With one or two significant exceptions, I usually write about settlement tactics that don’t work. I do that for two reasons: (1) settlement tactics that work often lead to perfunctory opinions that do not discuss the tactics themselves, and (2) settlement is one of those areas where it’s better to know what to avoid.
This week, however, I’d like to focus in on a tactic that worked for the parties.
The Trans Union Corp Privacy Litigation–which involves allegations that the company violated the Fair Credit Reporting Act ("FCRA")–has been around in one form or another for 16 years, since the first suits were filed in 1998. It culminated in a settlement that included–among other forms of relief like free credit monitoring–a $75 million settlement fund.
So far, nothing seems unusual. But the settlement contained an unusual kind of reversion clause: it allowed the defendant to count individual settlements with class members against the fund.
Why include that term? FCRA offers statutory damages (between $100 and $1,000 per violation). As many class action lawyers know, statutory-damage class actions can often present ruinous liability to a corporation regardless of their merit (in this case, $190 billion). So the $75 million pot–while nothing to turn up one’s nose at–was necessarily far less than the overall value of the lawsuit. To make the settlement more attractive to the court, the defendants agreed to restrict the scope of the release: class members would give up only their right to assert aggregated litigation, but could still assert their individual claims (now known as "Post-Settlement Claims" or PSCs). To make that provision more attractive to the defendant, the settlement allowed it to pay the PSCs out of the $75 million fund. (This arguably worked to the benefit of class members: the defendant had little reason to contest claims it had essentially already paid, so these additional individual claims paid out quickly.)
The current opinion arose because one of the class counsel objected to paying the PSCs from the settlement fund. As the court pointed out, it had heard this argument before, last year:
Class counsel argued on appeal that the district court had erred in blessing Trans Union’s reimbursements. Their main contention was that the court and Trans Union both were obliged to examine the fairness of the PSC settlements, and particularly the accompanying fee arrangements, before paying from the settlement fund. Wheelahan joined the fray as an appellee, arguing that Trans Union was being reimbursed improperly for settling meritless PSCs. According to her, an FTC lawsuit had led Trans Union to stop selling lists of consumers to target marketers in 2001, yet PSC counsel were asserting target marketing claims on behalf of some consumers who had not entered Trans Union’s database until after 2001 and thus could never have been victims of target marketing practices. She argued that this disqualified Trans Union from settling any such claims because they were certainly meritless.
Our decision affirming the district court, although brief, stated conclusively that we found "no error in the [district court’s] order, or reason to enlarge on the judge’s analysis."
Procedural maneuvering aside, the takeaway here for defense counsel is: look at alternate ways of making the settlement more valuable. The limited waiver coupled with the reversion clause was effective in this case, and may be in others where one will likely face meritless statutory-damage claims.