Appellate Court Blasts Foot-Long Subway Class Action Settlement
Class action lawsuits are often controversial. Business lobbyists complain that class actions encourage litigation about trivial issues, imposing needless expense and burdens on business defendants that are intended solely to enrich lawyers. Consumer advocates argue that class action lawsuits empower consumers to obtain remedies, and to change unlawful corporate behavior, in circumstances where the cost of litigating individual claims would force most consumers to forego a remedy for corporate lawlessness.
Both perspectives have some merit. Class action litigation is a worthy tool that serves legitimate, socially useful purposes. At the same time, a few class action lawsuits have produced substantial payments to the lawyers who bring them while returning little of value to the class members. According to the U.S. Court of Appeals for the Seventh Circuit, a recently settled lawsuit against Subway falls into the latter category.
The Subway Class Action
Subway, home of the “foot-long” sub sandwich, faced a bit of corporate embarrassment when an Australian teen measured his foot-long sandwich and discovered it fell an inch short. Living in the age of social media, he made a video of himself, his yardstick, and his sandwich and posted the video online. The video went viral.
Eventually the Australian video inspired a number of class action lawsuits against Subway for deceptive advertising, on the theory that when consumers are sold a foot-long sandwich, they should get all twelves inches. Those lawsuits were consolidated in a federal district court in Wisconsin.
As sensible as the theory might have been, legal theories must be supported by evidence, and in that regard the “foot-long” lawsuits fell short. It turned out that the dimensions of Subway’s bread generally satisfy the promised twelve inches — at least until the Subway employees bake the raw bread dough, where the bread sometimes experiences a bit of shrinkage.
Now it could be said that the length of the sandwich Subway actually serves is what matters, not the length of the pre-baked bread. The Court of Appeals was unimpressed by that argument. Consumers might be shorted an inch of sandwich, the court noted, but they get the same quantity of bread regardless of the length of the sandwich after the bread finishes baking. Shrinkage while baking affects the shape of the bread, not the amount of the bread in the sandwich.
Perhaps more importantly to sandwich eaters, consumers get the same amount of the good stuff — the lettuce and tomatoes and cheese and ham or turkey or other ingredients that differentiate one sandwich from another — regardless of the length of the sandwich. Those ingredients are standardized, so a competent employee will make the same sandwich the same way for every customer who orders one. As far as the Court of Appeals was concerned, unavoidable bread shrinkage doesn’t change the fact that customers always get all the sandwich ingredients for which they pay, even if they don’t get the full twelve-inch sandwich.
Class Action Settlement
Of course, Subway doesn’t advertise a “pre-baking foot-long sandwich”; its advertising addresses the length of the sandwich, not the quantity of bread it contains. Still, the lawsuits faltered because even after baking, most sandwiches meet the twelve-inch test. And proving that any class members received less than twelve inches of bread was problematic, since most of them ate the evidence before they realized they were members of the class.
Unable to prove that consumers had suffered any actual harm, the class action attorneys dropped their claim for damages and pursued injunctive relief. Injunctions are commonly requested in class actions, and in most class action settlements, the defendant agrees to make changes in its business practices to assure that the alleged harms will not reoccur. That agreement becomes an enforceable court order if the court adopts it.
Subway agreed to settle the class actions by agreeing to take steps to assure that all foot-long subs are actually a foot long, to the extent that shrinkage can be controlled. Subway also agreed to explain the concept of sandwich shrinkage on its website. The settlement also acknowledged that shrinkage really can’t be controlled and that some foot-long sandwiches would be less than twelve inches. Whether the settlement actually accomplished anything was a matter of great concern to the court.
Of great concern to the plaintiffs’ attorneys, no doubt, was Subway’s agreement to pay up to $525,000 in attorneys’ fees. The court approved the settlement over the objection of a class member who contended that the relief it provided to class members was “hollow.” The class member appealed.
Court of Appeals’ Ruling
The Court of Appeals’ decision rather uncharitably paints all members of “the American class action bar” with the same brush. In fact, many class action lawyers handle only particular kinds of class action lawsuits, such as unpaid overtime claims that affect all the hourly wage employees who work for a particular company. Even class action lawyers who primarily handle consumer lawsuits do not invariably jump on every class action bandwagon that comes along. The consolidated lawsuits involved only nine lawyers, not the entirety of “the American class action bar.”
Still, the only consumers who obtained a clear benefit from the settlement were the ten individual plaintiffs who were named in the lawsuits. The court approved an award to each of them of $500. Class members who were not named in the lawsuit received nothing. However, any class member who might have had a viable claim of fraud would lose the right to pursue that claim once the settlement was approved — and would get nothing in exchange.
The appellate court chastised the lawyers for making a settlement that benefitted only the lawyers, and it chastised the trial judge for approving it. The court rejected as “cynical” the argument that the injunctive relief benefitted consumers since, other than a statement on Subway’s website, consumers will get the same sandwiches after the settlement that they were buying before the settlement. The court considered the website notice to be valueless because the information it provided was, in the court’s view, common sense. That might give the sandwich eating public too much credit, since the Australian video would not have gone viral if consumers didn’t think it was evidence of sandwich fraud. However, since the settlement changed nothing of substance, the appellate court pronounced it “utterly worthless.”
So what should a court do when it is faced with an “utterly worthless” settlement? According to the court of appeals, instead of approving the settlement, it should dismiss the case. That seems an odd result since neither party asked the court to dismiss the case. A dismissal that nobody wants might be seen as the product of judicial activism.
The Court Sends a Message to Class Action Lawyers
While lobbyists and lawyers who represent business interests often complain that class actions are “out of control,” some of their concerns are triggered by the fact that class actions are effective. They allow bank customers to obtain remedies for unlawful practices that might only cause an individual customer to lose a few hundred dollars a year. They allow consumers to change the deceptive advertising of manufacturers that make false claims about their products. They equalize the power of employers and employees when employers commit company-wide wage violations.
But not all lawsuits have merit, and that is equally true of class action lawsuits. In those relatively rare but well-publicized class actions that amount to much ado about nothing, the Seventh Circuit’s decision sends an important message: class actions must help the class, not just the lawyers.