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INSIGHT: Cookie Coupons Rile DOJ Sensibilities, Indicating Possible Uptick in Class Action Objections

March 19, 2019, 8:00 AM

The next year will indicate whether the Department of Justice is going to become a major player in class settlements, and in the interim, counsel for plaintiffs and defendants should be cognizant of the possibility that DOJ may object to their class settlements.

The DOJ recently filed the third objection to a class settlement since former Assistant Attorney General Rachel Brand warned that DOJ planned to become more involved in class action settlements. The DOJ filed its statement of interest in Cowen v. Lenny & Larry’s Inc., No. 1:17-cv-1530 (N.D. Ill.), objecting to the proposed class settlement, exactly one year after Brand gave her Feb. 15, 2018, speech to the Washington, D.C., Lawyers Chapter of the Federalist Society.

Since that speech, and until last month’s filing, DOJ had filed objections to only two class action settlements. The DOJ’s three filings in the past year have now eclipsed the total number of objections that DOJ had filed in the 13 years following the passage of the Class Action Fairness Act (CAFA) in 2005. Although it is too early to call the recent increase a definitive trend, DOJ’s willingness to intervene in class action settlements should not be overlooked.

Class Action Fairness Act

CAFA requires defendants in class actions to serve the U.S. attorney general and appropriate state officials with a copy of the settlement along with other specified documents not later than ten days after a proposed class action settlement is filed. 28 U.S.C. § 1715(b).

While CAFA’s notice provisions do not impose obligations upon federal or state officials, 28 U.S.C. § 1715(f), Congress intended the notice provision to enable public officials to “voice concerns if they believe that the class action settlement is not in the best interest of their citizens” so that they could “provide a check against inequitable settlements.” The Class Action Fairness Act of 2005, S. Rep. No. 109-14, at 5, 35 (2005).

Shortly after CAFA’s enactment, DOJ participated in two class action settlements; however, in the decade leading up to Brand’s remarks in February 2018, DOJ had not filed a single objection in any case. Part of the problem, Brand noted at the time, was that DOJ lawyers were receiving CAFA notices too late to act on them.

On average, due to internal processing delays, it took 70 days after receipt for notices to reach appropriate DOJ lawyers. Brand directed DOJ to streamline its review to allow it to become more involved in class settlements. But in the following year until last month, despite receiving approximately 700 CAFA notices, DOJ intervened only twice. Even then, the results have been mixed.

Cookie Settlement

In Cowen, the plaintiffs alleged that the packaging and labeling for defendant’s cookies misstated the cookies’ protein content, among other things.

The proposed settlement would award class members cash or free cookies, but cash awards would be capped at $350,000 for all class members. Retailers would receive potentially $3.15 million in free cookies if not enough class members made claims for cookies, which the retailers could distribute as they see fit. Class counsel sought to justify a large attorney’s fee based on this pot of free cookies.

DOJ objected that the proposal was a cy pres award that merely created a promotional opportunity for the defendant to draw in consumers with free samples. Shortly after DOJ’s filing, counsel for the parties announced that they would redraft the proposed settlement.

Internet Wine Seller Case

Brand foreshadowed DOJ’s first such objection during her speech, and that objection was launched the following day in Cannon v. Ashburn Corp., No. 1:16-cv-1452 (D.N.J.).

Cannon involved an Internet wine seller that allegedly engaged in false advertising. Initially, the proposed settlement gave class members a coupon code toward future purchases of wine and gave class counsel a large attorneys’ fee award.

After DOJ filed a statement of interest, the court ordered the parties to respond, and the parties revised the settlement, including by transferring $500,000 from the attorneys’ fees award to a cash fund for class consumers. On March 27, 2018, DOJ informed the court that the revisions were fair, adequate, and reasonable. But the court still rejected the settlement, and plaintiffs subsequently voluntarily dismissed their complaint with prejudice.

Defective Pressure Cookers

Several months passed before DOJ filed a second statement of interest. On June 6, 2018, DOJ objected to the proposed settlement in Chapman v. Tristar Products, Inc., No. 1:16-cv-1114 (N.D. Ohio).

That case concerned allegedly defective pressure cookers, which could cause super‑heated liquid to erupt. The proposed settlement included a one-year warranty on the pressure cookers and a discount toward the purchase of other specified products manufactured by the defendant.

DOJ characterized it as a coupon settlement that provided little value to anyone except the named plaintiffs, who received disproportionately large awards, and class counsel, who received disproportionately large fees. Notwithstanding DOJ’s opposition, the court approved the settlement.

The Arizona Attorney General filed an appeal, and on February 4, 2019, DOJ filed an amicus brief in support of the Arizona Attorney General in which it reiterated its objections. The appeal remains pending. Chapman v. Tristar Prods., Inc., Nos. 18-3847, 18-3866 (6th Cir.).

DOJ’s Effects Unpredictable

Considering that the parties will redraft their agreement in Cowen, it is clear that DOJ’s actions in these cases are affecting the parties, but in unpredictable ways.

In Cannon, DOJ’s entry prompted the parties to redraft to DOJ’s satisfaction, but the court rejected it anyway. In Chapman, the court overruled DOJ’s objections and approved the settlement. And only time will tell how the DOJ and court in Cowen will react to the parties’ redrafted agreement once submitted.

While these cases show the impact that DOJ can have, they remain few and far between. In the past year, even after DOJ announced it would be more involved, it has filed in only approximately 0.5% of all cases. DOJ may still be working to streamline its internal processes, or it may be that DOJ is prioritizing its time and resources in other ways.

Author Information

Richard W. Smith is co-chair, Gregory M. Williams is a partner, and Douglas C. Dreier is an associate in the commercial litigation department of Wiley Rein LLP. They regularly defend corporate clients in consumer class actions.