On Friday, December 1, while most Americans were riveted by the arguments before the U.S. Supreme Court concerning the protracted presidential election, Bill Lorence and his 11-year-old son Chad were headed from their home in Maple Grove to the federal courthouse in downtown Minneapolis. Both Lorences are former customers of U.S. Bank who had their names and personal and financial information sold to telemarketing firms. As members of a class-action suit against U.S. Bancorp, the bank's parent company, they wanted to be at the courthouse by 9:00 a.m. so they could object to a proposed settlement of the suit.
In the courtroom, they joined a small crowd made up of the judge, the court clerk, several plaintiffs attorneys and a lawyer representing the bank. But with the exception of two other plaintiffs who'd shown up to protest the proposed settlement, everybody seemed ready to ink the deal and go home. "The mood was very professional and low-key, and all these guys were in agreement about the settlement. But we were there because we wanted it clear that we were not okay with it," recalls Bill Lorence. "I'm sure this will be spun as a great settlement that shows U.S. Bank is an upstanding member of the community and that this is a great payoff for class members. But the fact is, we're getting nothing out of this, and the lawyers' fees are completely out of proportion to our payments." Despite their pleas and hopes, Lorence and the other unhappy plaintiffs felt that by the time they left the courtroom, the settlement was a done deal.
In June 1999 Minnesota Attorney General Mike Hatch sued U.S. Bank claiming that the company violated customers' privacy. Thirty-six other states quickly joined the suit, which charged that the bank profited from selling customer data. It also riled five individuals with accounts at U.S. Bank who, within months, filed a suit of their own. By June of this year the second suit had morphed into a massive class action involving 12 law firms and potentially four million class members, all of them U.S. Bank customers who opened credit-card or checking accounts before July 1999. (The class includes several categories of plaintiffs, each eligible for a different level of compensation.) The suit is unusual because it requires putting a price on privacy, whereas most class actions stem from allegations of personal injury or monetary loss.
The settlement, which was indeed signed on December 11 by Federal Magistrate Judge Jonathan Lebedoff, calls for the bank to pony up around $3.5 million, with $10,000 going to the original plaintiffs, nearly $1.3 million going toward plaintiffs' lawyers fees and costs, leaving $2.2 million to be divvied up by more than 80,000 class members who have filed claims to date. "Right now, it stands as a payout of $25 per person," explains Peter Knoll, a financial analyst and lawyer from Longmont, Colorado, who is spearheading the objection campaign and a possible appeal. "People have until December 31 to file a claim. If the judge honors that deadline, there's no telling how many people we'll have."
Knoll is especially concerned about a stipulation in the settlement that frees U.S. Bank from writing out claim checks of less than $10. If there are eventually enough plaintiffs to reduce each award to that amount, the bank would have the option of donating some of the award money to the University of Minnesota Law School or other "human services agencies" instead.
In addition to the four formal oral objections in the courthouse that day--including one each from Lorence and his son--the settlement has also drawn complaints from some 70 current and former bank customers around the country. Now that the settlement has been approved, those complaints may fall on deaf ears, although a retired judge still has to review some of them and Knoll is mounting an appeal. Attorneys for the bank--and even some for the plaintiffs--say the low payout scheme is justified since no one was actually injured by the bank's actions.
In addition, the lawyers representing the individual class members believe their fees are fair and reasonable because of, as one brief puts it, "the difficulties posed by class-action litigation in general and the particular difficulties posed by the novelty of consumer privacy." The brief goes on to point out that the "counsel had to educate themselves in the particulars of both the banking industry and the practices of telemarketers."
Sitting in a Perkins in Golden Valley two weeks after the hearing, Bill Lorence looks every bit the straight-arrow, middle-class family man in a faded red button-down shirt, blue jeans, and a neat crop of strawberry-blond hair. A 37-year-old Mora native, he attended St. Cloud State University and has worked in the accounting department of Target for 17 years. His involvement with U.S. Bank began in 1992, when he took out a second mortgage on his house. Eventually, he had more than eight accounts, including a credit card, a checking account, and a savings account with the bank, which was then known as First Bank System. Soon his wife and two children also had accounts set up in their names.
First Bank became U.S. Bank in the summer of 1999, and Lorence says that shortly thereafter errors began appearing on his accounts. He was getting charged by marketing companies whose services he did not use. And he started receiving a flood of phone calls from solicitors. "I'm not even listed in the phone book," Lorence complains, noting that he eventually spent $4,000 refinancing his mortgage, clearing his credit history, and reopening accounts at smaller neighborhood banks because he was "real concerned with privacy issues."
