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From Antitrust Law Daily, August 28, 2017

Approval of settlement of Subway footlong deceptive marketing claims reversed

By Linda O’Brien, J.D., LL.M.

A class action settlement that provided no meaningful benefits to the class and only yielded fees to class counsel should not have been approved, the U.S. Court of Appeals in Chicago has ruled. Thus, the district court’s certification of the proposed class and approval of the final settlement was reversed and remanded (In re Subway Footlong Sandwich Marketing and Sales Practices Litigation, August 25, 2017, Sykes, D.).

Doctor’s Associates, Inc. franchises Subway restaurants, which is the largest submarine sandwich chain around the world. In January 2013, an Australian teenager discovered that a Subway footlong sandwich he purchased measured 11 inches long. He photographed the sandwich, along with a tape measure, and posted the photograph on social media. The posting became very popular and subsequently, consumers in the United States filed suit against the franchisor, seeking damages and injunctive relief. The plaintiffs claimed that Subway violated the consumer fraud and deceptive trade practices acts of various states and the District of Columbia, because Subway’s Footlong and Six Inch sandwiches were smaller than they were advertised.

After early discovery established that Subway’s unbaked bread sticks are uniform and the baked rolls rarely fall short of 12 inches, a settlement was reached with Subway in which Subway agreed to implement certain measures to ensure, to the extent practicable, that all Footlong sandwiches would be at least 12 inches long. The settlement provided no monetary relief to the class. However, Subway agreed to pay class counsel up to $525,000 in fees and costs. The district court preliminarily approved the settlement in October 2015.

Class member Theodore Frank objected to the settlement, contending that the settlement enriched only class counsel and provided no meaningful benefits to the class. Unpersuaded by Frank’s objection, the district court certified the class and approved the settlement. Frank appealed.

Class certification and settlement approval. The appellate court found that a class action that sought only worthless benefits for the class and yielded only fees for class counsel should be dismissed. Federal Rule of Civil Procedure 23(a) requires that the class representatives "fairly and adequately protect the interests of the class," and a class-action settlement may not be approved unless it is "fair, reasonable, and adequate," the court explained. If the class settlement does not provide "effectual relief" to the class and its "principal effect" is to pay the plaintiff’s attorneys enough to resolve the suit, then the class representatives have failed in their duty under Rule 23 to "fairly and adequately protect the interests of the class." Further, if the class representatives agreed to a settlement that provides meaningless relief to the putative class, the district court should refuse to certify or, alternatively, decertify the class.

The plaintiffs’ argument that it actually provides meaningful benefits to the class because Subway has bound itself, for a period of four years, to a set of procedures designed to achieve better bread-length uniformity, was rejected. The court noted that, before the settlement, class members could be fairly certain that a Subway footlong sandwich would be at least 12 inches long. If a loaf happened to bake up slightly shorter than 12 inches, customers could be assured of receiving the same quantity of meat and cheese as any other customer. No class member, regardless of bread length, was cheated on the amount of ingredients. Afterthe settlement—despite the new measuring tools, protocols, and inspections—there’s stillthe same small chance that Subway would sell a class member a sandwich that is slightly shorter than advertised. The injunctive relief approved by the district judge was utterly worthless.

The procedures required by the settlement do not benefit the class in any meaningful way. The settlement acknowledges as much when it says that uniformity in bread length was impossible due to the natural variability of the bread-baking process. Contempt as a remedy to enforce a worthless settlement was itself worthless. Because the settlement yielded fees for class counsel and no benefits to the class, the class should not have been certified and the settlement should not have been approved, the court concluded.

The case is No. 16-1652.

Attorneys: Stephen P. Denittis (Denittis Osefchen, PC) for Nguyen Buren. Jeffrey Babbin (Wiggin and Dana LLP) and Howard L. Teplinsky (Beermann Pritikin Mirabelli Swerdlove LLP) for Doctor's Associates, Inc., d/b/a Subway and Subway Sandwich Shops, Inc.

Companies: Doctor’s Associates Inc.; Subway Sandwich Shops Inc.

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