In January 2013, a teenager in Australia posted a photo online showing that his “footlong” Subway sandwich was in fact only 11 inches, setting off a viral storm of consumers discovering their “footlong” sandwiches were similarly not as large as advertised. That spawned a number of class action lawsuits in America accusing Subway’s franchisor, Doctor’s Associates, Inc., of claims under various states’ consumer protection laws related to the failure to provide diners with sandwiches that were not the size they were purported to be.
The cases were consolidated into a single action in the Eastern District of Wisconsin, and the parties presented the court with a class action settlement. The settlement called for Subway to institute a number of practice changes to help ensure consistent bread size, including measuring all baked bread, and instituting corporate controls and monitoring. The settlement afforded no monetary relief to class members but provided for $525,000 in attorneys’ fees and incentive awards of $500 each to class representatives.
The settlement received at least one objection. Class member Theodore Frank argued the injunction conferred no meaningful benefit on the class and thus could not support an award of fees or incentive awards. The district court disagreed and approved the settlement over Frank’s objection. Frank appealed to the Seventh Circuit.
The Seventh Circuit reversed and roundly rejected the settlement. The court began by noting that a class settlement resulting in nothing more than a recovery of fees to class counsel “is no better than a racket.” The court rejected the suggestion from the parties that the injunctive relief would provide meaningful changes to Subway’s procedures (and consumers’ experiences), relying on a “simple comparison of the state of affairs before and after the settlement.” Indeed, before the settlement, Subway sandwiches would likely—but not certainly—be 12 inches long; after the settlement, Subway sandwiches would likely—but not certainly—be 12 inches long. The court took particular note of the explicit admission in the settlement that due to variances in baking, Subway did not and could not guarantee sandwich size.
The court ultimately concluded that the settlement was nothing more than a mechanism to enrich the class representatives and their counsel, but did not “benefit the class in any meaningful way.” The court dismissed the notion that a contempt proceeding could be brought to ensure compliance with the injunction, saying, “Contempt as a remedy to enforce a worthless settlement is itself worthless. Zero plus zero equals zero.” The court ultimately held that not only should the settlement not be approved, but the case should be dismissed.