Bloomberg Law
April 5, 2018, 2:46 PM

DOJ Interest in Wine, Opioids Casts Shadow Over Class Suits

  • Government scrutiny might translate to tighter class settlements

  • But level of DOJ involvement remains to be seen, and some attorneys say problem deals hard to identify

A new push by the Justice Department to get involved in a low-profile wine pricing case and the high-profile opioid litigation could mean extra scrutiny of class settlements and increased pressure to craft airtight agreements, attorneys tell Bloomberg Law.

The DOJ took the unusual step of filing a statement of interest in a deceptive pricing settlement with a website called Wines ‘Til Sold Out. The letter challenged the fairness of a settlement that provides $1.7 million to class counsel, while only providing class members with coupons to use at the site that allegedly wronged them.

This is the first example of what may become a new trend for the department. Shortly after getting involved in the Wines case, the DOJ filed a statement of interest in the combined litigation over the opioid crisis.

More scrutiny of class settlements by DOJ could mean fewer settlements awarding class members coupons and deals in which any remaining funds revert to the company—tactics that tend to save defendants significant sums of money.

Defense attorney Philip M. Oliss, a partner at Squire Patton Boggs in Cleveland, told Bloomberg Law the DOJ’s involvement in the wine case has already come up in a case he’s working to settle. “Plaintiffs’ counsel really just kind of freaked out about it,” he said. “The more things like this happen, the more both sides in class action settlements need to be cautious and aware of the potential that their settlements can get blown up.”

Defendants “have to be prepared to negotiate with plaintiffs’ counsel from the perspective that they may sincerely believe that their fees are at risk,” he said.

Coupon settlements are generally out of favor these days and it remains to be seen how active a role the department will take in class settlements beyond the Wines and opioids cases. Oliss and other defense attorneys say problem class settlements are common, but even they acknowledge it could take some real work for the DOJ to identify which deals have flaws worthy of its time.

Most settlements are already written with an awareness that judges and objectors will scrutinize their terms, some plaintiffs’ attorneys argue.

They also question the motives of the DOJ’s involvement. Rather than ensuring settlement fairness, the department may be interested in furthering a big-business bias against consumer litigation and plaintiffs’ attorneys.

Major Change and Who’s Behind ItThe Class Action Fairness Act requires parties settling class actions to inform the attorney general and state officials within 10 days of filing a proposed settlement. The district court can’t finalize the settlement for another 90 days, to allow the government time to weigh in on the terms of the deal.

Historically, it’s unusual for the federal government or state AGs to get involved.

“Very rarely does a state AG contact us to ask for some additional information,” defense attorney Scott Solberg in Eimer Stahl LLP’s Chicago office said. And “virtually never do they actually take action to oppose a settlement.”

Before the DOJ filed its latest statement of interest, the department had participated in only two class settlements, former Assistant Attorney General Rachel L. Brand said.

“We’ve never heard boo from them,” according to plaintiffs’ attorney Jay Edelson, of Edelson P.C. in Chicago.

The Wines case is “meant to be kind of a powerful signal to all the relevant players in the class action world that they are going to be at least somewhat active,” he said.And it could lead the states to follow suit. “State AGs may step up more following DOJ’s lead,” Oliss said.

Brand, who announced the initiative shortly before she left the DOJ to work for Walmart, was previously the vice president and chief counsel for regulatory litigation for the U.S. Chamber Litigation Center.

The new initiative “kind of has the Chamber of Commerce’s fingerprints all over it,” Oliss said.

The Wines settlement gave the DOJ the perfect case from the business group’s perspective: “You have this take-down of plaintiffs’ lawyers but it’s done in a way that doesn’t jeopardize a settlement by a defendant that anybody cares about—an e-tailer of wine,” he said.

Harold Kim, vice president of the U.S. Chamber of Commerce, wouldn’t say whether the group was involved with the DOJ initiative. But he did say the Chamber is “very encouraged” that the department is being proactive about a cause of his organization.

It shows that “there’s a national recognition that class action settlements are very problematic” and don’t necessarily help consumers, he told Bloomberg Law. The plaintiffs in the Wines settlement struck back against the statement of interest, calling it “ideologically driven.”

Pressure to Improve SettlementsBut Edelson, who readily describes himself as being a contrarian among plaintiffs’ attorneys, said the move could be good for consumers in the long-run.

Increased scrutiny from the DOJ “puts pressure on class counsel to come up with better settlements, and it actually puts pressure on defendants as well to stop offering what I view as really junky settlements,” Edelson said.

Edelson said his firm has told defendants for a long time it won’t even consider settlements where the class gets no money or only coupons. Those are red flags that catch the eye of good-faith objectors like Ted Frank of the Competitive Enterprise Institute Center for Class Action Fairness in Washington, Edelson said.

Now Edelson can also point to the DOJ during negotiations. It “takes a whole bunch of wasted negotiation off the table and lets you get down to, ‘Is there a chance for real settlement?’” he said.

Another plaintiffs’ lawyer, Jocelyn Larkin, agreed greater involvement “isn’t necessarily a bad thing,” but she added the extra review isn’t likely to have much of an effect on class action practice overall.

“The rules for settling and the level of scrutiny that the district courts are now exercising has put everybody on their toes,” Larkin, executive director of the social justice-focused Impact Fund in Berkeley, Calif., said. “No one is going into settlement approval thinking they are going to slide through without scrutiny.”

But, defense attorney Solberg countered that some courts take a closer look than others.

Some settlements “just sail right through,” or have individual objectors that don’t carry nearly the same weight as the federal government.

How much the DOJ is really going to get involved, and how the courts might react to that potential greater review, are still open questions.

“It may cause the court to open it up and take additional evidence,” Solberg said. “This is terra incognita since they’ve never done it before.”

Identifying and parsing problematic settlements may not be easy for the DOJ.

“Even though they get all the pleadings and the settlement agreement, it still takes some reading between the lines to fully understand whether the settlement is one that’s fair and reasonable,” Solberg said.

The court may be in the best position to know if the settlement works for both parties because it has lived with the case, he said.

Broader TrendEdelson sees the move as part of a broader trend, pointing to the DOJ’s announcement it plans to get involved in the opioid litigation.

“We’ll see where that goes but it suggests that they are going to be more active players, which should certainly make things fun,” he said.

The department April 2 asked to participate in the opioids settlement. The department won’t be an active litigant in the suits by states, local governments, and others against drugmakers and distributors, but it says it wants a place at the table for future settlement talks.

Professor Adam Zimmerman sees an even bigger new development here.

The DOJ is “simply rediscovering a tool” Congress created to “provided an extra layer of security for absent plaintiffs,” Zimmerman, who studies complex litigation at Loyola Law School in Los Angeles, told Bloomberg Law.

But beyond that, he sees it as an example of the executive branch seeking to regulate access to the courts, and class actions in particular.

“As executive officials take on an increasingly prominent role in private actions, it seems only natural that they’d take more active stances on what kinds of cases have merit and what the rules of the game should look like,” he said.

To contact the reporter on this story: Perry Cooper in Washington

To contact the editor responsible for this story: Steven Patrick