MARK A. KEARNEY, District Judge.
Eight consumers of "tween" merchandise, on behalf of over 18 .4 million consumers, sued the Justice Stores retailer for representing sales at "40% off' when the same price is allegedly always charged. The consumers sought injunctive relief and damages arguing the "40% off' advertising strategy violated state consumer protection and deceptive trade practices statutes and the common law of contracts in each state. Liability is unclear with at least one district court twice finding consumers cannot proceed under these theories. Given the uncertainty after pre-suit investigation but before formal discovery, the retailer and eight consumers entered into several rounds of negotiations and then agreed to settle millions of claims through immediate injunctive relief and offering consumers up to $27.8 Million in cash or, if they wished, a voucher to use at Justice Stores.
After notice, 3.3% of the Class chose either cash or a voucher. The remaining 96.7% of the Class, having not filed a claim, automatically receive a voucher. The parties concede consumers will redeem approximately less than three percent (3%) of these automatic vouchers. The parties ask us to scrutinize the actual benefits to the largely absent settlement class in light of the risks or rewards of a class certification hearing and possible trial and then certify their proposed settlement class, approve their injunctive, cash and voucher settlement which they value at an as-yet unknown number between an immediate and escrowed Settlement Fund of $50.8 Million and, with voucher redemptions, potentially over $400 Million. Based on the alleged immediate direct benefit of $50.8 Million deposited with the approved Claims Administrator, Class Counsel ask for an award of over $14.1 Million in attorneys' fees and a $6,000 incentive fee for each of the eight (8) consumer plaintiffs.
We scrutinize all class settlements but especially those: reached before extensive formal discovery; seeking to simultaneously certify a settlement class; affording injunctive relief and then offering a choice of differing amounts and types of compensation including cash or vouchers for all known consumers; and, requiring a release from all consumers. The parties offered consumers the choice of cash now with the dollar amount depending on counsels' independent and negotiated valuation of the liability risk and reward based on each state's consumer protections. Given the common questions arising from Justice Stores' admittedly national sales strategy and analyzing each Rule 23 requirement, we certify the Settlement Class. Given the uncertain liability or trial certification, and choice of cash offered to every one of the identified 18.4 million plus consumers, we also find the settlement is fair, adequate and reasonable.
Certifying the settlement class and approving this negotiated settlement as fair, adequate and reasonable does not translate into a rubber stamp for whatever counsel later decides to do with the $50.8 Million deposited in a Cash Settlement Fund. Our issue is whether we should approve attorneys' fees far beyond their demonstrated time mindful of Congress' mandate we carefully review settlements which appear to pay over 95% of the settlement through de facto coupons requiring the consumer return to Justice Stores in the next twelve (12) months. Consumers can never transfer or convert the vouchers to cash. They cannot redeem them anywhere other than Justice Stores which only sells a variety of tween merchandise. When Class Counsel agrees to settle for a mixture of injunctive relief, cash and vouchers before formal discovery and the vast majority of consumers did not make an affirmative claim, it is prudent to evaluate Class Counsel's decision to settle for almost all vouchers before awarding attorneys' fees at a requested multiplier of over four (4) times the invested time. We appreciate the contingent nature of Class Counsel's representation and, as in any contingent case, will wait and see the direct benefit before awarding a contingent fee.
We recognize Class Counsel obtained an actual and immediate benefit through a cash choice. They are entitled to compensation for this actual benefit to the over 600,000 persons who filed affirmative claims choosing between cash and a voucher. Class Counsel settling "small-damage" innovative consumer class cases should be reasonably rewarded for their efforts in light of the contingent risk. Our award today of $5,311,470.24 recognizes their demonstrated efforts based on their detailed lodestar and reasoned 1. 75 multiplier.
We decline to award the full amount of the requested $6,000 incentive award to each Plaintiff based on counsel's belated representations of their varied efforts. We also find Ms. Mansour cannot receive an incentive fee due to her undisclosed familial relationship with Class Counsel and we have no basis for an award to Ms. Sinkler.
We approve the release of administrative costs up to $8 Million with leave for the parties to seek additional reimbursement in connection with a final distribution order.
Any remainder in the escrowed Settlement Fund must be redistributed in an agreed manner approved by this Court.
The consumers claim Ascena Retail Group, Inc. and Tween Brands Inc. d/b/a/ Justice Stores (collectively "Justice Stores") regularly advertised "40% off' sales but the so-called sales were actually regular everyday prices. Consumers argue this national advertising scheme fraudulently induced consumers to spend money believing they were getting a sale. The consumers sought injunctive relief and damages claiming Justice Stores violated state consumer protection statutes, administrative regulations and common law contract theories.
Melinda Mehigan and Fonda Kubiak, on behalf of a putative class of New Jersey and New York consumers, sued Justice Stores asserting common law breach of contract claims and violation of consumer protection statutes. Carol Cowhey filed a similar case individually and on behalf of a putative class of Pennsylvania Justice Stores' consumers asserting common law breach of contract and claims under Pennsylvania's Unfair Trade Practice and Consumer Protection Law. We consolidated these two matters and later filed cases.
Plaintiffs filed a Third Amended Complaint seeking to certify a nationwide class, excluding only Ohio residents covered by a previously settled class action in Perez v. Tween Brands, Inc., No. 14-1119 (Ct. Comm.Pl. Lake Cty. Ohio). The putative class is individual purchasers at Justice Stores throughout the United States between January 1, 2012 and February 28, 2015 ("Class Period"). Other consumers later sued Justice Stores in other federal courts.
