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Presenting a live 90-minute webinar with interactive Q&A
Consumer Class Action Settlements:
Evaluating, Negotiating and Structuring
Settlements Pre- and Post-Certification Weighing Settlement Options, Negotiating the Agreement, Obtaining Court Approval
Today’s faculty features:
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
TUESDAY, JANUARY 19, 2016
Donald R. Frederico, Partner, Pierce Atwood, Boston
Neal R. Marder, Partner, Winston & Strawn, Los Angeles
Adam M. Moskowitz, Partner, Kozyak Tropin & Throckmorton, Miami
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Consumer Class Action Settlements: Settlement Options and Class Notice
Presented by Neal R. Marder, Winston & Strawn LLP
January 19, 2016
Weighing the settlement options: Individual vs. class-wide settlements
Weighing the settlement options
• Individual settlements with named plaintiffs
• “Picking off” named plaintiffs prior to class certification
• The federal courts of appeal are divided as to whether a Rule 68
offer of judgment or settlement offer that would provide complete
relief to the plaintiff – even if rejected by the plaintiff – moots the
plaintiff’s claims.
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Weighing the settlement options
• Most circuits have held that a defendant's offer of judgment that
would fully resolve the plaintiff’s claims therefore moots the
plaintiff’s claims.
• Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004)
• Krim v. pcOrder.com, Inc., 402 F.3d 489 (5th Cir. 2005)
• Thorogood v. Sears, Roebuck and Co., 595 F.3d 750 (7th Cir. 2010)
• Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239 (10th Cir. 2011)
8
Weighing the settlement options
• Several circuits have held that an offer of judgment will not moot
the class action if made after a motion for class certification has
been filed.
• E.g., Zeidman v. J. Ray McDermott & Co., Inc., 651 F.2d 1030, 1051 (5th Cir.
1981)
• This approach encourages plaintiffs to file motions for class certifications
with their complaint or shortly after filing.
• Some courts have held that an offer of judgment will not moot
the class action if made before the plaintiff has had a
reasonable opportunity to move for class certification.
• E.g., Weiss v. Regal Collections, 385 F.3d 337 (3d Cir. 2004)
9
Weighing the settlement options
• The Seventh Circuit has held that an offer of complete relief will
moot the plaintiff’s case even if the plaintiff has not had an
opportunity to move for class certification.
• McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1018 (7th Cir. 2014)
• The minority of circuits have held that a defendant’s unaccepted
offer of judgment does not moot a class action.
• Tanasi v. New Alliance Bank, 786 F.3d 195, 200 (2d Cir. 2015)
• Diaz v. First American Home Buyers Protection Corp., 732 F.3d 948 (9th Cir.
2013)
10
Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013)
• Collective action under the Fair Labor Standards Act
• Defendant made a settlement offer to plaintiff that would have fully
satisfied the plaintiff’s claims
• Court assumed, without deciding, that the unaccepted offer mooted the
plaintiff’s claims
• Once plaintiff’s individual claim became moot, her class claims
became moot as well
11
Genesis Healthcare Corp. v. Symczyk, 133 S.Ct. 1523 (2013)
• It is unclear whether Genesis, which involved a collective action under
the FLSA, applies to class actions under Rule 23.
• In her dissent in Genesis, Justice Kagan argued that the plaintiff’s
claim was not mooted by the unaccepted offer.
• Several recent circuit court decisions have followed Justice Kagan’s dissenting
opinion.
