7th Circuit Tosses RadioShack Settlement

     CHICAGO (CN) – After RadioShack offered $10 coupons to settle claims over the spread of its customers’ credit card details, class counsel should not take home $1 million, the 7th Circuit ruled.
     Scott Redman brought the suit against RadioShack Corp. in September 2011, hoping to represent a class whose receipts contained their credit or debit card’s expiration date, in alleged violation of the Fair and Accurate Credit Transactions Act (FACTA).
     The law also bars businesses from electronically printing more than the last five digits of customers’ credit or debit card numbers on receipts.
     In a proposed May 2013 settlement, each class member would receive a $10 coupon to use at any RadioShack store within six months. They would not get change, however, if the item cost less than $10.
     The settlement allowed customers to also sell their coupons, or buy up to two more from other class members.
     Though the class was assumed to contain 16 million members, fewer than 5 million consumers ultimately received notice of the proposed deal, and only 83,000 submitted claims.
     U.S. Magistrate Judge Maria Valdez in Chicago approved the settlement, but the 7th Circuit reversed Friday.
     “The magistrate judge’s statement that ‘the fact that the vast majority of class members – over 99.99 percent – have not objected to the proposed settlement or opted out suggests that the class generally approves of its terms and structure’ is naïve, as is her basing confidence in the fairness of the settlement on its having been based on ‘arms-length negotiations by experienced counsel,'” Judge Richard Posner wrote for a three-judge panel. “The fact that the vast majority of the recipients of notice did not submit claims hardly shows ‘acceptance’ of the proposed settlement: rather it shows oversight, indifference, rejection, or transaction costs. The bother of submitting a claim, receiving and safeguarding the coupon, and remembering to have it with you when shopping may exceed the value of a $10 coupon to many class members. And ‘arm’s-length negotiations’ are consistent with the existence of a conflict of interest on the part of one of the negotiators – class counsel – that may warp the outcome of the negotiations.”
     The court also rejected the settlement’s $1 million class counsel award.
     “But here’s the rub, regarding the second suggested adjustment in the settlement, the adjustment that increases the size of the settlement rather than its division between class counsel and class members: RadioShack is in terrible financial shape,” Posner wrote. “Recently Moody’s reduced the company’s credit rating to Caa2 (‘rated as poor quality and very high credit risk’). An article by William Alden ominously entitled ‘RadioShack Sees Filing for Bankruptcy Near’ was published just last week in the New York Times.
     “Adding millions to the cost of the settlement to RadioShack might, if not precipitate the company’s failure, make it more likely – an outcome that might leave very little for the class members,” the judge added. “A modest settlement is the prudent course. And a coupon settlement has the virtue of boosting RadioShack’s business, since as we’ve noted couponing is a marketing device that must sometimes be more effective than an equivalent price cut. So even if the proposed settlement of $830,000 in coupons is worth a good deal less than face value and is therefore modest relative to a potential class of millions of consumers, we think it was adequate in the parlous circumstances in which the defendant finds itself. But that is not to say that the $1 million attorneys’ fee is reasonable; and if it were cut down the amount saved could be reallocated to the class, thereby increasing the meager value of the settlement to the class members.”

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