Monday, June 23, 2014

The Vibram Settlement

By Tom G Varik

Cross-posted from WoPSR.net.

If you’ve been in the paleo community for a while, you’re probably seen a pair of Vibram FiveFingers toe shoes. You may even own a pair, or, like me, eight. And you may have also have heard that Vibram have settled a class action suit for $3.75m. There are quite a few nasty, mean-spirited articles out there on the Internet shouting “I told you so,” claiming this settlement proves barefoot running and minimalist shoes were stupid ideas all along, and laughing at those of us who are and continue to be quite happy with our purchases. I won’t link to them here. You can find them on your own if you want.

If you bought a pair of FiveFingers after March 2009, you’re part of the class, and you may already have received notice. You can check the settlement website to see the eligibility criteria and file a claim.

But before you do, here are a few things you should know.

This is a long post, and if you just want to know your options, skip to the section below discussing Options. If you want the really short version, skip to the Summary.

Some Context


The suit wasn’t about whether FiveFingers are harmful.


Valerie Bezdek sued Vibram in 2012 alleging that Vibram had said its toe shoes would impart certain health benefits, such as strengthened foot muscles and improved range of motion. She did not claim she was physically injured. Rather, she sued because she believed that Vibram had no scientific evidence to support its claims, and that the lack of such evidence made the shoes she bought worth less than what she had paid for them. In his order granting in part and denying in part Vibram’s motion to dismiss, US District Judge Douglas P. Woodlock noted that Ms. Bezdek did not mention in her complaint whether she had ever worn the pair of Bikalas she purchased in 2011. Whether she had worn them was immaterial to her claims. She sued for false advertising under Mass. Gen. Laws ch. 266, § 91, for unfair and deceptive practices under Mass. Gen. Laws ch. 93A, §§ 2 & 9, and for unjust enrichment. None of these claims requires that the plaintiff actually use the product, only that she have purchased a pair.

Vibram haven’t admitted wrongdoing by settling the suit.


In the settlement agreement, Vibram
expressly denied and continues to deny any and all wrongdoing alleged in the Actions, and neither admits nor concedes any actual or potential fault, wrongdoing[,] or liability in connection with any of the facts or claims that have been or could have been alleged against it in these actions.
Second Amended Settlement Agreement at 3. This is very typical of class action settlements. The parties settle to avoid litigation, which is extremely expensive and stressful. Vibram aren’t saying they couldn’t win at trial, they’re saying it would be more expensive for them to win at trial than to pay the plaintiffs an amount the plaintiffs are willing to accept. Which brings me to—

The amount of the settlement is very low.


$3.75 million is quite low for a class action settlement. It’s probably a bit more than it would cost Vibram to litigate the issue, but not by much. Even before getting to trial, the plaintiffs racked up a $900,000 legal bill, and litigation of this sort is often more expensive for corporate defendants than for individual plaintiffs. Vibram are getting out of this suit remarkably cheaply. And here’s what I think is the reason: Plaintiffs’ unjust enrichment claim, the claim that could have forced Vibram to disgorge all their profits since 2009, did not survive summary judgment. That was the big money claim Plaintiffs hoped to use as settlement bargaining leverage. Under the remaining statutory claims, damages are limited to the “benefit of the bargain,” or the difference between the value of the goods as advertised and their value if they had been honestly marketed. This is substantially less than all profit. Under the statutory claims, Plaintiffs would have had to prove both that the advertisements were knowingly false or misleading and the amount of the value difference. These are both very difficult to prove. No, I strongly suspect that Vibram had the upper hand in negotiating this settlement. They’re coming out of this as winners.

Vibram will write a check for the full $3.75 million, no matter what.


The plaintiffs, or more accurately their attorneys, will see to the administration of the settlement fund. Up to $937,500 will go to pay the plaintiffs’ lawyers, and up to $70,000 to pay the plaintiffs’ lawyers’ expenses. The settlement provides for $2,500 service awards to the two named plaintiffs, in recognition of their efforts in bringing their suits and the attendant risks they thereby assumed. The costs of notifying the class and processing class member claims will be paid out of the settlement fund. If, after the claim period has closed and all claims paid, there is any money left over in the settlement fund, the residue will go to the American Heart Association for research on the health benefits of exercise and running, or substantially similar research, in what is known as a cy pres award. Vibram don’t get to keep anything if the claims don’t exhaust the fund. In fact, they will cut the check long before the total amount of the claims becomes known.

Cy pres awards rarely, if ever, get paid.


Cy pres is Legal (read Bastard) French for “so close,” the idea being that, if after all the rigmarole of litigating class certification, notifying class members, processing and paying out claims, the award or settlement fund still has money in it, the law must see that the residue goes as close as possible to the intended class. The putative purpose is to ensure fairness to the absent class members, some of whom may have slipped through the cracks and not received notice of the effect on their legal rights. In truth, they hardly ever get paid, because class action funds are usually structured so that the approved claims will be paid pro rata of the remaining amount, leaving nothing. Actual cy pres payouts are so rare that the federal courts have yet to conclusively resolve whether they are even constitutional. The presence of a cy pres award in this settlement further indicates to me that Vibram were in the stronger negotiating position. Vibram were able to limit the amount to be paid on each eligible claim, such that a residue became at least theoretically possible. I expect Vibram would be quite happy to see a portion of the fund to to the American Heart Association, but in reality, that will not happen. The fund is so small, and the maximum amount to be paid on eligible claims so great, that there will not be enough left in the fund for all class members to receive the maximum amount for their claims. And when that happens, claims get paid pro rata and the cy pres gets nothing. This is how this settlement will go down, and there’s nothing you or I can do to change that.

