The Seventh Circuit’s rejection of a class action settlement in a case alleging consumer fraud against Subway for allegedly “shorting” customers of its Footlong sandwiches illustrates the pitfalls of settlements that provide only injunctive relief and the perils to plaintiffs who pursue claims for “worthless benefits.” In Re Subway Footlong Sandwich Mktg. & Sales Practices Litig., 2017 U.S. App. LEXIS 16260, at *14 (7th Cir. Aug. 25, 2017). The Seventh Circuit recognized: “[a] class action that ‘seeks only worthless benefits for the class’ and ‘yields [only] fees for class counsel’ is ‘no better than a racket’ and ‘should be dismissed out of hand.’ That’s an apt description of this case.” Id. (citation omitted). The court further warned that, “[n]o class action settlement that yields zero benefits for the class should be approved[.]” Id. at *11.
Subway was faced with nine putative class actions that were consolidated into an MDL proceeding in the Eastern District of Wisconsin. Id. at *4-5. Limited discovery revealed that the claims had little merit as: (i) Subway had taken steps to ensure that its Footlongs were in fact 12 inches long; (ii) any discrepancy in bread length was due to natural and unpreventable variability in the baking process; and (iii) regardless of bread length, customers received the same amount of meat, cheese and other toppings. Id. These facts eliminated any potential for a damages class under Fed. R. Civ. P. 23(b)(3), and, as a result, class counsel pursued an injunctive relief class under Fed. R. Civ. P. 23(b)(2). Id. at *5-6. The parties reached a settlement that was preliminarily approved by the district court, that certified a class pursuant to Fed. R. Civ. P. 23(b)(2) and awarded $520,000 in attorneys’ fees to class counsel over an objection. Id. at *8. The objector appealed. Id.
On appeal, the Seventh Circuit rejected the settlement, finding it was “worthless”. To justify approval of the settlement, the agreement called for Subway to implement redundant and futile measures in an attempt to ensure the Footlong sandwiches lived up to their name. Id. at *7. The Seventh Circuit explained that despite these measures, “there’s still the same small chance that Subway will sell a class member a sandwich that is slightly shorter than advertised.” Id. at *13 (emphasis in original). Such a settlement provides no benefit to the class and, accordingly, no basis to approve the settlement.
As shown by the Seventh Circuit’s decision, providing injunctive relief that may be deemed illusory is insufficient to support the settlement of class action litigation. Pushing forward to a decision on the merits may be the most cost-efficient strategy. Alternatively, if a defendant wishes to realize the cost-savings of early settlement, it must ensure that the settlement provides actual value to the class and only awards fees to class counsel commensurate with that value. Settlements that do not comply may be disapproved by the district court or, as in this case, reversed on appeal. Either result will delay resolution of the suit, result in increased fees and costs, and return the litigation to point where settlement talks began.
Apparently undeterred by the Seventh Circuit’s admonition, the plaintiffs in In Re Footlong filed a notice with the district court advising that they will continue the litigation and present evidence showing that the injunctive relief obtained provided value to the class.