Antitrust Law Daily Wrap Up, RICO—N.D. Cal.: Verizon cramming lawsuit settlement agreement approved, (Sep 3, 2013)

By Jody Coultas, J.D.

The federal district court in Oakland has approved a class action settlement filed by current and former Verizon Communications Inc. landline customers in a suit against Verizon for allegedly placing unauthorized charges on the customers’ monthly phone bills (Moore v. Verizon Communications Inc., August 28, 2013, Armstrong, S.).

Intentionally charging consumers for products and services they have not requested or authorized and illegally billing and collecting charges is known as cramming. Verizon was allegedly aware of widespread incidences of cramming, but failed to take sufficient steps to ensure that the charges placed on consumers’ telephone bills were authorized. Verizon does not allow most third-party service providers to place charges directly on their bills, but rather requires that the third-party providers bill through billing aggregators who act as an intermediary between the third-party providers and the local exchange carriers.

The court granted Verizon’s motion to dismiss the customers’ claims for breach of trust and violations of the Telecommunications Act, but denied the motion with respect to claims based on the Racketeer Influenced Corrupt Organizations Act (RICO), conspiracy to violate RICO, breach of contract, tortious interference with contract, and violation of the California Unfair Competition Law. The parties then engaged in mediation and reached an agreement on a proposed settlement.

The settlement agreement included complete refunds of all unauthorized charges for class members filing Full Payment Claims or, alternatively, Flat Payments of $40 for class members who did not want to file a Full Payment Claim; various forms of injunctive relief; payment of attorney fees and expenses in an amount up to $7,500,000; and an incentive award of $5,000 for each class representative. Additionally, Verizon agreed to pay the costs of administering the settlement and the incentive awards to the class representatives.

Courts look at the following factors when considering final approval of a settlement: (1) the strength of the plaintiffs’ case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of maintaining class action status throughout the trial; (4) the amount offered in settlement; (5) the extent of discovery completed and the stage of the proceedings; (6) the experience and views of counsel; (7) the presence of a governmental participant; and (8) the reaction of class members to the proposed settlement.

The relevant factors weighed in favor of approval of the settlement, according to the court. The customers faced significant class certification, liability, and damages hurdles, as well as risks, expenses, and prolonged litigation. The settlement amount significantly benefitted class members. Also, the fact that the settlement was reached after discovery supported the conclusion that the parties’ decision to settle was a fully informed one, undertaken by competent counsel, and likely the result of good faith arms-length negotiations. None of the objections presented any serious reasons for rejecting the settlement.

FTC, Justice Department views. The FTC filed a motion for leave to file an amicus brief objecting to the settlement, expressing concerns about provisions in the agreement relating to the release of claims and the claims process. The U.S. Department of Justice also objected to the settlement based on concerns regarding the release of claims, the claims process, and the method for notifying potential class members of the settlement. The parties engaged in numerous discussions with the FTC and Justice Department regarding their concerns, and the parties agreed to modify the agreement.

The fact that the parties did not agree to the FTC’s proposal to eliminate the claims process and provide refunds to consumers who paid such charges unless there was reliable evidence that the consumer actually used the product was not a proper basis to reject the settlement, according to the court. Notwithstanding the modifications to the agreement, the FTC remained concerned about the claims process. The settlement was the product of compromise following extensive arms-length negotiations and the claims-made process, when viewed as part of the overall agreement, did not render the settlement unfair, unreasonable, or inadequate. The claims-made process was not as burdensome for class members as the FTC suggested.

The court also found that the Justice Department’s concern regarding the bill stuffer notice sent to current Verizon customers was not a reason to reject the settlement agreement. The Justice Department was concerned about the adequacy of the notice sent to potential class members. However, the court found that the notice provided was the best notice practicable under the circumstances. The contents of the various forms of notice and the methods of dissemination were sufficient to inform class members about the lawsuit, the terms of the settlement, and their legal rights and options, including the procedures through which to submit claims, object to the settlement, or opt-out and pursue their own remedies.

The case is No. C 09-1823 SBA.

Attorneys: Jeffrey Farley Keller (Keller Grover LLP) for Desiree Moore. Henry Weissmann (Munger Tolles & Olson LLP) for Verizon Communications Inc.

Companies: Verizon Communications Inc.

Cases: RICO StateUnfairTradePractices CaliforniaNews