12
Campbell-Ewald Co. v. Gomez (U.S. Supreme Court – argued Oct. 2015)
• Campbell-Ewald, a marketing company, sent text messages to
individuals on behalf of the U.S. Navy to assist in the Navy’s
recruitment effort
• One of the recipients, Jose Gomez, filed a putative class action under
the Telephone Consumer Protection Act (TCPA)
• TCPA provides for maximum statutory damages of $1,500 per violation
• Campbell-Ewald served Gomez with a Rule 68 offer of judgment and a
settlement offer for $1,501
13
Campbell-Ewald Co. v. Gomez (U.S. Supreme Court – argued Oct. 2015)
• District court denied Campbell-Ewald’s motion to dismiss for
lack of jurisdiction, holding that the unaccepted offer of judgment
did not moot the case
• Ninth Circuit affirmed
• Case will be decided by the Court this Term
14
Strategic considerations
• Plaintiffs’ lawyers may lose their fees
• Classwide res judicata bar
• Whether Plaintiffs’ counsel can find new plaintiffs
15
Communications with putative class representatives
• Defendant's lawyers cannot engage in settlement discussions
directly with the putative class representatives
• Clients can communicate directly, but lawyers may not use their
client as a conduit to transmit information to other party
• ABA Model Rule 4.2
• California Rule of Professional Responsibility 2-100
16
Communications with putative class representatives (cont’d)
• Whether a lawyer can provide to the client the basic terms of a
proposed settlement agreement depends on the jurisdiction
• For example, the ABA allows this
• ABA Formal Ethics Opinion No. 11-461 (2011)
• But California prohibits lawyers from preparing documents for the client to
send to the other party
• California State Bar Formal Opinion No. 1993–131 (1993)
17
Communications with putative class representatives (cont’d)
• Example of successful client-to-client settlement strategy:
• Myers v. MedQuist Inc. (D.N.J., settlement approved April 2009)
• MedQuist was accused of overbilling its over 3,000 clients
• MedQuist negotiated directly with major hospitals that were members of
the putative class
18
The Business of Objecting to Class Action Settlements Adam Moskowitz, Kozyak Tropin & Throckmorton LLP January 19, 2016
Courts review class action settlements to determine whether they are “fair, reasonable, and adequate.”
Settlements are recognized as a compromise of ideals, and district courts are not tasked with determining whether a class action settlement offers optimal relief.
“Settlement is the offspring of compromise; the question we address is not whether the final product could be prettier, smarter or snazzier, but whether it is fair, adequate and free from collusion.”
Hanlon v. Chrysler Corp., 150 F.3d at 1011, 1027 (9th Cir. 1998)
“The trial court should not make a proponent of a proposed settlement justify each term of settlement against a hypothetical or speculative measure of what concessions might have been gained; inherent in compromise is a yielding of absolutes and an abandoning of highest hopes.”
Cotton v. Hinton, 559 F.2d 1326, 1330 (5th Cir. 1977)
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Objectors can provide another check on a settlement’s fairness
Objectors challenge:
The amount/type of relief provided by the settlement;
The settlement structure;
Sufficiency/clarity of notice to class members;
Proposed fee-and-cost award to Class Counsel;
Any indicia of collusion between parties.
Courts look at: The number of
objections and opt-outs as a percentage of the total class;
The substance and merit of the objections;
The objectors’ reputations and histories and potential ulterior motives for objecting.
21
Seventh Circuit credits objectors with ensuring fairness of settlements.
Judge Posner:
Notes that class counsel has incentive to sell out the class by recommending a settlement with small recovery for the class, but generous fees for counsel.
Expresses concern that district courts are accustomed to presiding over adversary proceedings, and stand at a disadvantage when evaluating settlements because they traditionally rely on “the clash of the adversaries” to help decide a case.
Credits objectors as class members “who smell a rat” and may bring about a settlement that is more favorable to the class.
See Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014)
22
Objectors’ ulterior motives
But, objectors also have economic incentive to put themselves before class members:
Little work, low overhead: only need to draft objection that is facially colorable;
Low risk: not required to appear at final fairness hearing to defend objections;
No consequence: doesn’t matter if objection is overruled – can leverage threat of appeal;
High payout: the longer an objection delays final resolution/relief to the class, the higher the chance and amount of a payoff.
