How the Classmates.com settlement is more than a $2 coupon Wednesday, June 9, 2010
The Civil Justice Association of California used its blog to complain about the recent agreement to settle a class action suit against Classmates.com for its blatant lies in promoting paid memberships. You know CJAC…the advocacy group whose board members include BP, a who’s-who of Big Insurance and Big Pharma companies, and the Big Business mouthpiece California Chamber of Commerce, among others. Which gives you some idea what side of the fence they’re on when it comes to consumer issues.
At any rate, CJAC was agitated because the attorneys who brought the case against Classmates.com have requested a fee commensurate with the work they performed, while each individual member of the class will receive no more than $3. (The headline on the CJAC blog post actually referred to a $2 coupon, but heck, the difference is only a buck, and using $2 makes a better headline.) Full disclosure: one of the firms involved is Kabateck Brown Kellner of Los Angeles, and managing partner Brian Kabateck is a vice president of Consumer Attorneys of California; some members of CAOC are on the board of the Civil Justice Research and Education Project, which funds this site.
The case started after a San Diego man who was registered with Classmates.com (but with limited access to the site because he was not paying a fee) received an e-mail telling him old classmates were trying to contact him. Of course, finding out who these old classmates were, and why they wanted to contact him, would cost money…specifically, he would have to upgrade to a “Gold Membership.”
And he did. That’s when he found out there wasn’t anybody trying to reach him through the website. Classmates.com had just flat lied about it to get him to fork over the membership fee…for a membership he wasn’t going to buy otherwise.
The fellow in San Diego thought that was wrong. And because Classmates.com made the same fraudulent pitch to millions of other people, and more than three million of them plunged for the membership fee, his false advertising claim grew into a class action.
Most class actions involve consumers who have been wronged but whose resulting losses are quite small…far too small to justify paying what it takes to battle a corporate legal department. But rather than just say, “Oh, well,” and let the company get away with its behavior because it doesn’t pay to sue them, class actions allow consumers in the same boat to band together with shared legal representation. It’s more efficient for the legal system—and for the accused company—to deal with just one case with many class members rather than many individual cases.
Sometimes these cases go to trial. Sometimes, as in this case, the parties involved reach a mutually satisfactory agreement that requires approval of the court.
No one who signed up for a “Gold Membership” was out a great deal of money; the cost was typically $9.95 or less. But whatever the amount, it was taken under false pretenses. And with more than three million paid memberships resulting, that made it a pretty profitable lie for Classmates.com. (CJAC’s blog post made a sarcastic reference to filing a class action suit “to fix this monumental problem.” No reference to how much Classmates.com was raking in as a result.)
Classmates.com has agreed to reimburse each of those duped members $3, for a total of roughly $9.5 million. Notice the company still comes out way ahead here, which is why you don’t hear them whining about it. The $2 coupon CJAC’s blog post referred to in its headline? That’s a discount on future Gold Memberships for some 100 million people who now have free (limited-access) memberships. That group of class members is not getting cash because they didn’t pay anything themselves. The coupons were negotiated as an additional benefit and have nothing to do with the plaintiffs attorneys’ fee request.
Meanwhile, the class action settlement ensured there will be no more victims of such a scheme. Would this have happened if consumer attorneys weren’t involved to bring the matter into the legal system? Would this have happened if that outraged member in San Diego had just called Classmates.com and said, “Hey, this is wrong, cut it out”? We’re guessing that if the company didn’t have the conscience to avoid this come-on in the first place, it wouldn’t have backed away just because somebody said please stop…not after the tactic had brought in millions of dollars.
Oh, and one thing CJAC’s blog post didn’t mention, while complaining about the proposed fee for the consumer attorneys? Nowhere do we see how much the lawyers who represented Classmates.com were paid. But since they’re working for a company that profited from fibbing to its potential customers, we suppose money is not really an issue.