At our initial scheduling conference, we directed counsel to proceed on a class certification and trial track while exploring settlement. We discussed several issues facing the parties in a class certification hearing and possible trial. Resolving the consumers' claims creates substantial manageability challenges. A class action trial of all claims may likely prove impossible. We could not envision a national class liability trial based on consumer fraud acts which vary from treble damages to no recovery and applying common law contract theories of fifty (50) states with the overlay of fact and reliance issues. While we could possibly address differing damages through a post-trial claim process, the jury would need to address whether frequent purchasers should be treated differently for liability purposes.
Settling a national class consumer claim offers varied challenges as well, but we need not consider trial manageability. The eight (8) consumer plaintiffs, through the vigorous advocacy of their counsel, must protect the interests of over 18 .4 million consumers. Justice Stores needs as much finality as possible fearing it could face individual state class actions with possibly widely varying outcomes and the attendant diversion of resources and potential several years of damage to brand identity.
Confident each would "win" something eventually, the parties agreed to meet shortly after our initial pretrial conference to discuss common grounds. Justice Stores agreed early on to stop the challenged conduct. The primary issue then became compensation: how does each party value the strength of the liability claim and what is a fair amount of damages based on the nature of this consumer marketplace. The parties, as now common in consumer cases, would also need to discuss the nature of the compensation recognizing Congress' mandate for courts to scrutinize coupon settlements balanced against Justice Stores' ability to pay tens or hundreds of millions of dollars in cash to persons who never knew of a problem. Even assuming, and only if, the parties could agree on liability and damages, they would need to address notice, opt-out procedures, and lastly attorneys' fees and costs.
After significant multiple negotiation sessions and voluntary exchange of data, the parties eventually agreed upon a cash settlement fund of $27.8 million to resolve projected claims. Before getting to this cash settlement fund, the parties spent months in back and forth negotiations, and negotiated and agreed upon several significant terms. The parties analyzed Justice Stores' consumer transaction data guided by expert statistical advice and analysis.
The parties needed to agree upon who would receive value in the settlement in exchange for a release. Consistent with the Complaint, the parties agreed to define the Settlement Class ("Settlement Class") as: all persons throughout the United States who purchased any children's apparel, fashion accessories, or other products at Justice Stores from January 1, 2012 to February 28, 2015 (the "Class Period"). The proposed class excludes individuals within the class settlement in Perez v. Tween Brands, Inc. except for Perez class members who made purchases from January 1, 2012 to June 30, 2012 or from September 1, 2014 through February 28, 2015.
The Settlement Class includes all persons purchasing product regardless of how they purchased it. The Settlement Class includes persons who cannot prove they purchased products during the Class Period because they did not provide contact information, a receipt or other proof of purchase. Justice Stores estimates this group is 1,700,000 people, or less than 10% of all purchases. These persons received publication notice and could opt-out of the settlement. They are not compelled to release. They elected not to opt-out. Absent some evidence they purchased product, we cannot ascertain their class membership. Unlike a purchase of a continuing service or large ticket item from which we could find independent evidence to ascertain purchase, we cannot rely solely upon the say-so in an affidavit swearing they purchased during the Class Period especially when these same cash consumers would not provide contact information upon purchase. These unknown and unascertainable purchasers also received injunctive relief.
While the consumers sought an all cash settlement, they recognized Justice Stores would not negotiate based on a several hundred million dollar payment for a consumer deceptive practices claim not recognized by any court and riddled with reliance and manageability issues compounded by several different consumer protection regimes in the fifty (50) states. Class Counsel continued to negotiate and eventually Justice Stores agreed to offer cash to every member of the Settlement Class but not full purchase price. The parties after strident negotiations agreed the maximum recovery would be forty percent (40%) of a proven purchase. The parties then negotiated the likely damages quotient between what a buyer would have paid, and did pay, at the Justice Stores allegedly based on their reliance upon a "40% off' advertisement. The parties compromised at a thirty-five (35%) chance of consumers winning a 40% off recovery on all purchases for class members. The parties agreed to and negotiated these numbers after independently assessing a likelihood of recovery which Class Counsel estimated high, and Justice Stores' counsel estimated very low. Thirty-five percent (35%) of the maximum forty percent (40%) recovery equals fourteen percent (14%). These negotiations, as shown in Class Counsel's billing histories, reflect vigorous representation with no evidence of collusion.
After excluding a statistically significant group of "high volume" consumers to be addressed through a separate calculation and for purposes of determining a meaningful average transaction, the parties agreed the average transaction during the Class Period is $24. While an objector argued the average transaction should be calculated based on a higher dollar purchase, the parties reasonably agreed to a second option for those frequent or larger dollar consumers.
In reviewing customer demographics, the parties eventually agreed Justice Stores' consumers generally fall into three groups: the "average" customer (those making, on average, four (4) purchases during the Class Period); the "frequent" customer (those generally making more than five (5) purchase transactions during the Class Period); and, the "high volume" customer (those spending at least $105 in one (1) or more transactions during the Class Period). The parties agreed to provide meaningful recovery to these distinct groups.
Acknowledging each state's consumer protection statutes authorize varied recovery, the parties grouped individual state consumers into three (3) categories according to the type of recovery generally permitted under relevant state statutes. The parties specifically addressed the differing damages models similar to a subclass protocol in a contested liability class.
The first group is consumers in states with consumer protection statutes permitting limited or no recovery ("limited recovery states").
