LYNN ADELMAN, District Judge.
The present litigation consists of multiple class actions that the Judicial Panel on Multidistrict Litigation transferred to this district for consolidated pretrial purposes.
Doctor's Associates is the franchisor of Subway restaurants in the United States. The restaurants, which sell fast-food submarine sandwiches, are owned by independent franchisees. Doctor's Associates enforces certain uniform standards that apply to the restaurants and also conducts a nationwide marketing campaign. During the time period relevant to this suit, the marketing campaign advertised Subway sandwiches as "Footlongs" and included various references to the sandwiches being one foot, or 12 inches, in length.
In January 2013, an Australian teenager posted a picture on Facebook of a Subway Footlong sandwich he purchased that was only 11 inches long. The picture became the subject of considerable media attention. Around this time, the lawyers who would eventually file the present case began investigating potential claims against Doctor's Associates for violating state consumer-protection laws. Between January and June of 2013, the named plaintiffs and their respective counsel filed complaints in several courts around the country. The complaints alleged that Doctor's Associates had engaged in unfair and deceptive marketing practices regarding the length of Footlong and 6-inch sandwiches, resulting in each plaintiff receiving less food than he or she had bargained for. Each case was pleaded as a class action and sought monetary damages, attorneys' fees, and injunctive relief under the consumer-protection laws of all 50 states and the District of Columbia.
In February 2013, Doctor's Associates requested that the Judicial Panel on Multidistrict Litigation transfer the seven actions that had been filed by that time to a single district for consolidated pretrial proceedings. While waiting for the panel to rule on the request, the parties in all cases agreed to mediate with a retired United States Magistrate Judge. In preparation for the mediation, the parties exchanged informal discovery relating to the merits of the plaintiffs' claims. During this time, plaintiffs' counsel continued with their own investigation, which included interviewing former employees of the bakeries that manufactured the dough used in Subway sandwiches. The parties then participated in a mediation session that did not result in a resolution of the case.
By the time the initial mediation session was over, the plaintiffs realized that their claims were quite weak. First, the plaintiffs learned that Doctor's Associates' own testing showed that the vast majority of bread sold in Subway restaurants was at least 12 inches long, and that most of the bread that happened to be shorter than 12 inches was less than 1/4-inch shorter. Second, the plaintiffs learned that all of the raw dough sticks used to bake Subway bread weigh exactly the same. The dough sticks arrive at the restaurants frozen, and are then thawed, stretched, allowed to rise, and baked. Due to natural variability in this process, the final loaves may have slightly different shapes. Some loaves will be slightly shorter and wider than others. But because all loaves are baked from the same quantity of dough, each loaf contains the same quantity of ingredients. Thus, a customer who received a baked loaf that was shorter than 12 inches did not receive any less bread than he or she would have if the loaf had measured exactly 12 inches. Third, the plaintiffs learned that the amount of meat and cheese included with each sandwich is standardized. Thus, a sandwich that is slightly shorter than 12 inches contains the same amount of meat and cheese as it would have had it measured exactly 12 inches. It is theoretically possible that a sandwich made on a slightly shorter loaf would contain a slightly diminished quantity of toppings—a sandwich that was 1/4-inch shorter than advertised might be missing a few shreds of lettuce or a gram or two of mayonnaise. However, Subway sandwiches are made to order in front of the customer, and if the customer asks for more of any particular topping, the employee making the sandwich will add more of that topping to the sandwich. Thus, the plaintiffs learned that, as a practical matter, the length of the bread does not affect the quantity of food the customer receives.
Also during this informal discovery period and initial mediation session, the plaintiffs began to evaluate their chances for obtaining class certification on their damages claims. They realized that one serious obstacle to class certification was the lack of proof as to which potential class members purchased sandwiches that were shorter than advertised. Because not every Subway sandwich sold during the class period was undersized, it is not the case that every person who purchased a Subway sandwich during the class period suffered an injury. Thus, individualized hearings would be needed to determine which potential class members purchased undersized sandwiches. Moreover, unless a customer happened to measure his or her sandwich before eating it (as the named plaintiffs did,
In light of these problems with obtaining class certification on claims for monetary damages, the plaintiffs decided to refocus their efforts on the class's claims for injunctive relief, which sought an injunction requiring Doctor's Associates to adopt measures designed to ensure that all sandwiches are at least 12 inches long. By the time the plaintiffs made this decision, the Panel on Multidistrict Litigation had granted Doctor's Associates' motion and transferred the original seven cases to this court.