23
The business of objecting to class actions
Objecting to class actions has become a profit center for some professional objectors: Attorneys enlist class members to object to class
actions on ground that settlement could be “better”;
May challenge the settlement on any ground;
Objections may be frivolous;
Goal is to hijack settlement, delay relief to the class with threat of appeal, and extract fees from class counsel to go away;
Attorneys who have contributed no work during years of litigation can come in at approval stage, file objection, and extort exorbitant and unearned fees.
24
In re Checking Account Overdraft Litig., 830 F.Supp.2d 1330, 1361 n. 30 (S.D.Fla.2011)
“[P]rofessional objectors can levy what is effectively a tax on class action settlements, a tax that has no benefit to anyone other than to the objectors. Literally nothing is gained from the cost: Settlements are not restructured and the class, on whose benefit the appeal is purportedly raised, gains nothing. … As [one expert] explained, ‘[t]he unfortunate game is to lodge pro forma objections at the trial stage, then negotiate a private resolution in order to drop the invariable notice of appeal. Once the case has progressed beyond the trial court, there is no longer any accountability for side payments to objectors' counsel, and the game is on.’”
25
Poertner v. Gillette Co., 618 Fed. App’x 624 (11th Cir. 2015)
Settlement Terms
Nationwide class composed of purchasers of Duracell “Ultra Power” batteries, alleging batteries did not last longer than Duracell Copper Top batteries as advertised.
Settlement provides class members with $3 per pack of batteries purchased; up to four packs with proof of purchase, two packs without;
Settlement valued at $50 million, based on relief made available to class;
$6 million cy pres award to charitable organizations;
$5.68 million class counsel fees-and-costs award.
Objections
Claims-made structure instead of direct-pay;
Calculation of attorneys’ fees based on percentage of total relief instead of claims paid;
“Clear-sailing” and “kicker” provisions;
Injunctive relief illusory
Cy pres inappropriate and premature.
26
Poertner v. Gillette Co., 618 Fed. App’x 624 (11th Cir. 2015)
Eleventh Circuit rejects professional objections based on challenges to structure, relief afforded, and counsel’s fees:
“The use of a claims process is not inherently suspect.”
Allocation of settlement’s benefits was fair—value of “settlement pie” includes value of injunctive relief, cy pres award, and monetary relief made available to class.
“Even if it was possible to identify some unnamed class members, that does not mean that the district court lacked the discretion to approve the settlement as fair absent the identification of these class members.
“Kicker” and “clear sailing” clauses fair, reasonable and adequate where “parties settled only after engaging in extensive arms-length negotiations moderated by an experienced, court-appointed mediator.”
Objection that class counsel’s “slice of the settlement pie was too large” was based on flawed valuation of “settlement pie,” and it was not abuse of discretion to award fees and costs based on percentage of pie calculation.
27
Poertner v. Gillette Co., 618 Fed. App’x 624 (11th Cir. 2015)
The result in Poertner makes sense. Fees should be awarded based on total relief made available, not claims paid. Other courts:
Where, as here, a claims-made process is a reasonable method for providing prompt and substantial relief to the class, requiring class members to file claim forms also maximizes the relief available to class members who opt to submit a claim. A settlement's fairness is judged by the opportunity created for the class members, not by how many submit claims. What matters is the settlement's value to each class member—it is ultimately up to class members to participate or not.
Hamilton v. SunTrust Mortg., Inc., 2014 WL 5419507, at *7 (S.D. Fla. 2014) (emphasis supplied).
28
Counsel should not be penalized for class members’ failure to take advantage of a reasonable claims-made settlement:
“There may be many reasons or no reasons why class members decide to participate in a settlement, e.g., a desire not to be involved in litigation, ideological disagreement with the justice system, their individual experiences with lender-placed insurance, or sympathy for the defendant. Further, class members may not have paid lender-placed insurance charges and therefore elected to forego the opportunity to submit a Claim Form. Whatever the underlying reason, that is a decision to be made by each class member. Those decisions, however, do not affect whether the settlement provided to the Class is fair, adequate, and reasonable.”