Justice Stores sell clothing and miscellaneous accessory items primarily appealing to girls aged six (6) to fourteen (14) years. The parties agreed some consumers outgrew Justice Stores and may prefer a cash award rather than a credit or voucher toward a future purchase. The parties agreed to permit every class member a choice of cash or a voucher good toward a future purchase only at Justice Stores. The dollar amount of each award is determined based on the type of recovery authorized by consumer's home state consumer protection statutes (limited recovery, single recovery or treble damages).
The parties agreed consumers in the three groups of states may have significantly different recoveries at trial. To account for these differences, the parties agreed upon two claim options and an automatic recovery for all those who do not file a claim but are known purchasers. Option 1 is available to all consumers based on the "average" customer and does not require a proof of purchase for recovery. Option 2 is geared toward "frequent" and "high volume" consumers with proofs of purchase. The consumer must choose between the options. If they do not send in a claim form, they are choosing to automatically receive a voucher.
Option 1 is available to all Class Members, but recovery is targeted at the level an "average customer" might receive. Based on these negotiated agreements, the parties calculated consumers in limited recovery states (Group I) could elect a cash option and receive $7; or choose a Justice Stores' voucher for a $10 credit toward a minimum $25 purchase. Class Members in single recovery states (Group II) electing a cash option receive $13; those electing a Justice Stores voucher receive $20 credit toward a minimum $25 purchase. Class members in treble recovery states (Group III) electing a cash option receive $20; those electing the voucher receive a $30 credit toward a future Justice Stores' purchase, with no minimum purchase required. The parties set the voucher amounts at approximately 150% of the cash awards. All vouchers are valid for one year from date of issue.
Agreeing the standard $7, $13 or $20 cash award, or alternate voucher offer would not sufficiently compensate Settlement Class Members across all customer groups, the parties created a second option ("Option 2") for Class Members who could provide proof of purchase exceeding $105 in one transaction or who made more than five (5) purchases exceeding $105 during the Class Period. Eligible Class Members electing Option 2 must provide proof of purchase by one of several methods and their award is equal to 14% of total purchases during the Class Period in cash, or 20% of total purchases during the Class Period in the form of a voucher good toward a future Justice Stores purchase.
Based on the Justice Stores' transaction data, the parties estimated 2,500,000 of the 18,422, 784 known Class Members were "high frequency" or "high volume Consumers" and eligible to select Option 2. The parties estimated a three percent (3%) participation rate for Option 2 eligible Class Members and a five and one-half percent (5.5%) participation rate for remaining Class Members.
Class Members may also elect to not file a claim but still receive value. The parties agreed Class Members who did not file a claim will automatically receive a voucher good toward a future Justice Stores purchase in the amount of $10, $20 or $30. Using the $24 agreed average purchase, the parties agreed to set the automatic voucher depending on their residence state's consumer fraud law. Class Members residing in a limited state receive a $10 voucher good for any purchase at Justice Stores of $25 or more; Class Members residing in a single recovery state receive a $20 voucher for any purchase at Justice Stores of $25 or more; and, Class Members residing in a treble damages state receive a $30 voucher. These automatic vouchers are also non-transferable and expire in one year.
The parties' estimated participation rates, together with their negotiated settlement terms, translated to an estimated cash payment of $15.9 million for Option 1 claimants and $11.9 million for Option 2 claimants, creating a total Cash Settlement Fund of $27.8 million. The parties did not allocate any part of the settlement consideration to vouchers.
The parties negotiated attorneys' fees only after concluding settlement negotiations.
After agreeing to send out supplemental notice after our October 27, 2015 Order approving notice, Class Counsel agreed to reduce the maximum fee recovery to account for one-half of the additional $1.8 Million in administrative expenses associated with the supplemental notices. Again, Justice Stores agreed to a "clear sailing" agreement to not object up to $14,111,455.85 for the combined attorneys' fees and costs. According to the parties' May 31, 2016 Joint Supplemental Memorandum, Class Counsel's actual fees through our May 20, 2016 Fairness Hearing are $3,035,125.85.
The parties also agreed to pay $6,000 in incentive awards to each of the eight (8) class representatives to be paid from the Settlement Fund. After we challenged these incentive awards without indicia of their activity at the Final Fairness Hearing, Class Counsel filed supplemental lawyer affidavits broadly describing the extent of seven of the eight named Plaintiffs.
Ms. Rougvie spoke by telephone with Attorney Friesen about her shopping experiences over twelve (12) times, with conversations averaging a half hour each. In addition to some follow up emails and facsimile correspondence, Ms. Rougvie reviewed the proposed settlement agreement.
Ms. Bolton and Ms. Bell spoke by telephone with Attorney Friesen on multiple occasions discussing case status and strategy and the proposed settlement terms. The conversations averaged a half hour. These named plaintiffs also spoke with Attorney Ernest Mansour in Austin, Texas, and Mr. Mansour made three (3) trips to Austin to meet with them during the course of the litigation. Attorney Mansour's declaration states neither of these plaintiffs live in Austin; Ms. Bolton traveled two hours each way to meet with him and Ms. Bell traveled forty-five minutes each way to meet with him. During these meetings, these plaintiffs discussed with Mr. Mansour and local counsel their respective cases, strategy and concerns, and prepared to testify in deposition, hearings or at trial. These individuals also corresponded with Mr. Mansour's partners by telephone and email.
Mrs. Cowhey met with Attorney Raphael at least three times for at least an hour each, beginning in early February 2015. The conversations covered her Justice Stores' shopping experience, the legal foundation of the case and strategy. Mrs. Cowhey also reviewed and approved the draft Settlement Agreement. Mrs. Cowhey also spoke with Attorney Raphael by telephone on several occasions.
