Does a state, whose citizens are among the absent class members in a class action settlement, have Article III standing to challenge the supposed unfairness of the settlement? In Chapman v. Tristar Products, Inc., the Sixth Circuit said no.
The Trial Court’s Decision
Chapman involved a product liability class action against the manufacturer of allegedly defective lids for pressure cookers, which may have exposed users to possible injury. Some of the plaintiffs’ class claims were dismissed, but others survived. The trial court certified three state classes (none of which included Arizona residents), and the case proceeded to trial.
During trial, the parties agreed to a settlement of the case on a global basis with a nationwide class (which did include Arizona residents). The settlement entitled class members to receive a coupon for purchase of a different Tristar product and a warranty extension, provided they watched a safety video; the trial court valued this relief at approximately $1 million. The defendant agreed not to oppose a request for attorneys’ fees and expenses (not to exceed $2.5 million) by class counsel; the trial court ultimately approved an award of just under $2 million.
At the fairness hearing, the State of Arizona appeared as an amicus, arguing that the proposed settlement was unfair to the plaintiff class. Arizona did not argue that the settlement compensation was unfair or unreasonable in total, but instead that the division of the settlement proceeds resulted in too much being paid to class counsel and too little to class members. When the trial court indicated its willingness to approve the settlement (with some modifications), Arizona sought to intervene under Fed. R. Civ. P. 24, and alternatively requested that the court recognize it as an objector to the settlement (in either case to preserve a right to appeal). The trial court denied both requests, holding that Arizona lacked Article III standing, and the state appealed.
The Sixth Circuit’s Decision
A unanimous panel of the Sixth Circuit dismissed Arizona’s appeal for lack of jurisdiction, upholding the trial court’s finding that the state lacked Article III standing. Arizona’s asserted three bases for standing: (1) that it had standing under the parens patriae doctrine to assert the rights of its individual citizens; (2) that CAFA conferred standing on it; and (3) that it possessed a “participatory interest” in class action settlement proceedings sufficient to quicken standing. The appeal court rejected all three.
Under the parens patriae doctrine, a state must assert an injury to a “quasi-sovereign interest” in order to have standing, which necessitates an interest apart from the interest of “particular private parties.” The appeals court concluded that Arizona’s objections to the settlement were indistinguishable from the objections individual Arizonans might raise and did not implicate any “quasi-sovereign interests” of the state.
As to CAFA, the Sixth Circuit held that while the statute does require parties to notify state attorneys general of proposed settlements and requires a period of at least 90 days after such notice before any final approval of a settlement, nothing in CAFA grants a state any right to intervene. The appeals court noted that while portions of CAFA’s legislative history might support Arizona’s position, the statute itself explicitly declines to “expand the authority of … Federal or State officials.” Thus, said the court, it would not “resort to legislative history to cloud a statutory text that is clear.”
Arizona’s final argument, that its regular participation in class action settlement proceedings on behalf of its citizens created a right to intervene, fared no better. Even if such an interest qualified as a “substantial legal interest” for purposes of intervention, said the court, the state nonetheless failed to show an injury-in-fact to confer Article III standing. Arizona’s interest in participating made it no more than a “concerned bystander” to the proceedings; the state’s disagreement with the settlement on policy grounds resulted in no concrete or particularized harm that would support standing.
- The outcome in Tristar accords with generally accepted standing principles. Arizona’s arguments on parens patriae standing were, as a matter of optics, likely weakened by the fact that no Arizona consumer objected to the settlement, as well as the state’s acknowledgement that it had no interest in representing Arizona consumers in the litigation apart from its efforts to have the settlement disapproved. And other courts, for example the district courts in the Deepwater Horizon and Budeprion XL litigations, have similarly concluded that CAFA does not give Article III standing for state officials. (This is not to suggest that CAFA’s mandatory notice provisions to federal and state authorities need not be followed; failure to do so can still be fatal to settlement approval.)
- Tristar does not, however, imply that state and federal regulators will lose enthusiasm for objecting to coupon-based consumer class settlements going forward; they doubtless will continue to scrutinize such settlements closely. Still, Tristar affords some comfort that regulators will have a difficult time taking on the status and rights of parties in objecting to private class action settlements (such as the potential right to engage in discovery and motion practice, and the right to appeal).
- The case displays some of the potential perils of a coupon-based settlement, which here attracted challenges from not just Arizona, but 17 other attorneys general and the U.S. Department of Justice. The coupon component of the Tristar settlement required class members to apply separately for the coupons and then use them within 90 days. And the coupons offered only a discount and an extended warranty on the purchase of additional Tristar products. The coupons were not transferable, could not be converted to cash through a secondary market, and (at least according to the DOJ in its appellate brief) less than one-half of one percent of class members even requested a coupon. A review of the district court’s approval order seems more focused on weaknesses in the class’ claims at trial than value of the settlement for the class.
- Even though the Sixth Circuit did not reach the issue given its jurisdictional ruling, we note a developing circuit split on how class counsel fees may be calculated in a coupon-based class settlement. The Ninth Circuit has held that only § 1712(a) of CAFA applies to such settlements, that attorney’s fees must be determined as a percentage of the value of the coupons redeemed by the class, and that a lodestar method of calculation is unavailable. The Seventh and Eighth Circuits, conversely, have held that § 1712 is permissive and allows for use of the lodestar method, and that only when the court uses the percentage-of-fund method must that fund be calculated based on the value of the coupons actually received.