For Immediate Release: Friday, August 15, 1997
For More Information Contact: Theresa Henige, TLPJ, 202-797-8600;
Arthur Bryant, TLPJ, 202-79708600; Steve Baughman, 214-521-3605
Trial Lawyers for Public Justice (TLPJ) challenged a no-opt-out class action settlement of consumer fraud claims today between Tower Loan of Mississippi, Inc. and class counsel who had already moved to dismiss the case. The company had formally charged that class counsel's motion to dismiss the case "demonstrated an intent to abandon pursuit of the interest of the plaintiff class" simply because the parties had not reached "a quick settlement suitable and beneficial to plaintiffs' counsel." The very next day, however, Tower Loan struck a deal with those same counsel that will pay no money to most class members and limit their right to opt out, but reimburse class counsel for up to $50,000 in expenses even if the settlement is ultimately rejected.
"This is a blatant example of class action abuse," said TLPJ Foundation President Fred M. Baron of Baron & Budd in Dallas. "Tower Loan formally alleged that these counsel were not adequately representing the class. It then struck a deal with them anyway. Predictably, the settlement benefits Tower Loan and class counsel, but sacrifices the class members' rights."
Jones v. Tower Loan of Mississippi, Inc. was filed in U.S. District Court in Hattiesburg, Mississippi, on February 16, 1996, alleging a variety of consumer fraud claims against the company, American Federated Life Insurance Company, and other related entities. The suit seeks both compensatory and punitive damages, charging that Tower Loan fraudulently induced its customers to buy certain credit-related insurance from American Federated without informing those customers that the insurance was not required and without revealing that Tower Loan's officers received commissions from American Federated.
This was not the first time charges like this had been made. In February 1992, Tower Loan had been found guilty of similar practices by the Federal Trade Commission (FTC) and been ordered to change its practices. On February 6, 1997, the FTC announced that Tower Loan would pay $340,000 in civil penalties and consumer refunds for violating the 1992 order.
After filing the lawsuit, class counsel -- John M. Deakle of Hattiesburg and John Michael Sims of Heidelberg, Mississippi -- entered into settlement negotiations with the defendants. By September 1996, they reached an oral settlement agreement, but that settlement collapsed by December 1996, and U.S. District Court Judge Charles Pickering, Sr. of Hattiesburg scheduled oral argument for January 24, 1997, on whether the case should be litigated as a class action.
One week before that oral argument, class counsel moved to dismiss the case (and bear their costs to date) saying: "thus far settlement negotiations had been unfruitful." Six days later, defendants responded by moving to disqualify class counsel and have the court appoint substitute counsel, charging: "Plaintiffs' counsel have demonstrated an intent to abandon pursuit of the interests of the plaintiff class, apparently due to the present failure of the parties to reach a quick settlement suitable and beneficial to plaintiffs' counsel." The following day, the defendants entered into a settlement with those counsel.
"This settlement would not be proper regardless of its terms," said TLPJ Executive Director Arthur H. Bryant, co-counsel for the objectors. "Lawyers cannot adequately represent the class in settlement negotiations when they have already moved to dismiss the case. Defendants make concessions in negotiations because they are concerned about the potential outcome of continued litigation and trial. Here, it was clear that class counsel had no interest in litigating or trying the case."
The negotiated agreement provides the class members with between $2.5 million and $4.5 million, along with certain injunctive relief. Class members must file claim forms to receive compensation, even though the defendants already have their addresses and could automatically distribute the money. If insufficient claim forms are filed, the money will be used to reimburse the defendants' costs for notice and administration. The proposed settlement also bars class members from opting out to seek punitive damages against the defendants. It does allow class members to opt out and seek compensatory damages individually, but only before Judge Pickering. Finally, the agreement pays class counsel up to $900,000 in attorneys' fees if the proposed settlement wins final approval and up to $50,000 in costs even if it is ultimately rejected.
"This proposed settlement is plainly improper and insufficient," said TLPJ cooperating counsel Steve Baughman of Baron & Budd. "The court should reject the settlement, disqualify class counsel, void the defendants' agreement to pay class counsel's expenses, and appoint new class counsel to prosecute the case."
The class counsel in Jones were also counsel for the class in Graham v. Security Pacific Housing Services, Inc. (BankAmerica), in which TLPJ successfully challenged a proposed settlement before Judge Pickering in April 1997. The settlement would have paid class members less that $1.8 million, paid class counsel $5.4 million, and deprived Mississippi class members of their right to opt out and seek punitive damages. After TLPJ's challenge, the settlement was changed so class members received $7.9 million, class counsel received $1.9 million, and all class members were allowed to opt out and pursue all of their claims. The challenges in both Graham and Jones are part of TLPJ's Class Action Abuse Prevention Project.
Jane E. Tucker of Jackson, Mississippi, is also serving as TLPJ cooperating counsel in Jones. A hearing on the fairness of the proposed settlement is currently scheduled for October 28, 1997, in U.S. District Court in Hattiesburg.