Ms. Mehigan had several phone conversations with Attorney Raphael, discussing her shopping patterns at Justice Stores. Ms. Mehigan provided proof of purchase at Justice Stores and reviewed and approved the proposed Settlement Agreement.
Ms. Kubiak had several phone conversations with Attorney Raphael, discussing her shopping patterns at Justice Stores, case strategy, settlement negotiations and settlement terms. Ms. Kubiak provided her Justice Stores proof of purchase, and reviewed, approved and executed the draft Settlement Agreement.
Attorney Ernest Mansour is related to named plaintiff Caroline Mansour; he is her father-in-law. Attorney Robert Mansour is her brother-in-law. We can find no filing disclosing these facts until raised by objectors and then conceded at our Final Fairness Hearing.
Attorney Ernest Mansour states he traveled to Chicago, Illinois to meet with his daughter-in-law, and discussed case facts, strategy, pleadings and initially prepared her to testify at deposition, hearings or at trial. Attorney Mansour swears Ms. Mansour also reviewed the proposed settlement agreement. In addition, Attorney Friesen states generally he corresponded with Ms. Mansour concerning the status of her case.
We have no information regarding Plaintiff Marguerite Sinkler Gilder's efforts.
The parties agreed and told the Class, "if any funds remained in the Net Settlement fund 180 days following the Effective Date, the remaining funds shall revert to Justice following payment of any outstanding Claims Administration Expenses, Fee Award and Incentive Awards."
The Settlement Class agrees to release all present and possible future claims against Justice Stores arising out of or relating to the allegations in the Complaint.
The parties agreed on a specific procedure to allow consumers to either object or opt-out of the settlement. The parties agreed a consumer may object to the fairness of the settlement by filing and serving all counsel with a written objection signed by the consumer at least forty-five (45) days before the Final Fairness Hearing.
After considerable negotiation first on the settlement and then on the attorneys' fees, counsel signed a term sheet on July 2, 2015 with the principal settlement terms. The parties do not dispute the lawsuits resulted in Justice Stores stopping the sales practices.
The preliminary settlement included Justice Stores creating an escrow fund of $50.8 million to pay cash to the class members and to fund costs of administration and attorneys' fees. The parties memorialized these terms in a written Settlement Agreement and on September 24, 2015, counsel filed a Joint Motion for Preliminary Approval of nationwide class action settlement. During an October 19, 2015 hearing on preliminary approval, we addressed several concerns and confirmed Justice Stores' avowal it ceased the sales practices at issue and changed its advertising strategy. During our hearing, we suggested the staggered payment of attorneys' and Claims Administrator's fees and the parties agreed.
After the hearing on preliminary approval, and upon consideration of the parties' joint motion and supplemental filings, we granted Plaintiffs' Motion for Preliminary Approval of the Proposed Settlement and Authorization to Disseminate Notice to Members of the Settlement Class on October 27, 2015. Our October 27, 2015 Order preliminarily approving the Settlement incorporated the attached Settlement Agreement unless we altered the obligations. Having incorporated the attached Settlement Agreement, our October 27, 2015 Order specifically required any objections to be filed by April 4, 2016 and failure to do so would waive any objection to the fairness, adequacy or reasonableness of the proposed Settlement. We further required the parties to file responses to unresolved objections.
Justice Stores agreed to fund class notice. Plaintiffs initially identified 18,422, 784 potential Class Members for whom Justice Stores had a postal route or email address, or who could be identified through reasonable effort, and estimated an additional 1,700,000 potential Class Members for whom Justice Stores had no contact information.
Beginning December 1, 2015, Epiq Class Action and Claims Solutions, Inc. ("Epiq")
Of all notices to postal addresses, 999,856 Postcards and 338 Claim packages were initially returned undeliverable.
To provide notice to potential Class Members for whom no name or contact information was available in Justice Stores' database, and under the Settlement Agreement, Epiq arranged for national distribution of a Press Release on PR Newswire.
By conservative calculations, an estimated eighty-nine percent (89%) of potential class members received timely notice of this action, giving them fair opportunity to obtain full notice, decide whether to opt out, and/or to file objections to the settlement.
Notices included a unique access code directing Class Members to a dedicated website and toll-free telephone number where each potential Class Member could enter the access code. The toll-free number provided callers with automated answers to frequently asked questions in both English and Spanish, and provided an opportunity to request a copy of the Detailed Notice and Claim Form by mail or to speak with a live claimant service representative. The Claims Administrator provided similar services, with options to file electronic claims, via a class action settlement. The Claims Administrator followed up on undeliverable emails and postcard mailings and re-mailed notice to alternate addresses where available.
The written individual notices summarized key settlement terms, informed Class Members of their legal rights, and permitted potential Class Members to submit claims with relative ease.
As of our May 20, 2016 Fairness Hearing, 607,215 Class Members, or 3.3% of the original database of known Class Members, submitted claims: 569,194 Class Members chose Option 1 (requiring no proof of purchase), and 38,042 Class Members selected Option 2 (requiring proof of at least 5 transactions within the claims period, or proof of purchases totaling at least $105). Of the Option 1 claimants, 407,517 elected to receive a cash award, and 161,677 selected vouchers. Of the Option 2 claimants, 23,261 elected to receive cash award, on average totaling $146.58, and 14,781 Class Members elected a voucher award redeemable toward a future Justice Stores purchase, on average totaling $178.32.
