Fairness Of Sweepstakes Settlement Is Questioned Publishers Clearing House Has Set Aside $10 Million For Customers Who Bought Products To Increase Their Odds.

Posted: October 21, 1999

The class-action settlement this summer was billed as a second chance for those who never won anything in the Publishers Clearing House sweepstakes. In it, the New York direct marketer agreed to pay back millions of dollars to customers who thought they were increasing their chances of winning the sweepstakes by buying magazines and other products.

Now, as the deadline approaches to apply for a refund in the case, the lawyers behind it are embroiled in a dispute with a group of state attorneys general and consumer advocates. The critics warn that this settlement, like such sweepstakes themselves, is a bad deal in an alluring package.

At least nine state attorneys general have already filed their own lawsuits against Publishers Clearing House, and representatives of roughly 40 states have been involved in joint negotiations with the company.

"We fully expect that there will be a very fair restitution arrangement as the result of our efforts," J.P. McGowan, a senior deputy attorney general in Pennsylvania who has participated in the multistate negotiations, said yesterday.

McGowan said he could not comment on the class-action settlement, reached in July with Publishers Clearing House in a case filed in Illinois. Under that deal, customers are eligible for refunds if they bought magazines or other products from Publishers or its Campus Subscriptions Inc. subsidiary since early 1992. The deadline for applying originally was this week but has been extended to Nov. 5.

"They need to say they were misled, basically that they were trying to win the sweepstakes or increase their chances of winning the sweepstakes" by making their purchases, said one of the lawyers who negotiated the settlement, Steven A. Katz, of Belleville, Ill.

Critics raise several concerns about the settlement. One is whether the $10 million fund it would establish would be enough to fully compensate victims. Another is whether notice of the settlement would scare away most of those entitled to a refund, or never even be read. The letter, which arrived in a small, white envelope, is three pages of small type that looks like legal text.

Also controversial is the settlement's "opt-out" provision, under which anyone who wants to pursue a claim individually or through a state lawsuit must notify the Illinois lawyers by that same Nov. 5 deadline.

"The only sure winners in this class-action settlement are the private attorneys and Publishers Clearing House," said one of the attorneys general questioning the deal, James E. Doyle of Wisconsin. Doyle, who filed his own suit against Publishers Clearing House in January, estimated that after attorneys' fees and administrative costs, the Illinois settlement would have only about $4 million for refunds.

Katz defended the settlement, which he said had already resulted in tens of thousands of claims. He said it was intended to compensate misled consumers for what they had spent, fully or close to fully.

"Some of the attorneys general have said this would amount to payments of only pennies on the dollar. I guarantee you that will not happen," Katz said.

Katz acknowledged that the settlement could allow less-than-complete refunds to be paid, depending on the volume of claims. But he said critics were "forgetting that there's a federal judge involved here." If the fund cannot compensate victims adequately, he said, the judge can withhold approval of the final deal.

One uncertainty is how many people count themselves as victims.

Many people say they are immune to the big, bold come-ons that seem to promise guaranteed riches - until one reads the fine print. But at U.S. Senate hearings earlier this year, some witnesses told of wasting thousands of dollars on sweepstakes-inspired purchases.

Jim Haney, a spokesman for the Wisconsin Attorney General's Office, said this week that the savviest consumers may never see sweepstakes' most heavy-handed tactics.

Haney said Publishers Clearing House makes its hardest sell only when a customer has proved willing to make a purchase. He said those customers then receive the most "sophisticated, manipulative mailings . . . designed to lead consumers to believe that they have just won the contest and all they need to do to collect their prize is take one more step - which is to buy another product - before the Prize Patrol will arrive."

Katz said the settlement notice was mailed two months ago to 42 million people, all those who were solicited since Feb. 3, 1992, and bought something. He said "tens of thousands" of claims had already been submitted, for varying amounts.

"In theory, anyone with even an $8 claim would make one, and I have seen claims that are greater than $10,000," he said.

Katz said the deadline extension was aimed at addressing some of the criticism of the settlement. For the same reason, Publishers Clearing House has agreed to publish a less-complicated claim form in tomorrow's edition of USA Today. Katz said a hearing that will address the settlement's fairness has been scheduled for Dec. 20. Refund claim forms and information are also available online at http://www. pch.com/customer/classaction.asp or by calling 1-800-521-4724.

Wisconsin's Doyle and several other attorneys general are advising their constituents to opt out of the settlement. Advice from other quarters is less clear.

"Everyone's going to have to assess their situation for themselves," said Stacy J. Canan, a lawyer with the AARP Foundation, which has raised objections to the settlement.

New Jersey consumers aren't getting any advice from their attorney general. A spokeswoman for New Jersey Attorney General John J. Farmer said she could not comment on the case "or on any pending investigation."

McGowan, though, offered this reassurance to any Pennsylvanians puzzled about what to do:

"We believe that no one will be adversely affected regardless of whether they opt in or opt out of the private settlement," he said. "We fully expect that whatever decision they make . . . they will be covered in a restitution arrangement as a result of our efforts."

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