Special thanks goes to IBOFIGHTBACK, author and owner of the pro-Amway website, The Truth About Amway, for providing the tip and sharing the below court decision.
UPDATE: Upon receiving information, the settlement was not technically “denied.” Although it was “not approved,” it does not equate to a denial. It appears that the settlement will eventually occur; however, the judge is demanding more information.
Recently, Amway settled a number of disputes. One of the settled lawsuits was the Pokorny class action case. The Pokorny case, in my opinion, was Amway’s largest problem. In November of 2010, Amway settled the Pokorny lawsuit. Terms of the settlement were basically as follows:
- 90 day refund period for new registrants
- Additional disclosures for prospects
- Offer free training on product sales and ethical business practices
- Maintain and enforce “quality controls” over tool companies
- Lowering their prices by 5%
- …..and a $34M cash fund for class members AND lawyer fees.
Plaintiffs’ counsel was to receive $20M of the cash fund. Remember, the cash fund was created to benefit the class members. And if you believe that, I’ve got some ocean property for sale in Arizona.
In the Ninth Circuit, the judge has to approve all class settlements. It actually makes sense. As explained by the judge in the quote below, the class members are never at the table to negotiate for themselves. If you read the entire order, which I would NOT recommend because it’s really boring, the judge cites his reasoning for denying the settlement attempt. He wants more information about the plaintiffs’ attorneys competency, which I thought was humorous. Plaintiffs’ counsel in this case is as high-profile as it gets. He also wants more information about the amount of tools the class participants would customarily purchase. He also wants to learn more about the size of the class.
Those questions will easily get answered in the briefing, as he requested. The most important part of the decision is quoted below. It’s about fairness. In summary, he does not seem thrilled that the attorneys are walking away with 2/3 of the cash pot while the remainder of the class, which could number into the tens of thousands, will receive some product coupons and a refund on their registrations (if they qualify). What do you think? Does the decision make sense? The entire decision can be found at the end of the article.
Key quote
The Ninth Circuit has warned that “there are real dangers in the negotiation of class action settlements of compromising the interests of class members,” because “[i]ncentives inherent in class-action settlements” can “result in a decree in which the rights of [class members, including the named plaintiffs] may not [be] given due regard by the negotiating parties.” Staton, 327 F.3d at 959 (internal quotation marks omitted). These incentives stem from the fact that “[t]he class members are not at the table; class counsel and counsel for the defendants are.” Id. This can “influence the result of the negotiations without any explicit expression or secret cabals,” and is why “district court review of class action settlements includes not only consideration of whether there was actual fraud, overreaching or collusion but, as well, substantive consideration of whether the terms of the decree are ‘fair, reasonable and adequate to all concerned.’” Id. at 950 (citing Officers for Justice v. Civil Serv. Comm’n of San Francisco, 688 F.2d 615, 625 (9th Cir. 1982)). Due in part to these dangers of “collusion between class counsel and the defendant,” the Ninth Circuit has adopted the rule of other circuits that “settlement approval that takes place prior to formal class certification requires a higher standard of fairness,” leading to “a more probing inquiry than may normally be required under Rule 23(e).” Hanlon, 150 F.3d at 1026.
The Court first notes that many of the hallmarks of collusive unfairness are present in this Settlement Agreement. Defendants agree to not oppose an attorneys’ fees motion by Plaintiffs’ counsel for as much as $20 million. If the Settlement and the contemplated motion for attorneys’ fees are approved, nearly two-thirds of the $35 million Cash Fund would be awarded to Plaintiffs’ counsel. The parties appear to justify the size of this proposed award by agreeing that the injunctive relief in the Settlement is valued by the class at $100 million. The Court has difficulty accepting this estimate as fact — the parties offer no evidence in support of this estimate, nor do they attempt to justify it through attorney declarations. Many of the Court’s criticisms of the parties’ motion for class certification also apply to the proposed settlement. For example, it is not clear that the settlement will fairly compensate all class members. . . .
It appears that Amway is going to be required to litigate the California class action case in Federal District Court. This is significant because it means the facts obtained during discovery will be made publicly available. 
