by: Peter J. Gallagher (@pjsgallagher) (LinkedIn)
I am a regular Subway customer, so I read the Seventh Circuit's opinion, In re. Subway Footlong Sandwich Marketing and Sales Practices Litigation, with great interest. You probably remember the events that spawned this litigation. As the Seventh Circuit described it: "In January 2013 Matt Corby, an Australian teenager, purchased a Subway Footlong sandwich and, for reasons unknown, decided to measure it. The sandwich was only 11 inches long. He took a photo of the sandwich next to a tape measure and posted the photo on his Facebook page. Thus a minor social-media sensation was born." And, "[w]ithin days of Corby's post, the American class-action bar rushed to court," therefore, a class action lawsuit was also born. It ended a few years later with a settlement, which the Seventh Circuit just overturned.
To say that the Seventh Circuit was critical of the settlement would be an understatement. Its opinion is filled with subtle, and not so subtle, criticisms of the settlement and plaintiffs' counsel. For example, early in its opinion, the court observed: "In their haste to file suit [ ] the lawyers neglected to consider whether the claims had any merit. They did not." It did not get much better for plaintiffs from that point on.
The court noted that the parties engaged in limited, informal discovery early on in the case, with the intent of going to mediation. This discovery revealed that plaintiffs' claims were deficient. It showed that "the length of the [baked] bread has no effect on the quantity of food each customer receives." First, all of Subway's raw dough is exactly the same size. So, even the few rolls that bake to approximately a quarter-inch less than 12 inches because of natural, and unpreventable, "vagaries in the baking process" provide the same bread as those that bake to the full 12 inches. Second, Subway standardizes the amount of meat and cheese that its "sandwich artists" put on each sandwich, so whether the bread is 12 inches long or a quarter-inch short, the customer still gets the same amount of food. (In the interest of full disclosure, because I am a regular, I do occasionally get an extra slice of ham, salami, and pepperoni on my six-inch BMT at my local Subway.) "This early discovery, limited though it was, extinguished any hope of certifying a damages class."
"Rather than drop the suits as meritless," however, plaintiffs shifted the focus of the lawsuit from one seeking damages to one seeking injunctive relief. THey filed an amendec complaint and, after mediation, reached a settlement with Subway, under which Subway would, for four years, implement practices designed to ensure, the the extent possible, that its sandwich rolls measured at least 12 inches long. But, the settlement noted that "because of the inherent variability in food production and the bread baking process, Subway could not guarantee that each sandwich roll [would] always be exactly 12 inches or greater in length after baking." In other words, Subway would try to fix, but could not guarantee that it would fix, the problem that spawned the lawsuit.
Having agreed on the terms of the settlement, the parties "spent the next year or so dickering over fees for class counsel and incentive awards for the named plaintiffs." They eventually agreed to cap counsel fees at $520,000. Plaintiffs' counsel sought the full $520,000 in fees and the district court approved the settlement over the objection of Ted Frank, "[a] class member and professional objector to hollow class-action settlements."
Frank appealed to the Seventh Circuit. He argued, as he had to the district court, that the settlement did not benefit the class in any meaningful way and was, therefore, worthless. The Seventh Circuit agreed. It noted that, generally, "[a] class settlement that results in fees for class counsel but yields no meaningful relief for the class ' is no better than a racket.'" This was, according to the Seventh Circuit, "an apt description of this case." Plaintiffs and Subway defended the settlement by "insisting that it actually provide[d] meaningful benefits to the class because Subway [ ] bound itself . . . to a set of procedures designed to achieve better bread-length uniformity," but the court responded that "[a] simple comparison of the state of affairs before and after the settlement expose[d] the cynicism of [that] argument:"
Before the settlement, class members could be fairly certain that a Subway Footlong sandwich would be at least 12 inches long . . . . [T]here was a small chance that Subway would sell a class member a sandwich that was slightly shorter than advertised, but that sandwich would provide no less food than any other.
After the settlement . . . there’s still the same small chance that Subway will sell a class member a sandwich that is slightly shorter than advertised. . . . And after the settlement, just as before, the rare sandwich that falls short of the full 12 inches will still provide the customer the same amount of food as any other. The injunctive relief approved by the district judge is utterly worthless. The settlement enriches only class counsel and, to a lesser degree, the class representatives.
Plaintiffs and Subway argued that there was a benefit to the settlement because a class member could seek sanctions for contempt if Subway violated the injunction. In other words, without the settlement, a customer had no remedy if its sandwich was less than 12 inches, but with the settlement, the customer could, theoretically, go to court and seek to hold Subway liable for contempt of the agreement. The court tersely rejected this argument, observing: "Contempt as a remedy to enforce a worthless settlement is itself worthless. Zero plus zero equals zero."
Ultimately, because the "procedures required by the settlement [did] not benefit the class in any meaningful way," the Seventh Circuit reversed the district court and held that the settlement should not have been approved.
Pete's Take 