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Not Every Mediated Settlement is a Good Settlement.

By Christopher Annunziata

A little caveat for this post.  I am stepping slightly outside my bounds as a neutral here.  Some might say that it is not my place as a mediator to comment on the reasonableness of a settlement.  I agree. When I am the mediator on that case. The rest of the time, I am entitled to my opinions. I certainly don’t disagree with attorneys being fairly compensated for their work. But as an objective observer and as a consumer, this case doesn’t seem right.

Last week, business hardware company Pitney Bowes announced a mediated settlement of a class action “blast fax” lawsuit originally filed here in Georgia.  The suit arose when Pitney Bowes purchased a smaller supplier of printer products and used that customer list to solicit business from the supplier’s customers. The “blast fax” law prohibits companies from sending solicitation faxes without permission of the recipient or an existing business relationship.  Even though the supplier Pitney Bowes purchased had a relationship, the law prohibits companies from buying customer lists to circumvent this prohibition.

I think it was perfectly reasonable for Pitney Bowes to assume it had to right to use the customer list, which is an asset it purchased and which had a distinct value.  It was likely itemized among the various line items in the settlement papers.  The people on the customer list bought toner from the old company.

In any event, the lawyers who specialize in suing for such violations got involved.  Classes were certified.  The case was removed. And the parties decided to go through voluntary mediation. After two days of “some of the most intense mediation [the Plaintiffs' lawyer has] been through,” the parties agreed to settle the claim.  Normally, I’d be all for this.

The final settlement provided that “each member of the class will receive a coupon worth $26 toward any $100 purchase of ink or toner from Pitney Bowes for each week they received one of the faxes, with a $2 million cap on redeemed coupons.”

So what about the plaintiff’s lawyers?  They got roughly $1 million.  In cash.

It just doesn’t sit right with me.  Again, I am not against the plaintiffs bar or for attorneys being fairly compensated.  I understand class actions can be quite expensive, but this just seems out of proportion, to both the length of time the case was active and the actual settlement agreed upon.  As Walter Olson of Overlawyered notes in a 2006 article, it has become quite the cottage industry for a small group of lawyers. Assuming Pitney Bowes is “out” the maximum $2 million in lost revenue from coupon use, the attorneys will have collected 47.5%  of the damages as fees.

In the abstract, I can see the benefit of laws like this.  By creating a civil liability enforceable through the courts, it transfers the power to police the behavior from the state to the individual.  The threat of a potentially crushing monetary judgment for violating the law is meant to deter the violator from engaging in the prohibited activity.  Whether it works or not is debatable.  My guess is that blast faxes have disappeared more from the simple fact that nobody faxes anything anymore when you can scan and email.

Back to the case at hand. Pitney Bowes sent blast faxes to customers of the business it just purchased. Apparently, some customers didn’t want to do business with Pitney Bowes, or just wanted the faxes to stop.  Those blast faxes violated the letter of the law and exposed the company to significant money damages payable to the aggrieved customers.

So what did the plaintiffs’ lawyers negotiate on behalf of the plaintiffs, who supposedly sued to stop receiving faxed coupons, and who were entitled to money damages?  Coupons for the plaintiffs.  Cash for the lawyers.

Of course, we don’t know what happened in this “intense” mediation.   Nor do we know whether the initial demand from the plaintiff’s lawyers was for a cash payout to the relatively small and easily identifiable class.  But it is hard to say that this settlement benefited the interests or needs of anyone except the plaintiff’s lawyers.

Full post as published by CKA Mediation and Arbitration Services Blog on September 07, 2009 (boomark / email).