One question that tends to arise in insurance class actions and other consumer class actions is whether a defendant can avoid class treatment by voluntarily providing relief to the proposed class.  The risks of doing that include the possibility that the litigation will continue because the plaintiffs’ lawyers will argue that the relief provided is somehow insufficient, or the plaintiffs’ lawyers will request a large attorneys’ fee award on the grounds that the case they filed purportedly resulted in the defendant’s voluntary decision to provide relief. 

The Seventh Circuit’s recent opinion in In the Matter of Aqua Dots Prods. Liab. Litig., 2011 U.S. App. LEXIS 17039 (7th Cir. Aug. 17, 2011) (Easterbrook, J.) addresses this issue.  The case involved a children’s product that, because of an incorrect ingredient used by a supplier, was toxic.  Upon discovery of the problem, the defendant immediately recalled the product and provided exchanges or refunds.  The plaintiffs sued, challenging the adequacy of the recall program.  Id. at *1-2.  The district court denied class certification on superiority grounds, finding that consumers would be better off returning the product than they would be by litigating a class action, which would incur substantial costs for attorneys’ fees and notice.  Id. at *4-5.  

The Seventh Circuit concluded that the district court properly denied certification, but did so for the wrong reason.  It explained that, in its view, the superiority subsection of Rule 23(b)(3) only permits a comparison between a class action and other forms of “adjudication” (such as small claims court), not between a class action and other forms of non-litigation relief.  Id. at *6-7.  The Seventh Circuit held, however, that the district court should have denied class certification on adequacy grounds, explaining that:

[T]he district court should have relied on the text of Rule 23(a)(4), which says that a court may certify a class action only if “the representative parties will fairly and adequately protect the interests of the class.” Plaintiffs want relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class. A representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the class members’ expense to obtain a refund that already is on offer is not adequately protecting the class members’ interests.

. . .

The per-buyer costs of identifying the class members and giving notice would exceed the price of the toys (or any reasonable multiple of that price), leaving nothing to be distributed. The principal effect of class certification, as the district court recognized, would be to induce the defendants to pay the class’s lawyers enough to make them go away; effectual relief for consumers is unlikely. 

Id. at *7-10 (emphasis added).

The key takeaway I see here is that voluntarily providing relief to the putative class may be enough to defeat class certification, in appropriate cases.  While there are risks to doing that, it is an option worth considering in some cases, especially where the company sees a substantial benefit from a business and public relations perspective to taking that approach. 

Tags: Seventh Circuit
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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and most of the class actions I’ve defended have been brought against insurance companies. I’ve also handled some involving products liability, managed care, health care, utilities, financial services, higher education and environmental issues.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at work, you might find me running lines or watching a musical with my teenage daughter who hopes to be a Broadway star (or taking her to voice or dance lessons) or reading a good book.

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