A recent Seventh Circuit decision pushed back on a proposed settlement of the Subway "footlong sub" class action, finding the proposed settlement a "racket" designed to benefit class counsel without any benefit to the class. The story begins in 2013 when a Facebook post showing a Subway footlong sandwich measuring just 11 inches went viral. Shortly thereafter, the plaintiffs' attorneys filed nine class actions seeking damages and injunctive relief against Subway.
While the plaintiffs may have thought their class claims had merit, initial discovery demonstrated their case did not measure up. Subway showed that it used standard, equally weighted dough sticks for its footlong sandwiches, thus ensuring that each customer received the same quantity of food. Moreover, discovery confirmed that the "overwhelming majority" of sandwiches were indeed 12 inches long. Certification – and injury – under Rule 23(b)(3) therefore proved impossible: Only mini-trials could determine which customers received undersize sandwiches.
Nevertheless, the plaintiffs' lawyers persisted, jettisoning their Rule 23(b)(3) damages classes and seeking to certify an injunction-only class under Rule 23(b)(2). Following mediation, Subway agreed to commit to a menu of quality control measures, and the plaintiffs' attorneys received $520,000 in fees in the proposed class settlement.
Ted Frank, director of the Competitive Enterprise Institute's Center for Class Action Fairness and a member of the class, objected, calling the injunctive relief worthless. Over his objection, the district court approved the settlement agreement, and Frank appealed. A panel of the Seventh Circuit reversed, finding that a "class settlement that results in fees for class counsel but yields no meaningful relief for the class 'is no better than a racket.'" In re Subway Footlong Sandwich Mktg. & Sales Practices Litig., — F.3d –, 2017 WL 3666635, at *4 (7th Cir. Aug. 25, 2017) (citing In re Walgreen Stockholder Litig., 832 F.3d 718, 724 (7th Cir. 2016)).
In reaching this conclusion, the court compared the situation of the class members before and after the proposed injunctive relief. Before the settlement, Subway's uniform dough sticks ensured that each customer received the same quantity of dough, even if it failed to bake out to a full 12 inches. The settlement, however, included steps designed to ensure that all footlongs were a full foot. The agreement directed Subway to use "measuring tools" in the kitchen, to evaluate the length of footlongs during routine compliance inspections, to ensure that its ovens functioned properly and to post notices warning customers of the variation in footlong length. But even with these steps, some footlongs would still amount to no more than eleven-and-a-half-inchlongs. The post-settlement measures would not eliminate the sub-foot footlongs.
Accordingly, the court found that the injunctive relief left the class members in their exact pre-suit position – at a small risk of receiving a less-than-a-foot footlong – while class counsel left the table full via a six-figure attorneys' fee award. The Seventh Circuit reversed and remanded the order approving the settlement, admonishing that the class actions "should have been dismissed out of hand." Id. at *5.
The Subway decision follows on the heels of In re Walgreen Co. Stockholder Litigation, another case in which the Seventh Circuit rejected a class settlement with "worthless" injunctive relief and six-figure attorneys' fees, and Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014), a case in which the court rejected a settlement providing $11 million to the attorneys but just $1.5 million in claims made by the class. The Seventh Circuit continues to signal that class settlements principally benefiting class counsel will be scrutinized on appeal.
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