Hall v. Bank of Am., N.A., 2014 WL 7184039, at *8 (S.D. Fla. 2014).
29
The 11th Circuit’s approach to fees in Poertner makes sense
Calculating fees and costs based on the claims paid is arbitrary, and fails to account for:
various reasons class members may opt to not participate;
significant economic risks undertaken by class counsel in litigating class actions—contingent fees, considerable expenses, risk of collecting nothing because of failure on motion to dismiss, certification, summary judgment, trial;
risks often exacerbated by the existence of competing parallel proceedings in other courts, which may reach settlement or certification first;
challenges also faced in fighting objections, which are often frivolous, at approval and on appeal;
considerable amount of labor that is usually undertaken to litigate a class action to resolution.
30
Seventh Circuit cases presented unique facts
The Seventh Circuit opinions upon which class action objectors rely presented unique facts:
Eubank v. Pella: Judge Posner termed settlement “inequitable—even scandalous[,]” and found that it “flunked the ‘fairness’ standard by the one-sidedness of its terms and … fatal conflicts of interest[,]” 753 F.3d 718, 721 (7th Cir. 2014).
Settlement reflected “almost every danger sign in a class action settlement”:
“fatal conflicts of interest”;
opposition by named plaintiffs;
class members to risk recovering nothing by submitting their claims to arbitration, where the defendants had reserved defenses, in order to be eligible for any meaningful settlement distribution;
only coupons to a portion of the class;
twelve- to thirteen-page claim forms requiring class members to submit “a slew of arcane data, including the “product identity stamp,” “Unit ID Label,” and purchase order number of the product at issue; and
an unnecessarily complex settlement notice.
See id. at 725-26.
31
Seventh Circuit cases presented unique facts
Pearson v. NBTY: district court had valued the settlement to include the costs of notice to the class and attorney’s fees, 772 F.3d at 781, and of the $5.63 million to be made available to the class, approximately $4.77 million was reserved for counsel fees and expenses, notice costs, and cy pres and service awards, with only $865,284 left for the settlement class, which amounted to only seven cents per class member. See id. at 780, 783-84.
Court also criticized claim form and filing requirements as too onerous when weighed against the “low ceiling on the amount of money that a member of the class could claim[,]” id. at 783; the cy pres award as excessive, id. at 784; the potential ineffectiveness of the proposed injunctive relief, id. at 785; and court’s sense that class counsel and defendants had colluded to “sell out the class by agreeing … to recommend that the judges approve a settlement involving a meager recovery for the class but generous compensation for the lawyers[,]” see id. at 787.
32
Proposed solutions to objection dilemma
Require objectors to appear in court and defend objections: would result in fewer objections, and particularly fewer frivolous objections;
Require objectors to sit for deposition: provides check on motives and helps to determine whether they initiated the objection, understand the settlement;
No appeal allowed for objectors who refuse to appear;
Sanctions for professional or serial objectors and their counsel who seek to extort fees.
