As readers of the blog by now know, I’m always on the lookout for examples of class-action settlements that pay off the lawyers while providing little or no benefit to the members of the putative class. The most recent example is Galloway v. Kansas City Landsmen, LLC (pdf), in which Judge Greg Kays of the U.S. District Court for the Western District of Missouri rejected a coupon-only settlement.
The claim in the case is that the defendants, a number of Budget rental car outlets, violated the Fair and Accurate Credit Transactions Act (FACTA) by failing to truncate credit card numbers and expiration dates on electronically printed receipts. The parties entered into a “claims made” settlement under which class members who submitted claims would receive coupons for use in future car rentals. The coupons would have a 120-day expiration date, be subject to blackout periods, and could not be combined with other coupons, discounts, or promotions. Meanwhile, the defendant agreed to pay $175,000 in attorneys’ fees to class counsel.
Judge Kays concluded that “few class members will likely file claims because the benefit of doing so is not worth the effort.” That was so for two reasons.
First, Judge Kays found that “[a]lthough every class member could receive a coupon, it is a coupon which is generally available to any frugal shopper.” Indeed, he pointed out, “[a] quick search of the internet found comparable coupons for a Budget brand rental car.” Judge Kays further observed that the restrictions on the coupons made them even less valuable than they might at first blush appear. “The coupons have no cash value, and while transferrable, they cannot reasonably be expected to be sold in a secondary market, because no one will buy a coupon if an equivalent is available for free on the internet.”
Second, the claims process itself would be a deterrent. Under the settlement, each claimant would have to provide information to prove that he or she made a credit or debit card transaction at one of the defendants’ retail locations during the class period. In addition, each claimant would have to attest to the accuracy of the information provided and might be required to submit additional information. As Judge Kays saw it, “[f]ew class members are likely to rummage through their records to find old credit-card receipts” (assuming they still have them), swear to the viability of their claim, and agree to submit additional information just to receive a run-of-the-mill coupon with a number of restrictions on its use.”
My principal takeaway from this case is that Congress needs to amend FACTA to make it less of a cash cow for entrepreneurial plaintiffs’ lawyers. In most cases, including this one, there is no indication that the failure to truncate card numbers and expirations dates injured anyone. While the goal of reducing identity theft is undeniably an important one, there are ways to accomplish it without threatening the existence of legitimate businesses that have made an innocent mistake; the kinds of massive statutory damages that FACTA class actions threaten—here, between $130 million and $1.3 billion—give plaintiffs’ lawyers too powerful a cudgel to extract a blackmail settlement from defendants.