It is probably not a coincidence that two of the smartest judges in the land, Alex Kozinski (Chief Judge of the Ninth Circuit) and Jed Rakoff (District Judge in the Southern District of New York), have gone on record criticizing certain proposed litigation settlements. Rakoff shook up Wall Street when he rejected a Citigroup settlement with the SEC, finding it “neither fair, nor reasonable, nor adequate, nor in the public interest.” Kozinski’s critique of a settlement was equally strident, but even more newsworthy because he and his wife filed as class objectors to the Nissan Leaf battery settlement. Kozinski expressed unhappiness that the parties agreed to the settlement before any discovery of company internal documents. The case is in the Central District of California, which is part of the Ninth Circuit, where Kozinski is Chief Judge. As you might imagine, Kozinski’s objection made things a bit sticky. A couple of C.D. Cal. judges recused themselves from the case.
We can understand why steely-minded types such as Rakoff and Kozinski might have problems with settlements. Settlements are messy. They are illogical. Parties are striving for rough justice, trying to reduce uncertainty and expense. At the same time, each party is trying to get the best deal it can get. Or at least the lawyer is. Those lawyers are serving diverse constituencies. Problems of agency and moral hazard abound. Settlements, perhaps more than any other area of the law, are like sausage or legislation, where the less you know about process, the better. We are reminded of Ambrose Bierce’s definition of “litigation” in The Devil’s Dictionary: a machine that you go into as a pig and come out as a sausage. (Hmmm. Now we are hungry.)
For all of our carping about plaintiff lawyers, settlements are one area where we freely acknowledge that their job is tougher than ours. How they balance the competing demands of their clients, with different degrees of merit, exposure, injury, commitment, and, frankly, sanity, is a mystery to us. We are happy for it to remain so.
We can understand how some settlements seem bizarre or unfair. Some seem like nothing so much as a dollar delivery device for opportunistic plaintiff lawyers. When we were in law school, we were surprised to receive a notice that we were part of a class settlement. It was an antitrust case over airline ticket pricing. (Law firms handed out flybacks like nickels in the mid-80’s.) We ultimately received a coupon for a $100 credit against a full-fare ticket. Back then, we never-ever purchased full-fare tickets. We either bought supersavers, or boarded People Express flights where we actually paid on board. Not to put too fine a point on it, the settlement was worthless to us.
Then again, there has to be a reason why plaintiffs, defendants, and, yes, the overwhelming majority of judges, want cases to settle. Almost nobody is in love with uncertainty. Litigation is indecently expensive. It gobbles up legal fees and court resources. Even for plaintiffs who end up getting what seems to be a pittance, money now is better than money later, and definitely better than money never. All of which is to say that we see settlements as perhaps the best example of that old Oliver Wendell Holmes bromide about the life of the law being experience, not logic. And for the record, we think there are good reasons on both sides to settle a case before undertaking hyper-expensive discovery of internal company documents. Supreme Court Justice Joseph Story urged parties to make an end to litigation, so “that suits may not be immortal, while men are mortal.” Ocean Ins. Co. v. Fields, 18 F. Cas. 532, 539 (C.C.D. Mass. 1841). Justice Story knew nothing, of course, about discovery of electronically stored information (ESI). Lucky him. Without a doubt, ESI discovery is something that reminds us of our mortality. It even makes us grateful for it.
We embarked on today’s sermon after taking a look at the settlement in Mason v. Heel, Inc., 2014 U.S. Dist. LEXIS 58257 (S.D. Cal. March 13, 2014). That settlement might cause the more cynical among us to have a supercilious (from the Latin supra – cilia – raised eyebrows) moment. The case was a nationwide class action alleging that the defendant’s promotion of its homeopathic products was deceptive, in violation of the usual panoply of California statutes (17200, False Advertising Law, Consumer Legal Remedies Act), as well as breach of warranties and violation of the federal Magnuson-Moss Warranty Act. Parse that last sentence even a little and you can guess at our stratospheric skepticism. A total of $1 million got tossed into the settlement pot. That is a nice, round number. To Dr. Evil, it seemed like all the money worth asking for, even if you were in the position of extorting the whole world. Speaking of Dr. Evil, the plaintiff lawyers asked for 30%, and ended up getting ‘only’ 25%. Each plaintiff could receive up to $150 by submitting proofs of purchase, and up to $100 by signing a claim form under penalty of perjury. The class representative received $3500 as an “incentive.” If funds remain after all valid claims get paid, 50% would go out pro rata to claimants and 50% would go into a cy pres award to Consumers Union. So everyone can feel virtuous. (We have on prior occasions mentioned, in that measured, low-key, thoroughly adorable way we have, how much we hate cy pres provisions. We consider them prima facie proof that the leading ingredient in the case is bat guano.) The defendant agreed to provide a disclaimer that its products had not been evaluated by the FDA and that the products are homeopathic dilutions. The defendant also agreed not to say that the products are “natural,” or “clinically proven,” or “doctor recommended.”
The court found the settlement to be “fair, reasonable, adequate, in the best interests of the Class, and free from collusion.” Mason, 2014 U.S. Dist. LEXIS 58257 at *3. Understandably, it was important to the court that the parties had hashed things out in front of a well-respected mediator (a retired judge) and that no class members had lodged an objection.
Of course, if this settlement somehow goes up on appeal, it would be in front of the Ninth Circuit. Good luck to the lawyers if they draw Chief Judge Kozinski on the panel.