Rejection of Subway “Footlong” Settlement Highlights Absurd Incentives of Class Actions

1ftIn early 2013, when Australian teenager Matt Corby took to social media to share a photo of his recently purchased Subway “foot long” sandwich next to a tape measure revealing that the sandwich measured only 11 inches in length, he never could have anticipated the “viral” chain of events that he had just set into motion.

Other Subway customers and media outlets soon descended on Subway franchises to undertake their own sandwich measurements, prompting the New York Post to announce that “Some Subway ‘Footlong’ Subs Don’t Measure Up.”   According to the Post, four out of seven footlong sandwiches randomly purchased at Subway restaurants in Manhattan, Brooklyn, and Queens measured less than 12 inches in length (ranging from 11 to 11.5 inches).

The plaintiffs’ bar, not exactly known for letting any litigation opportunity go to waste, immediately pounced and—within days of Corby’s initial photo—class-action lawsuits sprang up across the country. Nine class actions, primarily brought under state consumer protection laws that prohibit “deceptive” or “unfair” business practices, were eventually consolidated for multidistrict litigation (MDL) in the Eastern District of Wisconsin.

But then the class-action juggernaut quickly hit a roadblock. Discovery revealed that the vast majority of Subway footlong sandwiches were, in fact, 12-inches in length. But due to perfectly natural and unavoidable vagaries in the baking process, a very small fraction of sandwiches fell about a quarter-inch shy of 12 inches. But Subway’s pre-packaged dough sticks all weighed exactly the same, so even those footlong sandwiches measuring less than 12 inches contained precisely the same amount of bread as every other footlong sandwich.

Because the vast majority of Subway footlong sandwiches measured 12 inches in length, certifying a damages class under Rule 23(b)(3) would not be possible. Instead, individualized hearings would be required to determine which customers had purchased “undersized” sandwiches. Of course, because most Subway customers ate their sandwiches without measuring them, only a handful would be able to prove the length of their sandwiches. And because no customer actually received less bread, no matter the length, proof of any actual injury would be nearly impossible to establish.

If you guessed that the plaintiffs’ attorneys might voluntarily dismiss their suits as lacking in merit, then you guessed wrong. Instead, they amended the consolidated complaint to seek only injunctive relief and then sought to certify an injunction class under Rule 23(b). Under such a class, although the handful of named plaintiffs may be entitled to receive modest incentive awards, the vast majority of class members would be ineligible for any monetary recovery. The plaintiffs’ attorneys, however, would still be allowed to seek fees vastly out of proportion with the work performed.

Following mediation and after prolonged haggling, the parties finally agreed to a proposed settlement whereby Subway agreed to a number of quality-control protocols to ensure, to the extent possible, that its footlong sandwich bread measured 12 inches long. In addition, each of 10 named plaintiffs would receive a $500 incentive award and class counsel would be awarded $520,000 in attorney’s fees.

Although the district judge preliminary approved the settlement, one absent class member objected to the settlement and class certification on the basis that the settlement didn’t materially benefit the class and was essentially worthless.

The district court disagreed, certifying the class and approving the settlement, but a panel of the US Court of Appeals for the Seventh Circuit recently overturned that decision. Writing for a unanimous panel, Judge Diane Sykes quoted now-retired Judge Richard Posner’s colorful observation that a class action that “seeks only worthless benefits for the class” and “yields [only] fees for class counsel” is “no better than a racket” and “should be dismissed out of hand.”

Reversing the district court, the panel agreed with the objector’s claim that because the settlement admitted that uniformity in bread length is impossible due to vagaries in the bread-baking process, the procedures required by the settlement would not benefit the class in any meaningful way. “After the settlement, just as before, the rare sandwich that falls short of the full 12 inches will still provide the customer the same amount of food as any other,” Judge Sykes wrote.

The Seventh Circuit panel reversed the district court and remanded the case with instructions to dismiss the consolidated class actions, which “yields fees for class counsel” and “zero benefits for the class.”

But it does not appear that the case will end there. Only five days after the Seventh Circuit issued its opinion, counsel for the named plaintiffs informed the district court of their intentions to go forward, based on what they claim is “newly discovered information.” In particular, plaintiffs claim they can prove that Subway’s bread vendors were providing the company with underweight frozen bread sticks.

Earlier this week, they filed an affidavit with the court from an employee of one of Subway’s vendors who claims that some pre-packaged dough sticks provided to Subway were as short as 9 inches. Plaintiffs’ counsel asserts that the Seventh Circuit “would have reached the opposite conclusion” had it known the true facts.

The plaintiffs’ bar is well-aware of the coercive power of class certification. Few defendants continue to litigate after classes are certified because, by that point, the pressure on defendants to settle even frivolous suits is often overwhelming. Even though it now appears that Subway’s general counsel may continue to be tied up with many more years of discovery and protracted litigation over its footlong sandwiches, this case already perfectly illustrates how the class-action device incentivizes abusive lawsuits designed to extract in terrorem settlements.

It will be worth monitoring the next phase of the district court proceedings to see if the plaintiffs’ allegations measure up.

Also published by Forbes.com at WLF’s contributor site.

One thought on “Rejection of Subway “Footlong” Settlement Highlights Absurd Incentives of Class Actions

  1. Pingback: Update: Plaintiffs in Subway Not-Foot-Long Class Action Throw in the Napkin – The WLF Legal Pulse

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