California Trust Offers Promising Weapon for Consumers

It started in May 1976 and ended last month in a resounding victory for consumers in California with far-reaching effects on other states.

Ten years ago, the Federal Trade Commission (FTC) charged Levi Strauss & Co. with pressuring retailers to set higher prices for jeans in violation of federal antitrust laws. In late 1977 the FTC and the company entered into a consent agreement whereby the company agreed to stop all efforts to control retail pricing.
The action then shifted to California where the Attorney General moved to have Levi Strauss give up its ill-gotten gains to its overcharged consumers. After numerous legal manuevers by the two parties, an agreement was reached to return about $12 million to those Californians who could show they bought jeans in the period when the violations occurred. The only trouble was that an estimated three to four million consumers would be receiving an average of $2.60 to $3.00 refund. Just finding these consumers and mailing their check would reduce the amount to an even more trivial sum.

Nonetheless, notices and ads were posted and about one million claimants were processed. The bulk of the money settlement remained undistributed for lack of claims deemed valid or credible. With interest accumulating, the fund is now over $10 million.

The legal battle began over what to do with this money. One view was to give it to the state government; another was to let Levi Strauss filter it back by an equivalent reduction in its jean prices for a period of time. A third suggestion by the intervenors in the case was to create a consumer trust fund. Here the court would appoint a board of directors that year after year uses the interest income from the fund to fight for consumer rights against corporate fraud, misleading advertising and anti-competitive business practices.

On March 20, 1986, in a long-awaited decision, the California Supreme Court handed down its approval of the consumer trust fund proposal. It ruled that consumers in class action settlements should be offered a choice between trivial individual refunds (30 cents per Levi jean) or placing their money in a permanent consumer fund that advocates their interests against marketplace abuses through research, education and action.

Robert Gnaizda, the lawyer with Public Advocates in San Francisco that was instrumental in winning this victory, said that the Court’s decision “does for individual consumers what a corporation does for individual shareholders — permits them to unite in an effective association.”

The Court recognized the pioneering impact of this case. Chief Justice Rose Bird, who wrote the opinion for the court, declared that “Today’s ruling will serve as a source of guidance both for the trial court on remand in allocating the residue and for other courts in confronting the largely uncharted area of fluid recovery.” What that means simply is that in cases where the refunds are trivial and where the legitimate consumer-claimants are difficult to locate, it is most fair to place the funds in such a consumer trust organization as an endowment.

Gnaizda expects other courts to place ill-gotten corporate gains into this or similar trust funds thereby creating strong, permanently financed consumer protection institutions to deter or correct future corporate wrongdoing. It is to Levi Strauss & Co.’s credit that it agreed not to oppose the consumer trust fund proposal.

Other state courts have often followed the lead of the California Supreme Court. Since there are numerous cases of utility, oil company, bank and insurance company overcharges — to name a few examples -­America could flower with consumer trust funds standing tall as guardians for the people who pay all the bills in our economy and too often do not get their money’s worth.

(Interested readers can receive a copy of the California Supreme Court opinion by sending $3.50 for copying and mailing costs to Public Advocates, 1535 Mission Street, San Francisco, CA 94103. )