Justinian Lane

A different kind of class action reform

Ever see Office Space, or Superman III? Those movies both feature a computer “virus” that steals fractions of a cent from millions of bank transactions. Individually, the transactions are meaningless. But combined, the transactions add up to hundreds of thousands of dollars.

Imagine you were the victim of such a virus; you discovered that someone embezzled 3/5ths of a cent from your checking account. Would you go to the trouble of filing a lawsuit to recover it? Probably not – your time is worth more than a fraction of a cent. But if the author of such a virus embezzled fractions of a cent from millions of citizens, a class action lawsuit would be the proper remedy. In such a scenario, you would do little more than sign a piece of paper, and some time later, you’d get your 3/5ths of a cent back. The embezzler would refund all of the ill-gotten gains, plus be forced to pay hefty attorneys’ fees to the class action lawyer.

Not surprisingly, there’s been a call from the business community to “reform” class action lawsuits. Rather than argue that class action lawsuits aren’t good for companies that rip off consumers, “reformers” argue that class action lawsuits aren’t fair to consumers that get ripped off.

Several years ago, I visited to view my credit reports and scores. I read the disclaimer that informed me that I would receive 60 days of the service for free, and after that I would be charged $79.95 to be enrolled in the yearly service. If I didn’t want to be charged, all I had to do was cancel the free service. I understood that, even though the disclaimer wasn’t really obvious.

I proceeded to enroll in the service, but ran into a snag. I was asked a series of “security questions” to verify I was the person I claimed to be. I failed the security questions, and the site informed me I couldn’t be enrolled in the service. The site specifically told me that my credit card would not be charged.

Lo and behold, some months later I incurred a series of overdrafts on my checking account because I *was* charged $79.95 for a service I never received. I straightened things out with my bank, and contacted for a refund. They refused to give me a full refund, and instead gave me a “pro-rated” refund that took into account the portion of time I supposedly had a membership. I tried explaining to them that I never had access to the service, as they couldn’t identify me. They wouldn’t budge, so I did the only logical thing: I spent a couple hundred dollars in filing and service fees to sue them to recover my $12.00 they wrongfully kept. In the end, we were able to resolve our differences amicably.

I documented this story on, and to this day, the second most popular series of articles are those dealing with my lawsuit. Lots of people have apparently had similar problems with bogus refunds.

The other day, I received notice of a class action settlement for people who were also ripped off by I threw it away because I had already resolved my differences with, and didn’t give it another thought until a lawyer contacted me regarding the class action settlement.
He described it as bordering on “collusive” between the plaintiff’s attorneys and, and I can see why. Those who opt-in to the settlement can receive either: (a) Their credit score from Experian, or (b) Two months of free credit monitoring service. If you opt for (b), you have to again provide your credit card number to for them to charge at the end of 60 days. You know – the exact same behavior that got them into this lawsuit in the first place. Oh, and the attorneys handling the suit get over $2 million in fees.

This “settlement” is offensive. Rather than getting their money refunded, class members get either a meaningless credit score (no report comes with it to find errors and such) or the opportunity to once again get ripped off by The company already proved it can’t be trusted to properly bill individuals for its service – why on Earth should the settlement give them the opportunity to defraud consumers again? It’s entirely possible that enough people will either forget to cancel the service or be improperly charged that will make money from this settlement. Unacceptable.

This settlement makes me think class action reform is in order. Perhaps something along the line of requiring any ill-gotten gains be returned with interest to consumers. Or not allowing a settlement that costs the company nothing more than attorneys’ fees. Maybe even requiring the company to put in place policies and procedures to correct the problem in the first place. At the very least, prohibiting settlements that require class members to give credit card information to the defendant.

The attorney who used the phrase “collusive” suggested he has evidence showing has made “hundreds of millions of dollars” by improperly charging consumers. If he’s off by even a factor of ten, this settlement is still a travesty of justice. I plan on objecting to this settlement and may even attempt to appear and speak at the settlement conference.

What worries me the most is that this settlement will become another exhibit in the “reform” lobby’s effort to reduce class action lawsuits. Real reform wouldn’t make it harder to file class action lawsuits or to get them certified, but would force settlements to exceed the cost of attorneys’ fees. At the very least, it would preclude settlements that help the defendant make money by engaging in the same behavior it was sued over.

I welcome discussion on this topic – especially if you think I’ve got it wrong and this settlement is fair.

Justinian Lane: Author Bio | Other Posts
Posted at 12:29 PM, Mar 19, 2007 in Class Action
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Hi Justinian,

Sorry to disappoint you, but I agree with you completely!

An attorney (who, by the way, is filing an objection to this class action settlement) wrote in to my web site characterizing this as a "coupon" settlement.

In this case, the relief is particularly insulting: You go to for a free credit report. Instead you get stuck in a credit monitoring service. You sue (through a class action lawsuit) and your lawyer settles for a coupon for more of the credit monitoring you didn't want in the first place.

Experian's off the hook for their fraudulent activity, your lawyer has a new house in Martha's Vineyard and you get stuck with a worthless coupon.

The term "collusion" certainly enters my mind!

Credit Monitoring is a Rip Off!

Posted by: Jeff | March 19, 2007 5:08 PM

And, wouldn't you know it, this is precisely the kind of abusive class-action settlement civil justice reformers have been complaining about for years. Justinian, there have been worse settlements than this--I have an AEI paper coming out this week discussing one where the class members ended up having money deducted from their accounts to pay their lawyers. Perhaps before criticizing reformers, you should actually read what they have to say about the matter. If this case were under the jurisdiction of the Class Action Fairness Act, which this web site has regularly inveighed against, it would have no chance of being approved by the court. The only reason it has a chance is because Democrats, encouraged by trial lawyer lobbyists, watered down the bill so that existing class actions wouldn't be affected by the limitations on coupon settlements.