Within each group, the breakdown of claims is:
The parties estimate the total value of submitted cash and voucher claims as of May 20, 2016 is $16,718,624.
In addition to cash and voucher award payments on affirmative claims up to approximately $16.7 million, Justice Stores will mail automatic vouchers to the remaining 16,247,627 known Class Members who elected not to file affirmative claims. Based on negotiated voucher awards of $10, $20 or $30 in "limited", "single" and "treble" recovery states, the face value of these awards approximates $378 million, including $17,187,050 to limited recovery plaintiffs (1,718,705 × $10), $148,475,920 to single recovery plaintiffs (7,423,796 x $20), and $212,588,940 to treble recovery plaintiffs (7,086,298 × $30). It is not possible to determine actual outlay for these automatic awards until the one-year redemption period expires.
These vouchers, in the amount of $10, $20 or $30, depending on individual Class Members' state of residence will be sent to an estimated 16,247,627 people. The face value of these vouchers is $378,315,012, but the parties predict an approximate 2% redemption rate.
The parties agreed Class Members could file written objections to final settlement and appear at the Final Fairness hearing. As of April 29, 2016, Epiq received forty-five (45) objections. The parties agreed Class Members who do not wish to participate in the Settlement may "opt-out" by stating their intention in a written request to the Claims Administrator. The Claims Administrator reports, as of April 29, 2016, it received 415 requests for exclusion ("Opt-out Plaintiffs") from the Class.
In reviewing a motion for class certification, we act as a fiduciary for absent class members and protect the interests of the federal judicial system.
The proposed Settlement Class consists of all persons who purchased items from Justice Stores which were advertised as on sale for at least 40% off, but which were actually sold at regular or everyday price. Plaintiffs sue under common law contract and state consumer fraud statutes, alleging Justice Stores falsely claimed it offered merchandise at reduced prices. The class must be `"currently and readily ascertainable based on objective criteria,' and a trial court must undertake a rigorous analysis of the evidence to determine if the standard is met."
"[T]he proposed class must satisfy at least one of the three requirements listed in Rule 23(b)."
We granted conditional certification of the proposed class for settlement purposes on October 27, 2015, although this does not release the parties from fulfilling the requirements of Rule 23(a) and (b). Certification continues to be governed by Federal Rule of Civil Procedure 23(a) and (b) and the class may not be finally certified for settlement purposes until it fully satisfies the requirements set forth in these rules.
"While there is no minimum number of plaintiffs necessary to maintain a class action lawsuit, generally if the named plaintiffs demonstrate that the potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met."
Named plaintiffs must "share at least one question of fact or law with the grievances of the prospective class."
Rule 23(a)(3) requires "the claims or defenses of the representative parties be typical of the claims or defenses of the class."
Rule 23(a)(4)'s requirement is met if "the representative parties will fairly and adequately protect the interests of the class."
Class Counsel is well qualified to handle this matter for the Class. We find no disqualifying conflict between Attorneys Ernest and Robert Mansour and Plaintiff Caroline Mansour; they are in-laws. Given the size of the case and her relative minor role as a fiduciary compared to the role of other Plaintiffs, we have no basis to find inadequacy of representation just because they are family.
Class Counsel are experienced trial counsel; they zealously prosecuted this matter on behalf of all potential Class Members. Other than bald assertions from objectors, there is no evidence of collusion. We have basis to find named representatives have interests contrary to those of absent Class Members.
Having met Rule 23(a) requirements, Plaintiffs must also satisfy the two prongs of Rule 23(b)(3): (1) questions of law or fact common to class members predominate over any questions affecting only individual members, and (2) a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.
The "focus of the predominance inquiry is on whether the defendant's conduct was common as to all of the class members, and whether all of the class members were harmed by the defendant's conduct."
Justice Stores concedes its national marketing strategy. The same fact issues would need to be resolved focusing on Justice Stores' conduct. These fact issues predominate over any other fact issue. We find the Class' interests are aligned and unified, and common questions predominate. The commonality and predominance requirements are met.
The second element of Rule 23(b)(3) requires us to "balance, in terms of fairness and efficiency, the merits of a class action against those of alternative available methods of adjudication."
Each Class Member has a relatively small claim estimated to be $24 on average, which would likely not be litigated on an individual basis. "Given the relatively small amount recoverable by each potential litigant, it is unlikely that, absent the class action mechanism, any one individual would pursue his claim, or even be able to retain an attorney willing to bring the action."
This settlement generated an insignificant number, on a percentage basis, of opt-outs or objections. The objections raise important issues particularly on a case by case basis. The objections as to the settlement are overruled with the exception of our reforming the approval of attorneys' fees, the amount of a reverter and administrative costs following our analysis of redeemed coupons.
Our role is "not to determine whether the settlement is the fairest possible resolution — a task particularly ill-advised given that the likelihood of success at trial (on which all settlements are based) can only be estimated imperfectly."
Several objectors challenge adequacy of notice. Objector Michelle Vullings challenges whether the claims administrator used valid mailing or e-mail addresses.
Objector Sheila Ference
Objector Deborah Love
We find no merit in any challenge to adequacy of notice. The notice provided satisfies Rule 23(c)(2) and Rule 23(e) requirements and provided potential Class Members with "the information necessary to make an informed and intelligent decision whether to participate in the class and whether to object to the Proposed Settlement."
