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August 24, 2011

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Robert J. Gaudet, Jr.

Given the lack of any discovery in the "Black Farmers' case and the high fee request of Class Counsel, it reminds me of the $295 million class settlement with De Beers for violating antitrust laws and inflating the price of diamonds. The various class actions settled before any discovery was taken, and the only documents the plaintiffs looked at were 50 boxes that De Beers self-selected; the plaintiffs were not allowed to make copies of those documents. They were only permitted to review the documents and take notes during a limited period of time. The documents covered approximately 2 years out of an approximately 12-year class period. In short, there was no discovery so it was impossible for the plaintiffs to assess the true value of the case.

The various class actions settled for $295 million on behalf of Direct Purchasers and Indirect Purchasers even though treble damages were estimated at $7.7 billion to $10.2 billion. The Indirect Purchasers Class contained two subclasses: Resellers Subclass and Consumers Subclass. The Consumers Subclass had up to 117 million people who stood to gain $1 each from the settlement. The Consumers Subclass size was much larger than the 1.5 million people in the Wal-Mart v. Dukes class that Justice Scalia wrote, in the majority opinion, was "one of the most expansive class actions ever."

Class Counsel filed their motion for attorney's fees after the deadline for objections. The plaintiffs never gave an estimate of the damages suffered by the 117 million Consumers Subclass members so it was impossible to compare the settlement to their non-estimated damages. In addition, the Consumers Subclass representatives asked for incentive fee awards of $5,000 each which were disproportionate and excessive in comparison to the $1 or $16 (i.e., a higher pro-rated amount that would be available to consumers if few people filed claims) that will go to the Consumers Subclass members. Ultimately, less than 1% of Consumers Subclass members ever filed claims.

Despite these shortcomings, the District Court of New Jersey approved the settlement as fair and adequate and awarded $75 million in attorney's fees for Class Counsel, i.e., 25% of the settlement fund. The District Court refused to consider the Class's right to treble damages in assessing the settlement, and it only compared the overall settlement amount to the estimated single damages suffered by the Class. Of course, there was no estimate of single damages suffered by the Consumers Subclass, in particular, so the District Court could not specifically assess the value of the settlement for 117 million consumers.

The settlement is now on appeal before the U.S. Court of Appeals for the Third Circuit. The lack of discovery is one of the issues that my clients (who are objector class members) raised on appeal regarding the insufficiency of the settlement. Oral argument was held in February 2011 and a decision is expected in the near future.

Briefs containing further details are part of the public record and available on the docket of Sullivan v. DB Investments, Inc., Appeal No. 08-2819 (3d Cir.).

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