Figueroa v. Sharper Image Corp., case no. 05-21251, Southern District of Florida, Miami Division, United States District Court

Who hasn’t sat in one of Sharper Image’s Body Massage Loungers when you browsed through its store? If you say you haven’t, then you are either a liar or just don’t get out enough. In this class action lawsuit over alleged bogus air purifiers, U.S. District Judge Cecilia M. Altonaga issued a sharply worded 61-page ruling rejecting the proposed settlement agreement between the plaintiffs and Sharper Image. (By the way, if you are interested in buying one of Sharper Image’s Air Purifers for Christmas, they are still available. Click here). Needless to say, both sides were stunned by the Judge’s decision, although students of CAFA should not be.

The settlement offer proposed distribution of $19 coupons to a class of two to three million class members who purchased the defective Ionic Breeze® air purifier, which allegedly emitted ozone instead of cleaning and purifying household air. (There is no truth to the rumors that a secondary purpose of the air purifer was to replace the missing ozone in the atmosphere.) In addition, the settlement proposed that class counsel was to receive approximately $2 million in fees.

The lawsuit itself was substantially similar to a number of different suits pending in different jurisdictions. Although Sharper Image contended that this case was a “copy cat” case that required transfer, the Court denied transfer finding “there exist[s] both a party and causes of action in the present case that are not present in the pending state court action.” However, the additional party was subsequently dismissed for lack of personal jurisdiction. Instead of renewing its motion to dismiss and/or stay the proceedings, Sharper Image used the threat of a stay as leverage in the settlement negotiations.

In its ruling rejecting the proposed settlement, the Court first found Sharper Image’s threat to stay the case as procedurally unfair finding that the plaintiffs’ counsel “necessarily negotiated from a position of weakness, with the specter of a stay of this case a constant companion.” The Court also noted that the plaintiffs’ counsel was not adequately informed about the strengths and weaknesses of their case such that they could adequately negotiate in the settlement process.

The Court then applied the factors articulated in Bennett v. Behring Corp., 737 F.2d 982 (11th Cir. 1984) in evaluating the substantive fairness of the proposed settlement. Specifically, Judge Altonaga held that 1) the likelihood of success on the merits factor supported rejection; 2) the offer was below the acceptable range of recovery; 3) complexity, expenses and duration of the litigation favored rejection; 4) substance and amount of objections favored rejection; and 5) and stage of proceedings favored rejection.

First, the Court found that the plaintiffs would likely succeed on the merits of their claims concerning the ineffectiveness of the Ionic Breeze®. Thus, applying the “most important” Bennett factor, the Court reasoned that the relatively paltry offer of a $19 coupon for a product that was priced at $300 was patently unfair.

Second, considering the next Bennett factors together, i.e. the range of possible recovery and the point on the range the settlement offer occurs, the Court found that the settlement offer was far below an acceptable point within the range. Specifically, the Court reasoned that the $19 Sharper Image coupons would “likely be increased sales of Defendant’s products to class members” instead of a meaningful “disgorging [of] any wrongfully obtained gains.”

Third, the Court examined the whether the complexity, expense, and duration of the litigation favored a prompt settlement as a opposed to a long, protracted litigation. The Court found that because much of the discovery had been completed and the settlement offer was close to nothing, the “small risk of receiving nothings [was] worth taking.” Thus, the Court that this factor weighed in favor of rejection of the proposed settlement.

Fourth, the Court considered the quantity and quality of the objections to the proposed settlement. In particular, the Court noted that thirty-six attorneys general representing their respective citizens objected vigorously to the proposed settlement. The thrust of their argument was that coupons as settlement devices often do not provide adequate compensation, “fail to disgorge ill-gotten gains from the defendant,” and “require class members to do future business with the defendant.” The Court, thus, found that the nature and amount of the objections to the proposed settlement warranted rejection.

Finally, the Court considered that the settlement occurred at a stage of the proceedings that disfavored approval of the settlement. The Court considered that because the settlement occurred prior to class certification, plaintiffs’ counsel did not have adequate information (no merits discovery had occurred) to properly evaluate their case.

Ostensibly, the fact that drove the Court’s decision was its view that $19 Sharper Image coupon was not fair to the class members given that the machine was $300 and had potential health risks associated with its use.

A recent commentator on highlighted other circumstances that perhaps should have been considered by the Court in this case. The commentator noted that Sharper Image was on the verge of financial collapse and rejection of this settlement could have the consequence of pushing Sharper Image into bankruptcy. This would result in class members being placed at the bottom of the bankruptcy food chain as unsecured creditors, which means they probably would get nothing.