Throughout the summer and fall of 2013, the parties continued to attend mediation sessions with the magistrate judge. By March 2014, the mediation had resulted in a settlement in principle on the claims for injunctive relief. Under the settlement, Doctor's Associates agreed to institute or keep in place, for a period of at least four years from the date the court finally approves the settlement, a number of practices that are designed to ensure that all bread sold at Subway restaurants is at least 12 inches long.
Under the consumer-protection laws of most states, a successful plaintiff is entitled to an award of reasonable attorneys' fees. The parties' initial settlement agreement did not result in a settlement of class counsel's claim for attorneys' fees under these statutes. Moreover, in class-action settlements, the named plaintiffs are often awarded compensation (known as "incentive awards") for their services as class representatives.
In December 2014, I offered to personally conduct mediation relating to the amount of attorneys' fees and incentive awards, provided that all parties consented to my doing so. I informed the parties that, in the alternative, the plaintiffs could file a contested motion for attorneys' fees and incentive awards, to which Doctor's Associates would respond, and which I would ultimately resolve. The parties agreed to mediation with the court. The mediation was held in February 2015 and resulted in a resolution of the outstanding issues. Under the parties' agreement, the plaintiffs agreed to ask the court to award no more than $525,000 in attorneys' fees (including costs and expenses) and incentive awards, and Doctor's Associates agreed that it would not oppose the plaintiffs' request.
In September 2015, the parties submitted the final proposed settlement agreement to the court for preliminary approval. In this agreement, the proposed settlement class is defined all persons in the United States who purchased a 6-inch or Footlong sandwich at a Subway restaurant between January 1, 2003 and the date of preliminary approval (which was October 2, 2015). Importantly, the final settlement agreement provides that class members who are not named plaintiffs are releasing only claims for injunctive relief; the settlement agreement expressly reserves the right of class members to bring claims for monetary damages against Doctor's Associates, either individually or in a subsequent class action.
The final settlement agreement contemplates that the class will be certified for settlement purposes under Federal Rule of Civil Procedure 23(b)(2), i.e., as an "injunction only" class. Rule 23 does not allow members of a class certified under this provision to opt out. Nor does Rule 23 clearly require the court to direct notice to the members of an injunction-only class.
On October 2, 2015, I preliminarily approved the parties' settlement. Following the settlement administrator's distributing the press release, many news agencies ran stories on the settlement.
The court has received four objections from class members. Three of these objections are by unrepresented class members who object to the lack of monetary relief for the class.
A settlement-only class must satisfy the bulk of Rule 23's requirements in order to be certified.
In the present case, the objectors do not dispute that the first three prerequisites to class certification are satisfied. And I conclude that they are satisfied. First, the class is so numerous that joinder of all members is impractical,
Objector Frank contends that the fourth prerequisite to class certification, adequacy of representation, is not satisfied.
Under Federal Rule of Civil Procedure 23(e)(2), a court may approve a settlement in class action litigation only if it finds that the settlement is "fair, reasonable, and adequate." In order to evaluate the fairness of a settlement, the court must consider "(1) the strength of the case for plaintiffs on the merits, balanced against the extent of settlement offer; (2) the complexity, length, and expense of further litigation; (3) the amount of opposition to the settlement; (4) the reaction of members of the class to the settlement; (5) the opinion of competent counsel; and (6) stage of the proceedings and the amount of discovery completed."