Posted by: Ted | March 19, 2007 8:21 PM

This settlement makes me think class action reform is in order.


Now you're starting to see the light! This is exactly the sort of thing we complain about over at Overlawyered. In fact, it's not just the "sort" of thing we complain about; Walter Olson already posted about that exact class action settlement.

Posted by: David Nieporent | March 20, 2007 1:29 AM


As you and Justininan agree (which is wonderful to have happen about something by the way), this type of settlement is incorrect.

In fact, this restriction on coupon settlements was one of the

Two Good Things About the Class Action "Fairness" Act that I noted in my series about the act.

The post in its entirety is below and here's the link.

The problem with CAFA was that these two good changes to class action litigation were used to "water" down the other harmful changes that the bill pushed through so that it could get Senate approval.

Had you done as you suggest Justinian do, and done a search for what has actually been said about the Class Action Fairness Act, you would see that this positive development is discussed.

Indeed, consumer protection organizations like Public Justice ( and Public Citizen see fighting these unfair settlements as equally as important parts of access to justice works as fighting tort "reform" (see examples and

Even so, they found the negative aspects of the bill to outweigh the advantage of stopping the possibility of collusion between corporate defendants and class action plaintiff lawyers.

Here is the series that I wrote on it:

The Top Seven Bad Things About the Class Action "Fairness" Act

Top Three Misconceptions on Which the Class Action "Fairness" Act is Based

The Top (and only) Two Good Things About the Class Action "Fairness" Act

Entire post below...

The Top (and only) Two Good Things About the Class Action "Fairness" Act

Have you heard of the Class Action Fairness Act of 2005? This recently enacted bill is affecting our ability to get compensation for large-scale harm done to society by corporations.

Surprisingly, the Class Action Fairness Act of 2005 was passed by Congress in an attempt to make it harder for class action lawsuits to be approved by the nation's courts.

Our recently released Congressional Scorecard reviews this bill. We have also already given you "The Top Seven Bad Things About the Class Action Fairness Act", "The Single Stupidest Thing About CAFA", and "The Top Three Misconceptions on Which the Class Action Fairness Act is Based."

I'd like to continue to talk about the bill's pitfalls and shortsightedness by way of a final "top" list:

The Top (and only) Two Good Things About the Class Action "Fairness" Act

1. The Act helps to reign in at times abusive "coupon settlements". Before the law, in reaching settlement, plaintiffs' lawyers' financial interests sometimes merged with defendant companies'. Plaintiff lawyers (in federal court) would often agree to "coupon settlements" in which their clients got only coupons as compensation. In contrast, they would still earn millions in cash from attorneys' fees. Redemption rates for these low-value coupons were always low, but the plaintiff lawyers got paid either way. The act fixes this problem (in federal courts) by tying the amount of lawyers' fees the plaintiff attorneys can collect to the amount of coupons actually redeemed. Now plaintiff lawyers will not agree to low value coupons that nobody will redeem because they simply won't make any money after the settlement.

2. A second aspect of the act which is good policy is a notice of settlement provision. Under the Act, every class action defendant must give individual notice to the "appropriate" federal and national government official. The Act does not delineate what these officials can or will do with this information. Therefore, under a plaintiff friendly administration, some have observed that this act may quickly alert government officials to corporate misconduct and unfair settlements.

Although these last two elements are a positive change, they should have been passed absent the bill's other provisions.

For a comprehensive review of the Class Action Fairness Act of 2005 also checkout Public Citizen's report.

Posted by: Cyrus Dugger | March 20, 2007 10:11 AM

I haven't checked, but I would imagine it's below 32 degrees in Hell, Michigan: Ted, David, and I agree on something.

Thanks for the relevant links, Cyrus.

What's particularly irritating to me about this settlement is that as an IT guy, I know it would be very simple for to give two months worth of monitoring to users without needing their credit card number. It is simply unconscionable for these attorneys to accept such a settlement.

Ted, I look forward to your paper on abusive settlements. Would you mind suggesting what you think would be an appropriate settlement in this case? I think cash refunds would be in order.

Also, I don't see how restricting the ability to file class action lawsuits, or funneling them into Federal courts helps consumers...

Posted by: Justinian Lane | March 20, 2007 1:31 PM

An appropriate settlement depends on the likelihood of success of the underlying claim. Obviously, the plaintiffs' attorneys think it's very close to zero given that they are willing to settle for a nuisance sum rather than try to litigate the case.

Cyrus fails to recognize that CAFA's provisions regarding settlements are absolutely powerless and worthless without the jurisdictional provisions he inveighs against. Dugger writes "Surprisingly, the Class Action Fairness Act of 2005 was passed by Congress in an attempt to make it harder for class action lawsuits to be approved by the nation's courts," but I defy him to identify one provision in the statute (other than the settlement provision) that "makes it harder for class action lawsuits to be approved by the nation's courts"; other than the settlement provision, it's purely a jurisdictional statute. Dugger doesn't seem to understand the bill at all, which is perhaps why he resorts to pure cut-and-paste measures.

Posted by: Ted | March 20, 2007 2:07 PM

"Obviously, the plaintiffs' attorneys think it's very close to zero given that they are willing to settle for a nuisance sum rather than try to litigate the case."

Now, I'm not in any way suggesting this is the case, but: Isn't it also possible that a defendant could "cut a deal" with the plaintiffs' attorney(s) for a worthless coupon but a fee as large or larger than they may be entitled to if the case were litigated? Certainly, if I were an unethical attorney (which I am not implying these attorneys are) I would be willing to take a few million bucks now rather than deal with the risks of a trial, appeals, etc...

Posted by: Justinian Lane | March 21, 2007 11:39 AM