33
Consumer Class Action Settlements
Key Provisions and Filings
By Donald R. Frederico [email protected]
Strafford Webinars
January 20, 2016
The Settlement Agreement: Key Provisions
• General Definitions
• Class Definition
• Geographic Scope
• Temporal Scope
• Relief to the Class
• Release
35
The Settlement Agreement: Key Provisions
• Class Notices
• CAFA Notice
• Claims Process and Forms
• Selection of Settlement Administrator
• Website and Hotline
• Notice and Administration Costs
36
The Settlement Agreement: Key Provisions
• Opt Outs
• Requirements and Deadline
• Blow-Up Provision
• Claim Submissions
• Required Information and Deadline
• Claim Forms
• Objections
• Requirements and Deadline
37
The Settlement Agreement: Key Provisions
• Incentive Awards
• Attorneys’ Fees
• Costs
• Proposed Orders
• Preliminary Approval Order
• Final Approval Order
38
Preliminary Approval Filings
• Motion for Preliminary Approval
• Memorandum in Support
• Exhibits
• Settlement Agreement
• Proposed Notices
• Proposed Orders
• Declaration of Notice Administrator
• Mediator’s Declaration (If Applicable)
39
Contents of Preliminary Approval Order
• Conditional Certification of Settlement Class
• Preliminary Approval of Settlement Agreement
• Approval of Class Representative(s)
• Approval of Notice
40
Contents of Preliminary Approval Order
• Opt-Out Procedures
• Objection Procedures
• Preliminary Injunction
• Filing Deadlines
41
Final Approval Filings
• Brief in Support
• Notice/Settlement Administrator Declaration(s)
• Petition for Award of Attorneys’ Fees and Costs
42
Contents of Final Approval Order
• Find Settlement Fair, Reasonable and Adequate
• Final Class Certification for Settlement Purposes
• Find Class Notice Satisfies Due Process
• Dismissal or Other Disposition of Lawsuit
43
Contents of Final Approval Order
• Release
• Permanent Injunction
• Approval of Fees, Costs and Awards
• Reservation of Jurisdiction
44
Class Notice
Notice of class settlements
• Under Rule 23, “[t]he court must direct notice in a reasonable
manner to all class members who would be bound by the
proposal.”
• Purpose of the notice requirement:
• Protect the rights of absent class members to opt out or object
• Identify any class members who may be willing to serve as class
representatives
• Deter frivolous class actions
48
Method of settlement notice
• Due process requires that notice must be “reasonably
calculated, under all the circumstances, to apprise interested
parties of the pendency of the action and afford them an
opportunity to present their objections.”
• Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950).
• The Manual for Complex Litigation states that “individual notice
is required, where practicable” upon settlement of Rule 23(b)(3)
actions.
49
Denial of class certification
• Wang v. EFT Holdings, Inc. (C.D. Cal. Dec. 14, 2015)
• Class representatives were citizens of China
• Court denied class certification based on superiority-related
concerns
• Court was not convinced effective class notice could be made
consistent with due process
50
Denial of class certification
• Providing notice through EFT’s website was “essentially a
method of publication.”
• No reason to believe class members would know to check EFT’s
website, or that class members regularly check EFT’s website.
• The Ninth Circuit has suggested that service of class notice
through publication alone may not be sufficient to satisfy due
process, at least where individual notice is otherwise possible.
• Molski v. Gleich, 318 F.3d 937, 953 (9th Cir. 2003)
• Silber v. Mabon, 18 F.3d 1449, 1453 (9th Cir. 1994)
51
Wang v. EFT (cont’d)
• Concern about the ability of Chinese class members to “fully
comprehend” the importance of a notice about foreign
proceedings “that may be quite unusual” to them
• In particular, their ability to opt out or object to a proposed settlement
• This reasoning would apply equally to any proposed class
consisting of mostly foreign or non-English speaking individuals
52
CAFA Notice Requirements
• Class Action Fairness Act of 2005 (“CAFA”)
• Defendant must give notice of proposed settlement to
appropriate federal official and state official for each state in
which a class member resides.
• 28 U.S.C. § 1715(b).
• Notice must be served within 10 days after a proposed
settlement is filed with the court.
• 28 U.S.C. § 1715(b).
53
CAFA Notice Requirements (cont’d)
• If defendant fails to give notice to the appropriate officials, class
members can choose not to be bound by the settlement.
• 28 U.S.C. § 1715(e)(1).
• Federal and state officials may choose to object or intervene in
the action.
• E.g., Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292 (S.D. Fla.
2007) (denying final approval to coupon settlement, noting the vigorous
objections from the attorneys general of 35 states and the District of
Columbia)
54
Neal R. Marder
Partner
Winston & Strawn LLP
333 S. Grand Ave., 38th Floor
Los Angeles, CA 90071
+1 (213) 615-1728
Please do not hesitate to contact me for any further information.
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