Under Rule 23, the approved notice told Class Members of the nature of the litigation and the claims and defenses offered, the terms of settlement and the parties' plan for distribution. Class Members could opt out of the settlement and pursue their own litigation. The notice adequately advised Class Members as to the nature of the pending litigation, general terms of settlement, described where complete information could be obtained, and informed Class Members of their rights to appear and be heard at the fairness hearing.
A few Class Members contend Class Counsel failed to address manageability under Rule 23. Following Amchem Products, Inc. v. Winds Jr
We find the parties promised, and have delivered, on their ability to provide notice and manage distribution of information, including voluntarily supplementing notice and deducting the costs from the attorneys' fees.
Several Class Members object to certifying a single nationwide class because they are eligible for different levels of damages under, their state consumer fraud statutes, thereby destroying commonality and adequacy of representation.
Objector Gretchen Carey claims Class counsel is inadequate to represent the interests of all Class Members because there is a subclass of Class Members who made small purchases in cash, did not retain receipts, and have no proof of purchase. Ms. Carey argues these purchasers are not adequately represented by Class Counsel because while they are subject to release of claims, they obtain no benefit for the release. Ms. Carey relies on a recent Court of Appeals opinion vacating a class settlement by merchants in an antitrust case against Visa and MasterCard.
During the Final Fairness Hearing, Attorney Goetz challenged adequacy of Class Counsel because their involvement allegedly began with a pre-lawsuit contact from a Justice Stores' whistleblower. Class Counsel confirmed a whistleblower contacted it. There is no evidence the whistleblower did anything wrong. There is no evidence how this contact may undermine the adequacy of the class representation. Attorney Goetz asks to discover if the attorneys invested over $3 Million in time and costs to protect a whistleblower by shifting the blame to Justice Stores. There is no evidence the whistleblower benefited at all by the settlement. Counsel cannot solicit clients and, upon receiving information from a Justice Stores' insider several months before filing suit, it can fairly proceed to investigate the alleged misconduct. We see no merit in rejecting the settlement to allow discovery based on speculation without any evidence.
We address objections relating to Ernest and Robert Mansour's representation below. We have no basis to find, or even infer, any conflict because they are related by marriage to Plaintiff Caroline Mansour. We will not allow her to recover an incentive award due to the non-disclosure of her relationship until well after the preliminary approval. We find no basis to disqualify Kevin Raphael, Esq. because he may have attended law school with Ms. Fubiak. Absent some indicia of self-dealing or failing to protect the Class Members, we find Ms. Fubiak and Class Counsel Raphael are adequate representatives.
Because Class Plaintiffs meet the relevant burdens under Rule 23, we certify the proposed Class for purposes of settlement. Having reviewed objections raised to class certification, we find no objection sufficiently persuasive to challenge our finding the proposed Class meets the requirements of Rule 23. All Class Members advance the same claims. We find Plaintiffs and Class sufficiently similarly situated to certify a class, even if consumers from different states may be entitled to different relief in accordance with prevailing laws in each state and will receive differing damages based on their residence.
Our approval of a proposed class action settlement as "fair, reasonable and adequate" is required under Federal Rule of Civil Procedure 23(e) for all class action settlements to protect "unnamed class members from unjust or unfair settlements affecting their rights."
Our Court of Appeals requires heightened scrutiny in cases, like this, reaching settlement before the class has been formally certified.
"Because class actions are rife with potential conflicts of interest between Class Counsel and class members," however, "district judges presiding over such actions are expected to give careful scrutiny to the terms of proposed settlement in order to make sure that Class Counsel are behaving as honest fiduciaries for the class as a whole."
The law favors settlement in class actions where substantial judicial resources can be conserved by avoiding formal litigation.
Class Counsel submitted affidavits showing the settlement resulted from intensive arm's length negotiations between counsel. Class Counsel describe the sufficient informal discovery before filing the Complaint including reliance upon a whistleblower and months of investigation. While the case is difficult to manage to a class-wide trial, the liability discovery would focus on Justice Stores' conduct and knowledge. Based on the confidential settlement meetings, Justice Stores came to understand the Plaintiffs possessed specific information. Within a month of filing the Complaint, Class Counsel engaged Justice Stores in describing the pertinent information gained through the whistleblower investigation to initiate the settlement dialogue.
In evaluating whether the settlement is fair, reasonable and adequate under Rule 23(e), we conduct an independent analysis guided by the nine factors in Girsh v. Jepson,
"This factor captures `the probable costs, in both time and money, of continued litigation. `"
"This factor attempts to gauge whether members of the class support the settlement," although the court needs to be careful not to infet too much from a small number of objectors to a sophisticated settlement.
We review the type of and extent of discovery to ensure a proposed settlement is the product of informed negotiations.
Class Counsel coordinated efforts with other plaintiffs' counsel in related state and federal actions and the parties reached a settlement in principle after arm's length negotiations. We find counsel had an adequate appreciation of the merits of the case before negotiating and the proposed settlement is the product of informed discussions and negotiations. This factor strongly favors approval of the settlement.
We consider the potential risks or rewards if Class Counsel decided to litigate rather than settle.
Plaintiffs' novel claim did not have much legal support when filed. Class Counsel conceded the difficulty of showing liability at our Final Fairness Hearing. At least one federal district court dismissed lawsuits brought on similar legal theories where, under a similar factual scenario plaintiffs' complaint did not allege 2, legally cognizable injury.
Class Plaintiffs similarly allege deceptive advertising. As in Shaulis, no one alleges the purchased merchandise is worth less than what they paid. The alleged `injury' is the deception— the belief each got a bargain. But there may be no recognized injury based entirely on a consumer's subjective belief about the value she received. "Such a ruling would likely expand the category of injuries that are cognizable under [consumer protection statutes] to a considerable extent."
