A New Haven federal judge has sided with Connecticut and three dozen other states in opposing a retail purchasing cooperative’s request to settle customer claims that its business model is worthless and fraudulent.
U.S. District Judge Janet B. Hall issued a court opinion that DirectBuy Inc.’s settlement petition, failed to meet the heightened test of fairness for early class-action settlements because it failed to account for state consumer protection claims.
According to state Attorney General George Jepsen, who opposed it, Hall also stated the settlement offer it overstated the risks of success, and provided a “relatively meager settlement” when viewed in light of the best possible recovery for consumers.
Jepsen and his counterparts in 35 other states, the District of Columbia and Puerto Rico argued that the settlement involving DirectBuy and its affililates is toothless.
The class-action lawsuit accused DirectBuy and the co-defendants of fraudulent misrepresentation because the company implied that paid memberships would entitle customers to purchase goods from manufacturers and suppliers at actual cost.
However, according to the suit, DirectBuy allegedly received kickbacks and incentives from suppliers and manufacturers of goods purchased by DirectBuy members, which inflated the cost of the goods. The lawsuit alleges that DirectBuy did not disclose this arrangement to customers until early 2009.
The pending lawsuit also names United Consumers Club, Inc. and DirectBuy Holdings Inc. as defendants.
DirectBuy could not be immediately reached for comment.