In recent years, the Seventh Circuit has emphasized that, given the realities of class-action litigation—especially consumer class-action litigation—courts must carefully scrutinize class settlements for fairness. As the court has explained,
I begin my analysis of the settlement's fairness by comparing the strength of the plaintiffs' case to the value of the settlement, which, as noted, is the most important factor. On this point, the parties and Frank are in agreement: given the strength of the plaintiffs' case, the total value of the settlement, i.e., $525,000 plus the value of the injunction to the class,
Although Frank agrees that the total settlement amount is reasonable, he objects to the settlement's allocation of the entire monetary component to the named plaintiffs and class counsel, with no money being distributed to absent class members. Frank contends that the $525,000 that Doctor's Associates is willing to pay to the named plaintiffs and their counsel should be administered as a common fund for the benefit of the class as a whole, as it would be in a Rule 23(b)(3) settlement. Class counsel would then be entitled to claim a reasonable percentage of the common fund, such as one-third, as attorneys' fees, and the named plaintiffs could claim reasonable incentive awards.
One major problem with certifying the settlement class under Rule 23(b)(3), which Frank has not meaningfully addressed, is the impracticality of distributing a settlement as small as $525,000 to a class composed of many millions of consumers. The cost of informing class members of the settlement and how to either submit claims or opt out, processing the submitted claims and opt-outs, and distributing payments to class members would likely exceed the entire value of the settlement. For example, between 2008 and 2010, I presided over a consumer class action involving a Rule 23(b)(3) settlement class composed of nearly every person in the United States who purchased a lawnmower during a 20-year period.
At the fairness hearing, Frank's counsel suggested that the cost of administering a Rule 23(b)(3) settlement in this case might be as little as $100,000. Based on my experience with class settlements, I find this estimate extremely unrealistic. But even assuming that $100,000 is an accurate estimate of the cost of administering a $525,000 common fund for the benefit of a class of millions, the class members would still receive nothing of value. That is because the amount distributed to any single class member would be less than the value of the time the class member would spend leaning about the settlement, submitting a claim, and cashing the settlement check. Here are some back-of-the-envelope calculations that illustrate this problem: Assuming that $100,000 of the settlement would go to administrative costs, $425,000 would be available for class members and class counsel. Assume further that class counsel is entitled to a fee equal to one-third of this amount.
Also at the fairness hearing, Frank's counsel suggested that the settlement fund could be administered as a coupon settlement, which might make administration less costly. When I asked Frank's counsel to explain how distributing coupons rather than cash would improve matters, he stated that coupons could be distributed at the point of sale: a class member could walk into a Subway restaurant, identify herself as a class member, and then fill out a form and receive a coupon for 30 cents (or some similar amount) off of her order. This approach would eliminate the cost of mailing checks to class members and reduce the hassle to the class members associated with submitting claims and receiving settlement proceeds. However, counsel for Doctor's Associates stated at the fairness hearing that the parties considered entering into a coupon settlement but abandoned that idea because it would be too costly to administer. Counsel stated that the estimated cost of providing notice to class members of a coupon settlement and allowing them to opt out of the settlement would exceed $1 million dollars, which obviously is more than the reasonable settlement value of this case. Moreover, because Subway restaurants are owned by independent franchisees rather than Doctor's Associates, the franchisees (who are not defendants), rather than Doctor's Associates, would bear most of the cost of the coupon settlement. Settling matters between Doctor's Associates and its franchisees would lead to further administrative costs. For these reasons, a coupon settlement, like a cash settlement, is impractical.
Frank further contends that the settlement is unreasonable, and that the named plaintiffs and class counsel have proved to be inadequate representatives of the absent class members, because the agreed-to injunctive relief will not benefit the class members. Frank contends that this is so for two reasons: (1) the injunction does not require Doctor's Associates to do anything that it had not already agreed to do before this suit was filed, and (2) the class members' alleged injuries were incurred in the past, yet the prospective injunctive relief does nothing to redress those injuries.
