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Attorney General Kilmartin Opposes DirectBuy Lawsuit Settlement

Attorney General Peter F. Kilmartin joined attorneys general of 34 states, the Commonwealth of Puerto Rico and the District of Columbia, in objecting to a proposed settlement of a private, class-action lawsuit against Direct Buy, Inc., citing no real benefit to consumers.

Attorney General Kilmartin said the so-called free and reduced-price memberships offered were not fair, reasonable and adequate settlement for most of the customers harmed. Also, the proposed settlement would not prohibit similar conduct by DirectBuy in the future and the proposed attorneys’ fees were excessive and disproportionate compared to purported benefits to consumers.

“The proposed settlement is, in essence, a sales vehicle for the DirectBuy and co-defendants designed to drive current and former customers into membership renewal contracts and to the same manufacturers and suppliers from whom the Defendants have acknowledged receiving kickbacks and incentives,” said Attorney General Kilmartin. The membership has little value. To receive any benefit, the settlement forces absent class members to either purchase new memberships from the Defendants or to make sizeable purchases from the same group of manufacturers and suppliers selected by the Defendants.”

The private, class-action lawsuit accused DirectBuy of fraudulent misrepresentation because the company implied that paid memberships would entitle customers to purchase goods from manufacturers and suppliers at actual cost. However, 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 class-action lawsuit names Direct Buy, Inc.; United Consumers Club, Inc. and DirectBuy Holdings, Inc. as defendants. Kilmartin took issue with the proposed settlement in a 36-page joint amicus curiae brief filed in U.S. District Court in Connecticut. A hearing on the matter is scheduled for May.

There are approximately 3,100 consumers in Rhode Island that are DirectBuy members that would be impacted by this proposed settlement.

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