What are the options?


If you’ve already received an email or postcard from the settlement administrators, you already know that you have four:

Do nothing


You can ignore the settlement altogether. This has several effects:
  1. You will lose your right to sue Vibram on your own on the same claims raised in the class lawsuits, but if you love your FiveFingers and disagree with the plaintiffs’ allegations like I do, you wouldn’t have wanted to sue Vibram in the first place.
  2. You get nothing, but you probably weren’t out for blood money anyway.
  3. Everyone else will get a little bit more, because you are one fewer pro rata claim on the fund. Those who don’t care about Vibram, or are happy to take what they can on whatever grounds they can, will get your share, and won’t even think twice about the issues involved.

Opt out of the class


You can opt yourself out of the class altogether. This has several effects:
  1. You retain your right to sue Vibram on your own on the same claims raised in the class lawsuits, but if you love your FiveFingers and disagree with the plaintiffs’ allegations like I do, you wouldn’t have wanted to sue Vibram in the first place.
  2. You get nothing, but you probably weren’t out for blood money anyway.
  3. Everyone else will get a little bit more, because you are one fewer pro rata claim on the fund. Those who don’t care about Vibram, or are happy to take what they can on whatever grounds they can, will get your share, and won’t even think twice about the issues involved.
In case you missed it, for someone who disagrees with the lawsuit, this option is indistinguishable from the first despite involving slightly more effort.

Object to the settlement


You can object to the settlement. At first glance, this looks like an awesome way to express your displeasure with the plaintiffs and their whole enterprise. But let’s take a closer look.
  1. You have to go to court and attend the final settlement hearing at 2:30 PM EDT on 29th October 2014 in the US District Court for the District of Massachusetts, 1 Courthouse Way, Boston, Massachusetts. You will need to pay an attorney to go with you.
  2. You will argue against approval of the settlement, a settlement that Vibram have already accepted and are willing to pay. You will be telling the court to reject the settlement and order the parties back to the negotiating table, to spend more money renegotiating or even going to trial. Vibram have already decided they’re happy paying $3.75 million to avoid a trial, and the plaintiffs are willing to accept it. You really have no business second-guessing that decision.
  3. You will only make things worse for Vibram by driving up their costs, by giving the plaintiffs a chance to extort more or force the case to an expensive trial, and by prolonging the whole stressful affair for them when they’re clearly ready to move on.
The objection option is really only useful if you think the absent class members are getting screwed. It’s not a mechanism that favors defendants.

File a claim


You can file a claim. This has several effects:
  1. You will lose your right to sue Vibram on your own on the same claims raised in the class lawsuits, but if you love your FiveFingers and disagree with the plaintiffs’ allegations like I do, you wouldn’t have wanted to sue Vibram in the first place.
  2. You get some money, but you probably weren’t out for blood money anyway.
  3. Everyone else will get a little bit less, because you are one more pro rata claim on the fund. Those who don’t care about Vibram, or are happy to take what they can on whatever grounds they can, still won’t even think twice about the issues involved, but at least they’ll walk away with less.
  4. You gain a unique opportunity to show your support for Vibram that no other option affords. You can give the money back.

Giving Back


Unfortunately, Vibram are running a business here, and business accounting and the US tax code don’t provide an easy mechanism for a business to accept low-dollar charitable donations from individuals. If you simply mail your settlement check to Vibram, even endorsed to them, they won’t be able to deposit it. Accepting your attempt to give this money back to Vibram would create for them a bookkeeping nightmare and seriously complicate their US tax situation. While I’m sure Vibram would be touched by your gesture, they would never be able to accept it.

Instead, you can buy shoes.

Use your portion of the settlement to buy Vibram’s products. Place your order by phone and tell them what you’re doing. Tell them how much you support them and love their products. And buy shoes, and wear them with pride. Vibram have taken an undeserved beating in the press over this, and they could really use your support.

Summing Up


Vibram will write a check for $3.75 million, whether you file a claim or not. But if you do, Vibram’s detractors will get just a bit less out of the whole exercise, and you’ll be able to show your support for Vibram by buying their products with your share. Selling you some shoes you love—for a profit, of course—gives Vibram a way to get back some of that money they never expected to see again, and provides them the moral and revenue support to get over the trashing they’ve taken at the hands of snarky bloggers and the smug, told-you-so gurus of tradition.

Tom G Varik is an attorney and toe-shoe enthusiast in Cleveland, Ohio. He isn’t your attorney, though, and this post isn’t legal advice. Tom blogs at WoPSR.net.

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