In support of his first reason, Frank points out that on January 25, 2013—almost immediately after the Footlong controversy gained media attention—Doctor's Associates pledged to ensure that all Subway Footlong sandwiches would be 12 inches long. Thus, argues Frank, the injunction in this case does not provide class members with any benefit that they do not already enjoy. However, Doctor's Associates has submitted a declaration in which it states that it agreed to the specific practice changes listed in the injunction "substantially as a result of [this] litigation." Decl. of David Cousins ¶ 3, ECF No. 54-1. Moreover, the value of the injunction lies not only in the practice changes, but in the availability of an enforcement mechanism. That is, assuming that Doctor's Associates made the practice changes in response to the media attention and was not judicially bound to keep the changes in place, it could have abandoned the changes after the media attention subsided. But the injunction requires Doctor's Associates to keep the changes in place for four years from the date that this litigation concludes, and class members may enforce violations by filing motions for contempt sanctions. Thus, it is not accurate to say, as Frank does, that the settlement does nothing to change the status quo.
Frank cites
In contrast to the proposed class action in
Frank's second reason for claiming that the injunctive relief does not benefit class members is that it benefits only future purchasers of Subway sandwiches, yet the class is defined as customers who purchased Subway sandwiches in the past. It is true that not every person who purchased a sandwich in the past will purchase one in the future, and that therefore not every class member will benefit from the injunction. However, because many patrons of Subway restaurants are repeat customers, it is also true that very many class members will purchase a Subway sandwich in the future. And those class members who would not benefit from the injunction because they do not intend to purchase sandwiches in the future (or simply do not care about the precise length of the sandwiches they purchase) necessarily are not giving anything up by releasing their claims for injunctive relief. Further, as I have discussed, it is not possible, given the value of the plaintiffs' claims, to distribute any form of compensatory relief to the class members. Thus, the remedy is either injunctive relief or nothing. When the injunction is viewed in this light, it cannot be deemed inadequate on the ground that it does not benefit every class member.
Frank next points out that the proposed settlement contains "clear sailing" and "kicker" clauses, which are features that courts have identified as warning signs of an unfair settlement. Under a clear-sailing clause, a defendant agrees not to oppose class counsel's fee petition.
In the present case, however, the clear-sailing and kicker clauses are not signs of an unfair settlement. First, the kicker clause is just a byproduct of the fact that it is impractical to distribute any part of the $525,000 requested by class counsel to the class members. For example, if I concluded that a reasonable fee for class counsel is only $300,000, it would be impossible to distribute the remaining $225,000 to the class, as administrative costs alone would exceed that amount. Second, the clear-sailing clause is what class counsel bargained for when it agreed to settle the fee component of this case rather than ask the court to award a reasonable fee. That is, but for the settlement of the fee component, class counsel could have filed a fee petition requesting more than $525,000, and the defendant could have opposed that petition. But in exchange for class counsel's agreement to cap its fee request at $525,000, defendant agreed not to oppose the request. More importantly, the parties' agreement to settle the fee component cannot be viewed as an attempt to minimize the defendant's overall liability and enrich class counsel at the expense of the class members. As discussed, the reasonable settlement value of this case is only $525,000, and it is simply impractical to distribute any part of that amount to the class members.
Next, Frank contends that the settlement is unfair, and that the named plaintiffs have proved to be inadequate class representatives, because the named plaintiffs will receive $500 each while the absent class members will receive no monetary relief. Frank cites several cases in which the Seventh Circuit has noted that a named plaintiff's receiving an incentive award that is disproportionate to the relief afforded to absent class members is a sign of an unfair settlement.
The next question is whether the settlement class may be certified under Rule 23(b)(2) as an "injunction only" class. As noted, Rule 23(b)(2) applies when "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief . . . is appropriate respecting the class as a whole." Here, the plaintiffs' complaint alleges that the defendant's marketing and sales practices are deceptive because Doctor's Associates markets its products as Footlongs and 6-inch sandwiches, even though some sandwiches are slightly shorter than those lengths. This conduct applies generally to the class, in that the marketing and sales practices are not tailored to individual customers. Moreover, Doctor's Associates cannot modify its marketing and sales practices on a per-customer basis. Rather, any changes to those practices will apply to all franchisees and to all customers. Thus, injunctive relief is appropriate respecting the class as a whole.
