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A class settlement that results in fees for class counsel but yields no meaningful relief for the class "is no better than a racket." If the class settlement does not provide "effectual relief" to the class and its "principal effect" is to "induce the defendants to pay the class's lawyers enough to make them go away, then the class representatives have failed in their duty under Fed. R. Civ. P. 23 to fairly and adequately protect the interests of the class. Fed. R. Civ. P. 23(a)(4). And if the class representatives have agreed to a settlement that provides meaningless relief to the putative class, the district court should refuse to certify or, alternatively, decertify the class. No class action settlement that yields zero benefits for the class should be approved, and a class action that seeks only worthless benefits for the class should be dismissed out of hand.
In January 2013, an Australian teenager measured his Subway Footlong sandwich and discovered that it was only 11 inches long. He photographed the sandwich alongside a tape measure and posted the photo on his Facebook page; the image went viral. Class-action litigation soon followed. Plaintiffs' lawyers across the United States sued Subway for damages and injunctive relief under state consumer-protection laws, seeking class certification under Rule 23 of the Federal Rules of Civil Procedure. Early discovery established that Subway's unbaked bread sticks are uniform, and the minor variations that occurred were wholly attributable to the natural variability in the baking process and cannot be prevented. Moreover, even if a sandwich roll failed to bake to a full 12 inches, no customer was shorted. With no compensable injury, the plaintiffs’ lawyers shifted their focus from a damages class under Rule 23(b)(3) to a class claim for injunctive relief under Rule 23(b)(2). The parties thereafter reached a settlement, agreeing to cap the fees of class counsel at $525,000. The district court preliminarily approved the settlement. A class member objected, arguing that the settlement enriched only the lawyers and provided no meaningful benefits to the class. The district court judge was not persuaded, and thereafter certified the proposed class and approved the settlement. The class member appealed.
Did the district court err in certifying the proposed class and in approving the settlement?
The court held that the class action certification and settlement was erroneous because the settlement yielded only fees for class counsel and no benefits for the class. According to the court, the injunctive relief provided by the settlement was worthless because a disclaimer on the restaurant's website merely noted that the size and shape of the bread varied due to natural variations in the bread baking process and after the settlement, the rare sandwich that fell short of the full 12 inches would still provide the customer the same amount of food as any other foot-long sandwich. As the settlement only enriched class counsel and the named representatives, the settlement should not have been approved. Accordingly, the decision was reversed, and the case was remanded.