action cases involving credit card over limit and late charges.
2 In his declaration filed in support of the settlement, Brian Strange estimated that "total potential damages for the Class for a one‑year period, assuming Plaintiff proves all of his allegations and prevails on his claims, is approximately $1,800,000.00." Strange Dec. ¶ 8.
3 In reality, because the defendant’s costs of giving notice and class counsel’s expenses in administering the settlement will be paid out of the damages fund (a fact that was not disclosed to the class, see infra at I(D)) the total value of the fund is likely to approximate no more than $1.65 million. Gardner Dec. ¶ 18.
4 Even the 12:00 noon cut‑off appears legally inadequate, given that federal Regulation Z specifically states that "a creditor shall credit a payment to the customer’s account as of the day of receipt . . . ." See 12 C.F.R. § 226.10.
5 Mr. Gardner estimates that, at most, class counsel would be entitled to $50,000 for their work on this case. Id.
6 We note that class counsel has not provided any details to the court regarding the class representative in this case, including whether Mr. Boehr has been awarded any incentive payment for his role in the litigation. Since named plaintiffs "may be tempted to accept suboptimal settlements at the expense of the class members," Weseley v. Spear, Leeds & Kellogg, 711 F. Supp. 713, 720 (E.D.N.Y. 1989), courts must carefully scrutinize incentive awards for named plaintiffs to ensure the fair allocation of relief within settling classes. Holmes v. Continental Can Co., 706 F.2d 1144, 1148 (11th Cir. 1983). Thus, at the very least, the Court should require class counsel to disclose the existence and extent of any such payment to Mr. Boehr.