Frank contends that the settlement class may not be certified under Rule 23(b)(2) because "monetary claims predominate." Frank Obj. at 13. He points out that the class comprises persons who purchased Subway sandwiches but who allegedly did not get what they paid for. He contends that the usual remedy for this kind of harm is money—i.e., a refund or the difference in value between the sandwich as represented and the sandwich received. That may be true, but in the present case the parties have excised any claim for monetary relief from the settlement and left all class members free to pursue such claims if they choose to do so, either individually or through a subsequent class action. Thus, all that is at stake in this case is injunctive relief. It is true, as Frank points out, that courts are suspicious of requests to certify a class under Rule 23(b)(2) when monetary relief is available. However, the reason for this is the possibility that the named plaintiff is trying to circumvent the procedural requirements of Rule 23(b)(3)—such as that individualized issues not predominate over the common questions of law or fact and that class members receive notice of the suit and an opportunity to opt out—by
Frank also contends that injunctive relief is unavailable under many of the state consumer-protection statutes at issue in this case, and that the named plaintiffs cannot satisfy the general requirements for obtaining injunctive relief, such as proving that they would suffer irreparable harm in the absence of an injunction. Again, Frank may be correct, but that is irrelevant where, as here, the defendant has agreed as part of the settlement to the entry of injunctive relief. The Fourth Circuit recently made this very point when it approved a Rule 23(b)(2) settlement class in a case under the Fair Credit Reporting Act ("FCRA").
The remaining question is whether class counsel's fee request is reasonable. When a class is certified under Rule 23(b)(2), the reasonableness of counsel's fee is usually determined by the "lodestar method."
Before proceeding, I note that the lodestar method is of little utility in a case like this, where class counsel and the defendant have agreed that a certain fee is reasonable, and where any amount not awarded to class counsel cannot be distributed to the class members. Indeed, the objectors do not contend that class counsel's requested fee exceeds what is reasonable as measured by the lodestar method. Instead, they contend that class counsel has unreasonably appropriated the entire cash value of the settlement for themselves. However, as I have already explained, it is not practical, given the reasonable settlement value of this case, to distribute cash to the class members. Thus, the reasonableness of counsel's fee cannot be measured by the size of the fee in relation to the amount of money that the class members will receive. Instead, it should be measured by the value of the injunctive relief in relation to what the class members have given up in exchange for that relief. And measured this way, I conclude that the fee is reasonable. Class counsel obtained an injunction requiring Doctor's Associates to take steps designed to ensure that all sandwiches sold in Subway restaurants are either 6 or 12 inches long, and to disclose to customers that variation in the bread-baking process sometimes results in bread that is slightly shorter than the advertised length. This injunction will end the allegedly deceptive marketing and sales practices challenged in this case. Moreover, in obtaining the injunction, class counsel preserved each class member's right to bring a subsequent action for monetary damages, either individually or as part of a class action. The only right the class members have given up is the right to pursue additional injunctive relief, yet the objectors have not identified (and I cannot envision) any additional injunctive relief that a rational class member might want to pursue. When this result is compared to the strength of the plaintiff's claims, it can only be described as excellent. Therefore, a fee of $520,000, which is modest by class-action standards, is reasonable.
For the sake of completeness, I also find that the proposed fee is reasonable under the lodestar method. The total fee will be distributed to eleven law firms. A lawyer from each firm has submitted a declaration describing the firm's hourly rates, the number of hours each professional at the firm spent on the case, and the costs and expenses the firm incurred.
Frank contends that even if class counsel's fee is reasonable in the aggregate, there is a separate problem, which is that the plaintiffs' attorneys have proposed to divide the aggregate fee award among themselves and have not sought court approval of their proposed allocation. However, in response to Frank's objection, class counsel disclosed to the court their proposed allocation and asked me to approve it.
However, I also note that the authority on which Frank relies to support the proposition that class counsel may not privately divide a fee is inapposite. His primary case is
Frank also cites
For the reasons stated, I conclude that the settlement is fair and that the named plaintiffs and class counsel have adequately represented the class. I also conclude that the named plaintiffs' request for $5,000 in incentive awards is reasonable and that class counsel's request for $520,000 in costs, expenses, and attorneys' fees is reasonable.
Accordingly,