In both Shaulis and Mulder, the court also dismissed plaintiffs' breach of contract, breach of implied covenant of good faith and fair dealing and unjust enrichment claims, which Class Plaintiffs also raise. "The implied covenant may not be invoked to create rights and duties not contemplated by the provisions of the contract or the contractual relationship."
Similarly, to prevail on an unjust enrichment claim, a plaintiff must generally show a benefit conferred; knowledge by defendants of the benefit; acceptance of the benefit under circumstances which would render it inequitable to retain without payment.
These factors favor settlement. Plaintiffs bear significant risk proving at trial Justice Stores deceived consumers and caused them harm. Because of the uncertainty of a trial, and the difficulty of obtaining class certification, settlement at this time affords substantial benefits compared to zero recovery, again favoring settlement.
"This inquiry attempts to measure the expected value of litigating the action rather than settling it at the current time."
Rule 23(a) permits us to decertify or modify a class at any time during the litigation if it proves to be unmanageable.
This factor considers "whether the defendants could withstand a judgment for an amount significantly greater than the Settlement."
The eighth and ninth Girsh factors ask "whether the settlement is reasonable in light of the best possible recovery and the risks the parties would face if the case went to trial."
The parties estimate the maximum potential damages recovery is approximately $775 million.
We find the final two Girsh factors, together with the other Girsh factors, support approving the settlement. We conclude the settlement amount and its terms are reasonable in light of the strengths and weaknesses of Plaintiffs' case.
In In re Prudential Insurance Co. America Sales Practice Litigation, our Court of Appeals expanded the Girsh factors to include additional considerations, where appropriate, which courts now refer to as the Prudential considerations.
These factors are permissive inquiries which may be useful when analyzing fairness of a settlement. Our Court of Appeals directs us to conduct "a thorough analysis of settlement terms" to determine "the degree of direct benefit provided to the class," including whether "the number of individual awards compared to both the number of claims and the estimated number of class members, the size of the individual awards compared to claimants' estimated damages, and the claims process used to determine individual awards."
We note several objectors express concern over the use of a percentage to pay attorneys' fees, which we address below. We are directed to no other Prudential factor negatively impacting fairness of settlement.
In Baby Products, our Court of Appeals added factors to consider in analyzing proposed class action settlements:
The $27.8 Million Cash Settlement Fund is fair. As shown below, we are specifically calculating the degree of direct benefit to the Class and withholding final approval on the portion of the Settlement Fund representing all of attorneys' fees beyond the lodestar and reasonable 1.75 multiplier warranted by the direct benefit we can calculate today. This structure allows the parties to address a fee beyond counsel's investment based on the direct benefit to the class.
The parties contemplate immediate distribution of cash and the requested vouchers from the $50.8 million Cash Settlement Fund, followed by issuing automatic vouchers. The parties agree to return to the Court and revisit ways to further provide direct benefit to Class Members using escrow funds in the Settlement Fund remaining after we learn how many vouchers are redeemed.
One group of objectors contends the maximum total damages estimate is too low. During our Fairness Hearing, one objector
Additional objectors contend the damages estimate should have taken into account the potential for treble damages under consumer fraud statutes. Recovery of such damages is purely speculative, however, and need not be taken into account when calculating the reasonable range of recovery.
To the extent objectors argue the settlement is not high enough because it does not allow 100% recovery of consumers' alleged loss, we find these objections without merit. The settlement offers every consumer a choice of cash or, if they wish to purchase additional tween merchandise, a voucher exercisable for one year. Keena Jones objects because the consideration does not account for the profits she claims Justice Stores made on her interest on the credit card purchases. This objection lacks merit as a third party bank finances and services the credit card.
We also overrule Paul Lawless' claim the settlement is not large enough to deter Justice Stores. We have no basis for this finding. Absent evidence, we have no reason to believe a $50.8 Million Settlement Fund with potential liability of over $400 Million should deter Justice Stores and retailers from this advertising strategy.
The settlement represents a compromise between the maximum possible recovery and the inherent risk of litigation, including a difficult burden to show liability and certify a trial class. "The test is whether the settlement is adequate and reasonable and not whether a better settlement is conceivable."
Manda Hipshire contends the release is overbroad and impermissibly extends beyond the scope of the plead claims. Ms. Hipshire claims Tennessee's common law fraud theories may warrant punitive damages, even though no such claims are plead in the complaint, and as the Release covers all claims "brought or could have been brought . . ." it surrenders the possibility Tennessee plaintiffs could recover under Tennessee's fraud statute. Ms. Hipshire also objects on grounds the settlement does not fairly consider relief to plaintiffs in states which do not permit class actions under state consumer protection laws. To the contrary, the record reflects the parties fairly considered these issues during settlement negotiations, and arrived at a fair compromise to these class members. For example, the settlement provides varied recoveries to address differing states' consumer fraud regimes. If Tennessee consumers thought they could do better, they had the choice to opt out. Given the case law to date, they could have just as easily found a choice of cash or a voucher to be better than losing a motion to dismiss.
One objector is concerned because the release is broader than the class period and does not align with the improper conduct.
Ms. Carey additionally contends the Settlement Agreement fails to consider state laws addressing minimum consumer recoveries; some state statutes provide minimum statutory recovery for violations of consumer protection laws and the Settlement Agreement greatly undervalues the award to plaintiffs in these states. As detailed during the Fairness Hearing, the parties specifically considered recovery in all states including minimum recovery states.
