Do you wonder why lawyers are the target of such scorn in this country? This story of about a class-action suit is sure to anger some of you.
Several years ago, two Californians were unhappy with the gas mileage they got from their new Honda Civic Hybrids. John True of Ontario and Gonzalo Delgado of Chino Hills claimed their Civics got around 30 miles per gallon, significantly less than what Honda promised in its advertisements.
In the fall of 2007, they sued the automaker. Their class action lawsuit claimed Honda used “false and deceptive” advertising to sell and lease its 2003 to 2008 Civic Hybrids in the U.S.
In its ads, Honda used the EPA mileage estimates of 49 city/51 highway. The lawsuit didn’t challenge those EPA fuel economy ratings. Instead, it said Honda knew or should have known the figures were unrealistic and should have said so.
The suit claimed the inflated mileage numbers convinced True, Delgado and about 158,000 other people to pay a premium of as much as $7,000 for a Civic Hybrid. In reality, the Hybrid delivers only slightly better mileage than a Civic with a standard gasoline engine.
Honda tried to have the suit dismissed, arguing that it used EPA mileage estimates and did not violate any advertising regulations. But a U.S. District Court judge in California felt the case had enough merit to proceed.
In March of last year, the suit ended with an out-of-court settlement. Honda did not admit doing anything wrong, but agreed to pay $12,500 to John True and $10,000 to Gonazlo Delgado.
Everyone else who bought a 2003 to 2008 Civic Hybrid would get much less. Honda agreed to give them:
A DVD that demonstrates how to operate and maintain their car to get maximum fuel economy. Critics point out this information is already available in the owner’s manual and on Honda’s Web site. A rebate — $1,000 if they sell or trade in their Civic Hybrid, $500 if they keep the car — and buy a new qualifying Honda or Acura. The coupons cannot be used to buy Honda’s most economical and fuel-efficient models: Fit, Insight, Civic Hybrid or CRZ (a new hybrid that comes out in 2011). $100 cash to anyone who made a documented complaint before March 2, 2009 regarding the Civic Hybrid’s fuel economy.
Oh, and the lawyers? They’d get nearly $3 million.
Attorney Jonathan Cuneo, one of the lead lawyers for the plaintiffs, tells me it’s “a fine settlement” that has “real value to each and every class member.” And, he insists, his firm earned the $2.95 million dollar fee.
Consumer groups: No fair
Public Citizen, the Center for Auto Safety, and the attorneys general in 26 states have asked the court to reject the proposed settlement.
In its legal papers Public Citizen writes: “The settlement’s primary relief consists of marketing gimmicks that will benefit Honda more than the class.”
Public Citizen claims the rebate program has little or no value. “We know from experience that coupon settlements for big ticket items have an extremely low redemption rate,” says Michael Kirkpatrick, an attorney for Public Citizen. “So we expect the redemption rate to be no higher than 2 percent. That means 98 percent of the class is getting nothing.”
In their filing with the court, the attorneys general point out that it would be “economically irrational” for someone to spend $20,000 or more to buy “an unneeded car” to receive a $1,000 or $500 rebate.
They also believe the lawyers are getting “a tremendous amount of money” compared to the relief obtained for class members.
Cuneo dismisses the objections. He says more than 170,000 people were notified of the settlement and only ten objected.
“In terms of our fee, we are under water,” he says, “We are not nearly going to recoup the value of the time that we put into this case.”
The bigger picture
Class action lawsuits serve an important purpose. If successful, they can punish a company that’s cheated or injured a lot of people by forcing it to compensate the victims.
Unfortunately, some settlements do very little to help the class members or penalize the wrong-doer.
Martin Redish, Northwestern University law professor and author of the book “Wholesale Justice,”calls these “faux” class action lawsuits.
“Everybody knows right from the beginning there is no realistic way a court can provide a remedy to those actually hurt,” he says. “So they come up with an alternative means to try to look like they’re giving compensation.”
One way to do that, he says, is to offer the class members a rebate coupon, good for a discount if they make another purchase from the company being sued.
Clarence Ditlow, executive director of the Center for Auto Safety, has been involved in many auto-related class action suits. He says all too often these coupon settlements “enrich the coffers of the lawyers and leave the consumer holding an empty purse with no relief.”
What happens next in this Honda case? A hearing on the objections to the proposed settlement is scheduled to take place on February 22 in U.S. District Court in Riverside, Calif.