NCPA - National Center for Policy Analysis


August 5, 2009

The lawyers were paid millions of dollars.  Ford Motor Co. put behind it a costly lawsuit connected to the Explorer rollover scandal of the 1990s.  And the judge closed out a complex case that clogged the Sacramento County Superior Court's overburdened calendar for more than seven years.  Everyone seemingly got some tangible benefit -- except for nearly all of the 1 million consumers covered by the class action lawsuit filed in their name.  None of the consumers got money, only discount coupons toward new Ford purchases.  Few used them.

The practice of settling class action lawsuits by doling out discount coupons rather than cash has come under fire from tort reform activists and others who complain that such lawsuits mainly benefit the lawyers at the expense of their clients, says the Washington Post.

Lawyers, judges and legal scholars have long wrangled with how to fairly compensate large number of people who suffered harm that is worth very little individually but adds up in the aggregate, says the Post:

  • Earlier this year, a Los Angeles Superior Court judge ordered that a class action lawyer receive 12,500 $10 gift certificates for winning the discount for the roughly 43,000 customers of clothing retailer Windsor Fashions, which solicited personal information during credit card purchases.
  • The judge later reversed himself and ordered the lawyer paid in cash.
  • Typically the rate of redemption of such coupon settlements is not tracked, and judges are only presented with anecdotal evidence of how fair such agreements are when considering approval.

But in the case of the Ford Motor Company -- in which none of the consumers covered by the lawsuit got money, only discount coupons toward new Ford purchases -- the judge, at the urging of several lawyers objecting to the original settlement, required the class action attorneys to file a report detailing the redemption rates.  That report, which highlighted the dismal consumer participation, is expected to be considered by other judges pondering coupon settlements across the country.

The Ralph Nader-founded Center for Auto Safety and several others expressed outrage and tried to stop the settlement last year.  But the Ford case stands out even against the backdrop of endless debate over class action litigation where lawyers get multi-million-dollar paydays for settlements that have minimal value for most of their clients, says the Post.

Source: Paul Elias, "Lawyers emerge as the winner in Ford settlement," Washington Post, August 3, 2009.


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