Knoll, a 35-year-old native of St. Paul and alum of the University of Michigan Law School who spent four years working for the Federal Reserve, contends that the settlement is geared for the attorneys and not for the customers, taking particular issue with lawyers' fees he claims amount to $312 per hour in this case. "To agree to paying only $3.5 million in a class-action suit with so many possible members is unconscionable on its face," he insists, and adds that U.S. Bank assets stand at more than $80 million. "I would have been happy for the judge to reject the claim outright. I don't have a problem with class-action attorneys' fees. I'm just saying in this particular case there won't be any money left over for customers."
In spite of that possibility, Knoll wants more people to file, "and for everyone who is entitled to money from the bank to receive it." U.S. Bank sent forms to prospective class members in September, but there are still more claims coming in, Knoll says. (He adds that there's a Web site where U.S. Bank customers can find out more about the settlement parameters and download applications to join the class: www.claimsadministrator.com.) He's unhappy with the terms of the settlement, but he's also concerned that the paperwork is confusing and probably has been ignored by potentially hundreds of thousands of bank customers who deserve compensation.
Rick Solum of the Minneapolis law firm Dorsey and Whitney represented the bank. He argues that the number of objections raised is small in light of the fact that four million notices were sent out about the suit in September. "We are willing to put up a fund of X dollars and have a system to give out the money," Solum says. "But nobody wanted it to get beneath $10 a person." Right now, Solum believes Knoll's calculation that the settlement will result in payouts of $25 to 80,000 U.S. Bank customers "may be about right," even though initial press reports put the individual amounts at about $50.
Solum maintains that the bank is doing its part to compensate for any damages, but says it's not clear how to make things right because no U.S. Bank customers were actually injured by the information-sharing. "Nobody could figure out a level of upset and put a price where people were at," he says. "Legally, you don't get money just because you feel bad." Further, Solum points out that U.S. Bank quit swapping data as soon as the state filed suit in 1999, and that the bank surrendered its $4 million in profits from the information-selling: $1.5 million went to Habitat for Humanity; $2 million to other states; and $500,000 to the State of Minnesota.
"We didn't care much about the merits one way or the other; we just wanted to get this behind us and be honorable," Solum says. "Maybe when people get their $20 or $30, they'll see it as a token payment. Maybe others, when taken with an apology from the bank, will see it as a nice gesture."
Karl Cambronne, one of the lead attorneys for the plaintiffs, also dismisses the objections raised by Lorence and others. "Several people who have filed objections fall into the category of lawyer-bashing," says Cambronne. "But some...actually say that the lawsuit is silly, and that everybody knows companies do this, and that's an interesting aspect to the settlement. There's an element of anger associated in this case, but there's not an injury. You usually don't get money just because you're pissed off."
Cambronne doubts that enough claims will come in to drive individual awards to less than $10 each. But even if the number of plaintiffs mushrooms, he insists, this class-action suit was too "risky" to allow the plaintiffs to demand a fixed dollar amount for each claim. Why not just try to get $200 per person? "The bank would never agree to it," he says. "The bank already gave up profit and revenue [in the Hatch lawsuit]. Another $3 million or $4 million seemed fair." And although attorneys for both sides agree that U.S. Bank has taken an enormous public-relations hit, they say the case very likely would have gone against the plaintiffs had a settlement not been reached.
Knoll admits that his complaints are a "pain in the neck" in this particular settlement, and notes that his initial objection ran to 13 pages. But he feels his actions are justified. "U.S. Bank is not conceding wrongdoing, they are saying lots of banks do this," he says, "It was clear that the attorneys and the judge wanted to get it over with and that it was a formality. I was disappointed at the hearing when it became clear that the judge hadn't read any of the objections. If he doesn't know all the information now, it will hurt him in the appeal.
"The judge praised U.S. Bank for being a good member of the community, and he made gratuitous public remarks about the plaintiffs' attorneys," Knoll continues. "Every lawyer should do pro bono work, and this has been my little contribution to uphold the law. The process is cynical, and that bothers me."
As far as gripes about lawyers' fees, Cambronne shrugs them off by saying that it's a common complaint in class-action suits. "People say, 'I don't want to pay attorneys out of the pot,' but then they don't want to pay money themselves," he goes on, saying that any class member had the right to pursue the case individually. "If you don't want to pay a reasonable fee for a lawyer, then you oughtn't have one."
Lorence calls Cambronne's logic flawed. "There's not enough money individually for anyone to hire and retain an attorney," he points out. "My claim would be at $4,000, but I'd have to pay a percentage to an attorney, and no attorney would take on a case for that amount of money. This way, the consumer is totally left out in the cold."
In financial terms, Lorence continues, his involvement with the case has not been worthwhile. "On the surface, you look this over and say it looks pretty good, that there's a class action, but you read the detail and see how much the lawyers get," he says. "There's no money in this case for anybody but them. I've got more tied up in parking fees to fight this than I will get from the bank."
In the end, he stayed involved with the suit on principle. "I wanted to have my day in court and air my opinion, because it had been ignored by U. S. Bank."