In Re Subway Footlong Sandwich Marketing & Sales Practices Litigation
2017 U.S. App. LEXIS 16260, 2017 WL 3666635, 869 F.3d 551 (2017)
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Rule of Law:
A class action settlement that provides no meaningful benefit to the class members and primarily serves to award fees to class counsel is improper and should not be approved. Such a settlement fails the requirements of Federal Rule of Civil Procedure 23 that the class representatives fairly and adequately protect the interests of the class and that the settlement itself is fair, reasonable, and adequate.
Facts:
- In January 2013, a photograph of a Subway "Footlong" sandwich measuring only 11 inches long was posted on social media and went viral.
- Numerous consumers filed class-action lawsuits against Doctor’s Associates, Inc. (Subway's franchisor), alleging deceptive marketing practices.
- Discovery revealed that Subway's unbaked dough sticks are of a uniform weight and size.
- Minor variations in the final length of the baked bread were found to be an unpreventable consequence of the natural baking process.
- Despite any minor length variations, all sandwiches contained the same standardized quantity of bread dough, meat, and cheese, with customers controlling the amount of other toppings.
Procedural Posture:
- Multiple plaintiffs filed separate class-action lawsuits against Subway's franchisor in various federal courts.
- The Judicial Panel on Multidistrict Litigation consolidated the cases into a single multidistrict litigation (MDL) in the U.S. District Court for the Eastern District of Wisconsin, a federal trial court.
- The parties reached a proposed settlement agreement providing only for injunctive relief.
- The district court granted preliminary approval of the settlement.
- Theodore Frank, a member of the proposed class, filed a formal objection to the settlement, arguing it was worthless.
- After a fairness hearing, the district court certified the class, granted final approval of the settlement, and awarded $520,000 in attorney's fees.
- Frank, the objector and appellant, appealed the district court's final judgment to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does a class action settlement satisfy the certification and approval requirements of Federal Rule of Civil Procedure 23 when it provides no tangible, meaningful relief to the class and its primary effect is to generate fees for class counsel?
Opinions:
Majority - Sykes, J.
No. A class action settlement that provides no meaningful relief to the class does not satisfy the requirements of Rule 23. The settlement here is worthless because it fails to provide any tangible benefit to the class members that they did not already possess. Before the settlement, customers had a small chance of receiving a slightly shorter sandwich that contained the same amount of food. After the settlement, which includes new measuring protocols and inspections, that same small chance still exists, a fact the settlement agreement itself explicitly acknowledges. Therefore, the settlement provides no effectual relief. Since the only parties who benefit are class counsel, who receive fees, and the named plaintiffs, who receive incentive awards, the settlement is "no better than a racket" and fails to meet the Rule 23(a)(4) requirement of adequate representation and the Rule 23(e)(2) requirement that a settlement be "fair, reasonable, and adequate."
Analysis:
This decision reinforces the Seventh Circuit's heightened scrutiny of class action settlements that appear to benefit attorneys more than the class members they represent. It establishes a strong precedent against approving settlements where the injunctive relief is illusory and does not materially change the defendant's pre-litigation conduct or provide any tangible value to the class. The ruling emphasizes the district court's role as a fiduciary for the unnamed class members and empowers objectors to challenge settlements that offer no meaningful remedy. This case will likely be cited to deter lawsuits where the alleged injury is trivial and the proposed settlement provides no real-world benefit.
