US judge halts $33m class-action gravy train
The case was brought by angry shareholders after Fitbit failed to disclose problems with the build quality of its products which, when revealed, caused a significant share price fall. Given our experience with Fitbits, the lack of decent build quality should have been instantly obvious, but there you go.
A $33m settlement might seem like a lot but the lawyers wanted their cut. US District Judge Susan Illston was unimpressed with the attorneys’ efforts to elicit a massive payday out of the case by asking for 25 per cent of the award to be put into their pockets, telling them it “might be a little rich for this case.”
The judge also asked for an itemized list of their $242,402 expense claim, saying she wanted to make sure there weren’t any “filet mignon” dinners or first-class plane tickets stuck in there.
She then called for a halt in proceedings to have a private meeting with the lawyers about their claim.
This is far from the first time that the legal system has been annoyed at highly paid lawyers padding class action cases and diverting money intended for end users into their firms’ pockets – or the pockets of their old universities or law schools.
Earlier this year, a group of 16 US state attorneys general wrote to the Supreme Court asking it to tear up an $8.5m legal settlement from Google – because none of the cash will go to the folks the class-action lawsuit was brought on behalf of.
In that case, the attorneys argued that when the settlement was divided by the number of people impacted it equated to four cents per user and so wasn’t worth it. And so they proposed giving the money left after they had been paid to seven “cy pres recipients” instead.
Oh, I see
It just so happened that three of the seven are law schools that the attorneys’ attended – Harvard University, Stanford University and the Chicago-Kent College of Law – and the remaining four are among Google’s favorite institutions who do work that benefit the tech giant and which the company already supplies millions to – AARP, Carnegie Mellon University, the MacArthur Foundation, and the World Privacy Forum.
It is an issue that it also getting worse: before 2000, there was roughly one case involving cy pres recipients a year; since 2000, there have been eight a year – and the majority of them have happened in the past decade.
In large part that is because of lawsuits against tech companies – who have vast global user bases in a way that few companies ever have in the past. But the system is being bent, and the state attorneys general want the Supreme Court to come up with definite rules to limit the opportunity for abuse.
What is remarkable however is that such agreements are often approved against the actual wishes of the litigants themselves.
In the Google case, several judges as well as outside companies that were pulled into the case by annoyed end users complained about the arrangement, with one judge noting that the money was going to the “usual suspects.”
In the Fitbit case, there have been three objectors to the settlement; two of which objected to the attorneys’ award.
One argued [PDF] the attorneys’ cut was “disproportionate to the amount of risk assumed by the attorneys” and that the more standard 15 per cent fee should be applied (providing an additional $3.3m to those actually impacted). He also argued for a “strict accounting” of their time and expenses.
Making a stink
A second noted [PDF] that while he is “the proverbial skunk at the garden party” in objecting to the settlement, there were a number of significant issues with the case: not least of which was that neither side was giving the full details of their settlement, including that the attorneys were incentivized to push the agreement under a quick pay provision.
But that settlement was reached after two years of litigation and due to the large number of people involved in the class action lawsuit, two objectors is not seen as significant enough to derail the whole agreement.
The assumption of course is that if you don’t actively complain, you are implicitly agreeing with the settlement whereas the reality on the ground is that virtually none of class action litigants are even aware of the case until it is settled, let alone its progress.
Judge Illston explicitly addressed that situation when she said the objectors concern were not sufficient to close off the settlement altogether and noted – as always happens in these case – that those individuals always have the option to withdraw and sue the company by themselves. But, again, in reality, they don’t because of the huge effort and resources required. Which is why class action lawsuits exist in the first place.
But the judge did criticize lawyers on both sides when she noted they hadn’t even bothered to give basic details of the case and the allegations behind it on a website that was set up to detail the settlement – fitbitsecuritieslitigation.com – a requirement for the settlement’s approval.
The lawsuit claims that Fitbit made false and misleading statements about its heart rate monitoring technology. The technology was inaccurate and inconsistent, the lawsuit claimed, and as such represented a serious health risk to users.
The company argued against the claims but research appeared to agree with the litigants – the fitness tracker was indeed inaccurate, and that the company knew it. When that came out, the company’s share price dropped five per cent in a single day.