Case Study: Linens Antitrust LitigationCertificate Clearing Corporation
Mon Feb 08, 2016
Crumbs, Conspiracies, and Coupons
CCC’s expertise in creating, facilitating and administrating secondary coupon markets resulted in an exceptionally high redemption rate of 93%.
No other case so adequately illustrates CCC's positive role in class action coupon settlements as the Linens Antitrust Litigation (“Linens”). On its face, the lawsuit was a classic example of defendants allegedly violating antitrust laws leading to price increases and resulting in a subsequent settlement.
But Linens, the most notable class action coupon settlement after the passage of the Class Action Fairness Act in 2005, exemplifies much more than that.
First, a quick recap: The plaintiffs, various restaurants in New York City, claimed that beginning at least as early as 1994 and continuing at least until September 30, 2002, the defendant linen supply companies engaged in an unlawful conspiracy to allocate Linen Services customers and rig bids in the NYC Metropolitan area in violation of Section 1 of the Sherman Act, Title 15 U.S.C. § 1. “Linen supply companies,” according to the United States Department of Justice,and at the time New York linen suppliers could annually pull in $500 million in revenues combined. primarily supply restaurants, cafeterias, and caterers with laundered items such as table linens, napkins, chef's uniforms, and aprons. Linen supplies are a significant cost of business for these establishments.
During the pendency of this civil litigation, the Justice Department conducted a separate investigation of the New York City Metropolitan area Linens Services industry. As the Justice Department charged, the defendants “carried out the conspiracy by agreeing not to compete for each other's customers, meeting to discuss and affirm their agreement, notifying each other when such customers were contemplating switching linen suppliers, and submitting intentionally high non-competitive price quotes or refraining from submitting price quotes to such customers.” The investigation resulted in the Linens defendants pleading guilty to charges similar to those alleged by the Linens plaintiffs. These defendants were fined over $7 million.
The seven settling defendants, who comprised 100% of the linen services market in NYC at the time, eventually settled for approximately $7 million in cash, and $3 million in vouchers. These vouchers, which could be used by restaurants to pay for linen services, initially provided a host of complications. Before CCC stepped in, that is.
The parties agreed that the defendants would be responsible for hiring a Voucher Consultant, Voucher Administrator and Voucher Market Maker. The defendants made the obvious choice and hired CCC. Leveraging its extensive history in coupon settlements, CCC helped design the vouchers from the start. As the Voucher Consultant, CCC catalyzed an extremely successful settlement for the class - and for the plaintiffs’ attorneys.
The design phase proved successful, as CCC’s role as Voucher Administrator soon demonstrated. CCC cleared, reconciled, and settled the transactions between the restaurants redeeming vouchers and the seven defendants. Despite the complexity that came with regulating redemption payments among seven distinct settling defendants, CCC’s expertise in creating, facilitating and administrating secondary coupon markets resulted in an exceptionally high redemption rate of 93%.
Not only did the class nearly receive maximum value from the settlement, the plaintiff’s attorneys also benefitted from the immediate monetization of their vouchers.
As the Market Maker, CCC purchased vouchers from all of the plaintiff’s attorneys and resold those vouchers in the marketplace. For the class, CCC conducted multiple auctions matching buyers and sellers of the vouchers. Though the case involved seven settling defendants, many of who were in varying stages of insolvency, CCC’s acumen in optimizing coupon markets resulted in a superlative redemption rate. Not only did the class nearly receive maximum value from the settlement, the plaintiff’s attorneys also benefitted from the immediate monetization of their vouchers. In addition, the defendants not only regained customer loyalty, they were able to distribute the cost of the settlement over the course of the redemption period and move that cost from their balance sheets to their income statements.
The successful result of Linens can be attributed to CCC’s extensive experience analyzing, creating, administering and making markets in numerous class action coupon settlements over the past 25 years. Having singular institutional knowledge and experience in the field, CCC is currently preparing to administer and create a secondary market In the coupons to be issued for the recent Korean Air Antitrust Litigation settlement.