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Judge criticizes fees in Sears case

  Legal Business  -   POSTED: 2007/07/23 17:57

A North Carolina judge has harshly criticized the settlement of a class-action lawsuit in which a Wilmington lawyer and colleagues received $950,000 in fees while consumers who Sears overcharged across the country were reimbursed a total of $2,402. Superior Court Judge Ben Tennille decried the excessive fees and the lack of effort made to reach customers who had paid too much for wheel alignments at Sears automotive centers. Tennille, who specializes in complex business cases, criticized Sears and the lawyers for trying to hide the settlement results from him.

"Their efforts to keep the results secret are understandable," Tennille wrote in his May decision. "The shocking incongruity between class benefit and the fees ... leave the appearance of collusion and cannot help but to tarnish the public perception of the legal profession."

Sears is appealing Tennille's decision and declined to discuss the case.

Gary Shipman, a Wilmington lawyer who led the class action lawsuit, attacked Tennille's order as wrong on the law and filled with factual errors. Shipman complained that Tennille issued his ruling out of the blue, two years after the last hearing in the case. And Shipman said the judge did not have jurisdiction and therefore did not have the power to make decisions in the case.

"Do you think Judge Tennille's word is the Gospel?" Shipman asked. "There is so much in that order that is wrong."

But a top consumer advocate said Tennille's objections had merit.

"Good for the judge," said Ira Rheingold, the executive director of the National Association of Consumer Advocates, which advises and lobbies for lawyers who bring class action lawsuits.

"Cases like this make it look like a get-rich scheme for attorneys," Rheingold said. "The attorneys collect all the fees, and the consumers get no benefits."

Inflated charges

In 2002, Shipman filed one lawsuit in Wilmington and another lawsuit in Chicago, where Sears has its headquarters.

The lawsuits alleged that Sears charged clients for pricier four-wheel alignments on cars which can only be serviced with less expensive two-wheel alignments. Although the inflated charge is a few dollars for each customer, Sears stood to make millions of dollars from the alleged scheme, given the retail giant's nationwide presence.

Shipman said his lawsuit was inspired by one filed in New Jersey. In that case, the New Jersey attorney general combed through Sears records and identified 12,544 New Jersey residents who had paid too much for alignments. Sears agreed to give $10 cash to each person and to give $500,000 to the Attorney General's Office for consumer protection and expenses.

No notices posted

Tennille criticized the method Shipman used to locate the estimated 1.5 million customers who had been overcharged. Tennille faulted Shipman and his fellow lawyers for not insisting that Sears post notices and place claim forms on the counters of Sears' 843 automotive centers around the country. Sears' billing records were not used, nor were lists of Sears credit card holders.

Rather, Sears advertised in newspapers, which courts have recognized as the least effective way of finding class members -- "an essentially futile gesture," the judge wrote. Sears put notices in newspapers in 25 of the country's largest wheel alignment markets and in Parade magazine and USA Weekend, which are inserted in weekend newspapers across the country.

The newspaper notice produced 317 valid claims nationwide.

"Doing the math in this case is easy," the judge wrote. "For each class member who received a $10 check or $4 coupon, plaintiffs' counsel received just shy of $3,000."

According to Shipman, an expert witness estimated that the newspaper advertisements reached 79.24 percent of the claimants in Sears' top 25 markets for alignment sales.

"We certainly believed more people would take advantage of a 100 percent refund," he said. "We don't know if they found out about it. Many times people just don't want to fill out a claim form."

Defending the fees

Shipman said the legal fees were not excessive because they were based on how much time he and his colleagues from six other law firms had spent on the case.

"Sears had paid their attorneys more than what we had been paid," Shipman said.

Shipman said he never hid results from Tennille. He said that the judge in the Chicago lawsuit had jurisdiction in the case and that Tennille had no authority to issue orders. Shipman said he would have given an accounting of the lawsuit had Tennille asked, and did supply the figures in May 2005.

Though Tennille's order was strongly worded, the judge conceded he cannot undo the settlement approved by the Illinois court in 2005.

Shipman and his fellow lawyers have "been more than adequately compensated by the Illinois court," Tennille wrote. "There is nothing this court can do about that."

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