Officials at the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) continue to scrutinize class settlements to ensure that neither defendants nor class action counsel are improperly benefiting at the expense of class members. As discussed below, at minimum, parties to class actions in federal court can expect federal authorities to increasingly monitor and review class actions and file amicus briefs or statements of interest in appropriate cases.

By way of introduction, a provision of the Class Action Fairness Act (CAFA) requires that proposed class action settlements be served on the Attorney General of the United States at least 90 days prior to being entered by a court. This allows the DOJ to file a statement of interest with the court if it identifies fairness concerns. The government has rarely exercised the prerogative to file such statements, but that may change soon based on recent activity at the DOJ.

In February 2018, outgoing Associate Attorney General Rachel Brand signaled that the DOJ would begin reviewing more proposed class action settlements. In prepared remarks, Brand stated that although the “DOJ receives over 700 CAFA notices every year,” it had participated in only two prior cases – both more than a decade before. She attributed the DOJ’s silence to “government bureaucracy,” explaining that due to the DOJ’s rigorous mailroom screening and processing methods, it took an average of 70 days for a CAFA notice to travel from the mailroom to a DOJ attorney. As a result, many notices were not reviewed until after the fairness hearing or even after settlement had been finalized. Id. With revamped processes in place, the DOJ is now in a better position to timely review proposed settlements.

One day after Brand’s comments, the DOJ filed a statement of interest opposing final approval of a proposed consumer class action settlement in Cannon v. Ashburn Corp., Civil Action No. 16-1452 (Feb. 16, 2018), ECF No. 58. Initially, the DOJ argued that the proposed “textbook coupon settlement” in Cannon, which would settle claims of false advertising related to wine, provided “extremely limited value to consumers,” particularly because “consumers gain nothing beyond a chance to buy more wine from the Defendants at a miniscule discount and then only if they successfully navigate the unnecessarily complex process the proposed settlement erects.” Id. at 1, 17. The DOJ also opposed class counsel’s request for “a massive $1.7 million windfall payment.” Id.

However, after attending a fairness hearing on March 19, DOJ attorneys filed a letter with the court, asserting that although they remained skeptical of certain settlement provisions, “the parties now have substantially improved the overall structure and value of the proposed settlement in response to the United States’ and others’ concerns.” Cannon, ECF No. 98. The DOJ added that in light of the following “material improvements,” the amended proposed settlement was sufficiently fair, adequate and reasonable and should be approved.

[T]he United States views positively the parties agreement to: (1) transfer $500,000 from class counsels’ requested fee to a cash fund for class consumers; (2) extend the coupon redemption period to 18 months; (3) defer class counsel’s request for $1.2 million in fees until after the redemption period; (4) provide that any amount of the requested $1.2 million in fees not awarded to class counsel shall transfer to supplement the cash fund for class consumers; (5) issue notice of these revised terms to class consumers; and (6) extend class consumers’ verification period until May 15, 2018.

FTC’s Proposed Studies

In addition to the DOJ, the FTC has also taken an interest in the fairness of consumer class actions. In a previous post, we highlighted two studies that the FTC proposed in May 2015 as part of its Class Action Fairness Project: the Notice Study and the Deciding Factors Study. These studies – both of which target nationwide class actions – would aid the FTC in understanding (i) consumer comprehension of class action notices and the options they provide (Notice Study) and (ii) factors that influence consumers’ decisions to participate, opt out of or object to a class action settlement (Deciding Factors Study).

As part of these proposed studies, in November 2016, the FTC issued orders to eight unidentified claims administrators, requiring them to provide information on class settlement notification procedures and the response rates for various notification methods.

In July 2017, the FTC issued a second Federal Register notice for approval to conduct the proposed studies. This second notice addressed the two public comments on its first Federal Register notice. The second notice solicited additional public comments by Aug. 17, 2017, and stated that the FTC is continuing to seek Office of Management and Budget (OMB) clearance to conduct the study. The Paperwork Reduction Act requires such clearance before a federal agency collects certain information for studies. Id.

Even if the OMB does not approve the proposed studies, it is clear that federal authorities are monitoring the actual benefits of class action settlements.

We will continue to monitor this issue.