A federal appeals court on Friday voided RadioShack Corp's class-action settlement with customers who objected to its putting credit and debit card expiration dates on receipts, saying the benefits of the accord appeared too small relative to the proposed legal fees.
The 7th U.S. Circuit Court of Appeals in Chicago said there was no showing that the proposed $1 million fee was reasonable for a settlement calling for roughly 83,000 class members to each receive a $10 voucher redeemable at RadioShack stores.
Writing for a three-judge panel, Circuit Judge Richard Posner noted that RadioShack's "fragile" state, including the electronics retailer's recent announcement that it may file for bankruptcy, might have hastened the perceived need to settle.
But he also said the vouchers might not all be redeemed, reducing the settlement's value, and that revised terms could have shifted some of the "exorbitant" legal fees to customers.
"The law quite rightly requires more than a judicial rubber stamp" to class-action accords, Posner wrote, just 11 days after oral arguments. He returned the case to the federal district court in Chicago for further proceedings.
The accord was intended to resolve claims that RadioShack violated the federal Fair and Accurate Credit Transactions Act by printing card expiration dates on customers' receipts, which if lost could increase the potential for identity theft.
Paul Markoff, a lawyer for the customers, said in a phone interview that the settlement had been driven "primarily" by RadioShack's financial position.
"We built protections into this settlement in the event RadioShack were to file for bankruptcy, and believed the alternative to this settlement was that the class would get nothing," he said. "Now that the settlement has been thrown out, that may be the most likely scenario."
RadioShack and its lawyers did not respond to requests for comment. Shares of the Fort Worth, Texas-based company closed down 5.3 cents at 90.7 cents on Friday.
Ted Frank, a critic of what he considers excessive legal fees and who represented a couple opposing the RadioShack settlement, in a phone interview welcomed the decision.
"It is important in the class-action settlement process that class members be the foremost beneficiaries," he said. "One must look at the actual recovery, rather than a hypothetical adding up of numbers that don't benefit the class."
Frank said he is pursuing six cases in federal appeals courts raising similar issues.
The case is Redman et al v. RadioShack Corp et al, 7th U.S. Circuit Court of Appeals, Nos. 14-1470, 14-1471, 14-1658.
