Company To Pay $40 Million in Fund-Raising Suit
A subsidiary of Reader's Digest has agreed to pay some $40 million to as many as 23,000 schools nationwide to settle a lawsuit claiming that the company monopolized the business of raising school funds through selling magazine subscriptions.
Depending on the amount of money they raised from magazine sales, schools are expected to receive from $80 to $4,000 apiece, said Frederic L. Gordon, a lawyer for the plaintiffs.
QSP Inc. and the plaintiffs' lawyers reached the settlement in the class action last month.
In announcing the settlement, the company denied that it had violated federal antitrust statutes or other laws. "We settled the case to avoid the cost and distraction of a protracted trial and possible appeals process," said Norman J. Fawcett, the president of QSP.
The Ridgefield, Conn.-based subsidiary of the publishing giant planned to mail notifications to the affected schools by the end of this week, Mr. Fawcett said.
Schools that believe they may qualify but receive no announcement by May 15 should get in touch with their QSP representatives, he said.
The schools are those in the continental United States whose students sold magazine subscriptions through QSP between Jan. 1, 1990, and Dec. 31, 1995.
Companies in the business make deals with publishers so that schools or other groups can sell their magazines. The schools then take a cut of the sales, as do the companies, and students who sell magazines are typically rewarded with prizes or other incentives.
The Reader's Digest subsidiary was able to negotiate exclusive deals with the publishers of many of the most popular periodicals. It typically gave schools a 40 percent cut of sales, but required them to pay for the students' prizes themselves, reducing the schools' share to 30 percent to 35 percent, Mr. Gordon said.
According to Mr. Fawcett, however, the cost of the incentives was shared by the schools and QSP's field managers.
Meanwhile, Mr. Gordon said, smaller competitors gave schools 45 percent to 50 percent of sales and paid for the prizes.
The federal lawsuit, which was filed in 1993, alleged that the exclusive arrangements made it impossible for smaller companies to compete in the market because they could not offer the magazines most buyers would want.
"For the vast majority of the country, QSP was the only game in town," Mr. Gordon said.
But Mr. Fawcett disagreed. "We are in a very, very competitive industry," he said. "We feel that for the service, for the selection, for the variety, that we present the best value in the business today."
Tens of thousands of schools have been associated with QSP during the nearly 30 years it has been in business. The Chino Unified School District in Southern California was among them until it became one of the lead plaintiffs in the suit.
Four middle schools sold subscriptions to raise money to buy computers and other equipment, said John D. Hunter, the district's coordinator of risk management.
"We are pleased as to the content of the settlement," Mr. Hunter said. "It would renew our faith in the ability to deal equitably with that company."