Posts belonging to Category Settlements

The consequences of the financial crisis that began four years ago this month, with the collapse of Lehman Brothers, continue to take tangible form, most recently in Bank of America’s $2.3 billion settlement of claims related to its 2008 acquisition of Merrill Lynch. While not the largest federal securities settlement of all time, the Bank of America settlement falls within the top ten, among such dubious company as WorldCom and Enron (according to Stanford Law School Professor Joe Grundfest, who systematically follows and analyzes securities litigation under the auspices of Stanford’s Securities Class Action Clearinghouse). 

Within days of Bank America’s $50-billion acquisition of Merrill Lynch, leading voices in the financial press expressed their skepticism, with one characterizing it as “the deal from hell.”  However, in ill-advised public statements that would provide evidentiary fodder for the newly-settled litigation, Bank of America boasted that the synergy between it and Merrill Lynch would create a single dominant financial-services company. Instead, the hastily-constructed deal quickly proved to be disastrous, as many of Merrill Lynch’s top executives fled in the wake of revelations of huge, undisclosed losses.

Specific terms of the settlement — including how much individual shareholders and class counsel will receive — have not been released. However, this information will be included in the preliminary approval papers, likely to be filed presently.

JPMorgan Chase & Co. has agreed to pay $100 million to settle a class action initiated by credit card holders who accused the banking giant of improperly increasing minimum payments as a means of generating higher fees. See In Re: Chase Bank USA, N.A. “Check Loan” Contract Litigation, No. 09-2032 (N.D. Cal. Aug. 9, 2012) (Order Granting Preliminary Approval of Class Settlement) (available here).

The plaintiffs allege that Chase breached the implied covenant of good faith and fair dealing by issuing each plaintiff a credit card and including in the Cardmember Agreement a provision that cardholders make minimum payments of two percent of the outstanding balance of any cash advances. The at-issue Agreement also provided that Chase reserved the right to change the terms of the Cardmember Agreement. The lawsuit’s core allegation is that Chase raised the minimum monthly payment from two to five percent with the primary objective of triggering a “penalty APR” of 29.99% plus late fees. The MDL-referred action acquired the shorthand title “Check Loan Litigation” because the initial offer to plaintiffs was accompanied by the balance-transfer checks familiar to most credit card holders.

The $100 million settlement preliminarily approved by Judge Maxine M. Chesney is said to represent 45 percent of the approximately $220 million in late fees and excess interest costs incurred as a result of Chase’s alleged practices. Attorneys’ fees may not exceed 27 percent of the full settlement fund. Class notice is scheduled to be mailed to the class members on August 24, 2012.

The Check Loan Litigation is perhaps the least of JPMorgan’s current concerns, having been among the financial entities that, along with Visa and Master Card, agreed to pay $6 billion to settle claims brought by retailers related to the merchant fees charged by credit card issuers in order to allow customers to pay with credit cards. Additionally, government regulators have included JPMorgan in their investigation of the LIBOR scandal, which implicates the London Interbank Offered Rate to which the interest payments on school, auto, and other loans are commonly tied.

The Check Loan settlement is expected to be well received by class members and to proceed to the final approval stage.

Virtually coinciding with the much-publicized Facebook IPO, the preeminent social networking company has agreed to a settlement “in principle” with Facebook members who alleged that the site used their endorsements of Facebook’s “Sponsored Stories” feature without their consent and without compensating them. Fraley v. Facebook, No. 11-cv-01726 (N.D. Cal. May 22, 2012) (Notice of Execution of Term Sheet) (available here). The settlement’s terms and scope have not yet been announced. However, as the parties must obtain judicial approval of the class action settlement, the papers submitted in support of both preliminary and final approval will indicate how class members are to be compensated, any injunctive remedies, and the attorneys’ fees sought.

The Fraley plaintiffs contend that, in essence, Facebook used them to create endorsements akin to celebrity endorsements, informing members’ “friends” that they “like” certain companies or products. See Fraley v. Facebook, Second Amended Complaint (June 6, 2011) (available here). According to internal valuations that were part of the Facebook IPO, friend-to-friend referrals are potentially more valuable than endorsements from famous people.

The case’s pivotal moment came in December 2011, when Northern District Judge Lucy Koh denied Facebook’s motion to dismiss, chiefly on the basis of evidence put forth by the Fraley plaintiffs confirming that Facebook attaches significant monetary value to the Sponsored Stories endorsements. See Fraley v. Facebook, Order Granting in Part and Denying in Part Defendant’s Motion to Dismiss (Dec. 16, 2011) (available here). Facebook CEO Mark Zuckerberg has stated that friend-to-friend endorsements are the “Holy Grail” of advertising, and COO Sheryl Sandberg estimates that the value of a Sponsored Stories endorsement is as much as 200 to 300 percent greater than a standard advertisement without a friend-to-friend endorsement. Order at 4.

Facebook also faces allegations of uncompensated endorsements in connection with its “Friend Finder” service. See Cohen v. Facebook, No. 10-cv-05282 (N.D. Cal. Nov. 22, 2010) (Class Action Complaint) (available here). In contrast to Judge Koh’s ruling in Fraley, Northern District Judge Richard Seeborg ruled that the Cohen plaintiffs failed to established how they were injured by Facebook’s failure to either obtain their consent for their Friend Finder endorsements or compensate them, despite the fact that California Civil Code § 3344 — the controlling law in both Fraley and Cohen — was enacted precisely to ensure that non-celebrities be paid for endorsements, just as celebrities customarily are. An appeal of Judge Seeborg’s ruling is currently pending before the Ninth Circuit Court of Appeals, with briefing scheduled to begin next month.

A class action suit filed in February 2011 alleged that the maker of Nutella, Ferrero U.S.A., misleads consumers into believing that Nutella is healthy using deceptive advertisements.  See Hohenberg v. Ferrero U.S.A., No. 11-0205 (S.D. Cal. filed Feb. 1, 2011).  Now, the parties have reached a $3 million settlement, which provides relief to members of California and nationwide subclasses.  $2.5 million of the settlement is earmarked for division among claimants, with each claimant entitled to receive $4 per jar of Nutella purchased, up to five jars. 

In Hohenberg, the plaintiff claimed that Ferrero conceals the fact that Nutella is nearly three-quarters saturated fat and that it contains none of the nutritional properties associated with the fruit and other healthy foods pictured in Nutella ads.  In addition to providing monetary relief to customers, Ferrero will also be required to remove misleading health claims from its packaging, website, and advertising.