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Class-action suits often yield paper victories

 
Published June 4, 1995|Updated Oct. 4, 2005

Mary Tolja recently learned that she was a winner in a class-action lawsuit brought against Ford Motor Co. on behalf of 65,000 owners of possibly leaky 1983-86 Mustang convertibles.

She is less than elated.

While plaintiffs' lawyers expect to receive about $1-million in fees and expenses, Ms. Tolja, like many others in the class, can't imagine a use for her award _ a $400 nontransferable coupon good for a year toward a new Ford.

"To me, these coupons are not worth 2 cents," said Ms. Tolja, a retired school administrator in Sonoma, Calif. "I'm not going to buy a new Ford; I already have a new Honda."

That kind of disdain is spreading as more corporate defendants in class actions are working out settlements in which consumers are paid off in scrip while their lawyers walk away with millions.

The awards _ for discounts on a defendant's products or for other non-monetary benefits like car safety inspections _ have ranged from $4,000 off a new BMW to a $25 reduction in airline fares to a free box of Cheerios.

Some non-cash settlements have proved of value when, among other things, a coupon is readily convertible into cash. But as Congress weighs broad changes in civil litigation rules, some critics see the settlements as a glaring example of what is wrong with a system whose prime beneficiaries often turn out to be lawyers.

At their worst, critics say, the cases represent a mass of small, sometimes marginal claims packaged by lawyers for the sole purpose of snaring fat fees.

Even when the complaints have merit, the lawyers compromise their clients' interests, the critics contend, by colluding with big corporate defendants who see a cheap way to end protracted litigation and use the coupons to increase their sales.

"Some of these settlements are a joke," said Brian Wolfman, a lawyer with Public Citizen, a public interest group in Washington that has objected to proposed settlements in several non-cash cases, including the Mustang suit.

Federal and state courts have started to scrutinize the settlements more closely and have recently thrown out several proposed agreements.

In a case involving allegations of safety defects in the Ford Bronco II, in which safety inspections and videotapes were offered as awards, a federal judge said that plaintiffs' lawyers had settled for so little that the deal created the appearance of a sellout.

Ford, which is not appealing the decision, says the vehicle is safe and plans to legally defend it.

"Courts are starting to realize what a scam and hypocrisy these types of settlements can be," said Beverly Moore, the editor of Class Action Report, a Washington publication.

For their part, lawyers involved in settlements with Ford and others say they have nothing to apologize for.

They work hard for their fees in often difficult cases, they say, and get the best deals for clients. Even in cases that involve awards as minimal as a box of cereal, the lawyers say, they protect the public by putting corporate America on notice.

"I look at a lawsuit as trying to get something of value for the client, and in some of these cases the wrongdoing does not give rise to easy cash recovery," said Melvyn I. Weiss, a leading class-action lawyer with Milberg, Weiss, Bershad, Hynes & Lerach of New York.

Even critics of non-monetary pacts agree that they can work to everyone's benefit if structured properly.

A financially weak company facing numerous claims can avoid bankruptcy by paying out scrip rather than cash. When coupons are not convertible into cash, they can still have value if the scrip involves a small-ticket item like a video game, as it did in a case involving Nintendo, or if it represents a high percentage of a product's cost, legal experts say.

But sometimes, critics assert, plaintiffs' lawyers and defendant companies inflate the value of settlements by overestimating how many class members will use coupons. Some companies may have tried to cut costs further by making scrip hard to redeem.

"These scrip settlements tend to be used by lawyers who are not zealous on behalf of the class," said John Coffee, a professor at the Columbia University School of Law.

There are benefits to non-cash settlements that make them particularly attractive to corporate defendants. For one thing, they close the door to future claims on the same issue by consumers who have not opted out of the class.

Also, scrip is effectively "soft money" that does not come off a company's bottom line, but may serve to provide incentives to increase product sales, said Lew Goldfarb, the assistant general counsel for Chrysler Corp., which has used coupons in one case.

Some law firms are particularly active in non-cash deals. Weiss' firm, for example, has been involved in three such cases recently.

They involve allegations of steering troubles in Mercedes-Benz S-class cars made in 1992 and 1993, defective Pentium computer chips made by Intel Corp. and the pesticide-related problems of breakfast cereals sold by General Mills Inc.

Fees and expenses proposed or awarded to Milberg, Weiss and other firms in those cases: more than $19-million.

To determine fees, lawyers sometimes negotiate directly with the defendant. More often, they apply to the court, seeking payment for hours spent on the case, increased by a bonus that doubles or triples their normal rate to reflect the case's complexity or risk.

While lawyers may reap small fortunes, the cases are sometimes quickly resolved without witnesses being deposed.

In a case with Chrysler involving defective heater coils in Renault Encore and Alliance cars made in 1983-87, lawyers for both sides hammered out a settlement proposal after about 20 hours of face-to-face meetings, said Mary Rosseel-Jones, a Chrysler lawyer. Plaintiffs' lawyers fees and expenses in that case: $1.65-million.

One of the most contentious coupon cases now unfolding involves General Motors Corp.

A Texas appeals court last year and a federal appeals panel this April rejected a $1,000 coupon deal for 6.4-million owners of older GM pickup trucks that may explode after side-impact collisions, agreeing with critics who called the plan a "sophisticated marketing program" to sell trucks.

The federal panel also questioned whether the GM coupons could be readily transferred.

Ed Lechtzin, a GM spokesman, said the company and plaintiffs' lawyers were appealing both rulings. GM says the trucks are safe but declined to comment on the coupon aspect of the case.

And in the Bronco II case, U.S. District Court Judge Morey L. Sear in New Orleans threw out a settlement proposed in March that would have covered 645,000 owners of Bronco IIs made in 1983-90, saying the plan provided "effectively zero" value to those who fear the vehicle is prone to rollovers.

Ford has paid $113.4-million to settle 334 death and injury claims involving the Bronco II.

After a string of hollow settlements, some critics of coupons wonder why lawyers cannot come up with better deals.

It is a question that also occurs to Ms. Tolja, who has objected to the Mustang settlement.

"The whole idea that the lawyer collects a million and the person collects nothing," she said, "is the most asinine thing that I have ever heard."

Six major airlines

What was wrong: Collaboration among airlines to fix fares.

Who was affected: Anyone who traveled by air between Jan. 1, 1988, and June 30, 1992.

What they got: Coupons good for discounts on future travel. Agreement capped the total value at $400-million. Twice as many people filed claims as expected, reducing the value of each coupon to as little as $8 or as much as $25.

Lawyer's bill: More than $14-million.

General Motors

What was wrong: Full-sized 1973-87 Chevrolet and GMC pickups lost resale value because of safety fears.

Who was affected: 5.7-million truck owners in federal suit; 700,000 in Texas suit.

What they were to get: Coupon good for a $1,000 discount on a new light truck or van. Total value put at $2.18-billion. Texas and federal appeals courts have rejected the settlement.

Lawyer's bill: Proposed $19-million (rejected).

Intel

What was wrong: Defects in the Pentium computer chip caused calculation errors.

Who was affected: Buyers of computers based on the chip.

What they got: Intel voluntarily replaced the chips and, in some cases, reimbursed users for the value of computer work affected by the defects.

Lawyer's bill: $6-million (proposed).

General Mills

What was wrong: Some oat-based cereals sold in 1994 were tainted with pesticides.

Who was affected: Buyers of Cheerios and other cereals.

What they got: Coupon good for a free box of cereal if consumers buy or already have one. Total value put at $10-million.

Lawyer's bill: $1.75-million (proposed)