Several class members object because the voucher award is essentially a "coupon" settlement which does not comply with the Class Action Fairness Act, 28 U.S.C. § 1712 et seq. ("Act"). In particular, over 70% of affirmative claimants selected a cash award settlement, and rejected vouchers.
We disagree with objectors' suggestion some consumers' preference for cash awards, rather than vouchers, renders the voucher offers "not meaningful compensation." Because Justice Stores' target market is pre-teens aged 6-14, it is reasonable to expect at least some portion of Justice Stores' consumers between 2012-2015 outgrew Justice Stores' products and prefer cash awards. More than a de minimus number of consumers selected a voucher award, affirming they do confer value to some Class Members. We do not find the voucher awards improper.
Class Members received notice and the opportunity to choose a cash award in lieu of a voucher award. No one is forced to accept a voucher. We find the Claims Administrator made a substantial effort and then supplemented notice to educate the Class Members resulting in reaching over 16 million individuals who made purchases at Justice Stores during the Class Period.
To the extent the objectors challenge the award of attorneys' fees, we address those issues below in framing the approval of attorneys' fees in two stages.
Several objectors contend there is no limit to administrative costs. The Settlement Agreement provides if administrative costs exceed $8 million, the excess is taken from the Class Members' recovery. Class Counsel acknowledge the agreement but claim "the reality is that is not going to happen" because there will be remaining funds to cover all administrative fees."
Several objectors challenge the allocation of approximately $14.1 Million from the $50.8 Million Cash Settlement Fund to pay attorneys for services valued, by the attorneys, at approximately $3 Million on a lodestar basis. We addressed these issues at the Final Fairness Hearing and counsel agreed our resolution of the attorneys' fees in a manner different than the Settlement Agreement would not affect the remaining distributions. With this agreement and as described below, we are awarding attorneys' fees in two steps: first on the lodestar with a 1.75 multiplier for the actual benefit provided to date and without considering the amount of redeemed vouchers and then possibly awarding fees based on redeemed vouchers.
The parties agreed some portion of the Cash Settlement Fund not distributed to Class Members may revert back to Justice Stores up to a cap of $8 Million. Objector Susan House claims this agreement rewards bad behavior. We disagree. This settlement provides a reverter only from portions of the $27.8 Million not claimed by Class Members. The parties did not guaranty a reverter. As shown, we have "no indicia of self-dealing by counsel" and the reverter only applies if we approve the final reverter number capped at $8 Million based on the demonstrated lack of interest in a cash payment.
Several objectors contend the claims process unfairly requires frequent purchasers to produce proof of purchase to qualify. This objection misunderstands the Settlement Agreement. Consumers are given three choices: (1) elect a cash award (ranging from $7 to $20); (2) elect a voucher, to be used toward a future Justice Stores purchase (ranging from $10 to $30); or (3) if consumers are frequent and/or high dollar purchasers, (greater than 5 transactions in the settlement period or greater than $105 in a single transaction), after producing evidence of purchases, they may elect to receive either 14% of total dollars spent as a cash reimbursement award or 20% of the transaction dollars as a voucher to be used toward future Justice Stores' purchases.
Numerous methods of proving frequent purchases are acceptable. Class members who find this method too burdensome may elect to receive the standard cash award or voucher without producing any proof of purchase. The options presented are fair.
Consumers who provide contact information at the time of checkout and who pay in cash are recorded in Justice Stores' customer data and are included in the Class even if they do not have proof of purchase. A small group of consumers who did not provide contact information at checkout or retain receipts now object. We realize the settlement may not include every possible cash consumer at Justice Stores and some persons may have paid in cash, not disclosed their contact information at the register and not kept a receipt. We could expect a consumer who elects not to disclose her contact information at purchase may also not want to file an affidavit specifically describing the date and amount of purchase and now disclose her contact information solely to get cash or a voucher. Following our Court of Appeals' guidance including In Re Baby Products, our role is to review the settlement "when considered from the perspective of the class as a whole."
Analysis of all fairness factors weighs in favor of approving Settlement. We are persuaded the parties reached a settlement after several rounds of informed negotiations, careful consideration of risks of litigation, work of experienced counsel and a settlement fund reflecting meaningful recovery to the Settlement Class. We approve the Settlement as fair.
Class Counsel moves for an aggregate attorneys' fee award equal to twenty-eight percent (28%) of the $50.8 Million Cash Settlement Fund, including their expenses. In their most recent request, they suggested a twenty-five percent (25%) fee award.
Exercising our discretion,
While addressing the fairness of attorneys' fees, we are guided by our Court of Appeals' lessons three years ago in In re Baby Products Antitrust Litigation: "courts need to consider the level of direct benefit to the class in calculating attorneys' fees."
Justice Stores agreed to set aside a defined Cash Settlement Amount of $50.8 Million plus vouchers. Of this amount, the parties originally agreed to set aside $27.8 Million to pay Class Members in cash. Contrary to their present position, the parties referenced a Cash Settlement Amount as distinct from vouchers. If the Class did not choose cash up to $27.8 Million, Class Counsel decided any unused portion of the Cash Settlement Amount allocated to Class Members could revert to Justice Stores to cover voucher charges following payment of any approved outstanding administration costs, approved fee award and approved incentive award. If the Class elected more than $27.8 Million, the Class Members would reduce their cash awards pro rata. The parties also agreed the Cash Settlement Amount included up to $8 Million for reasonable administrative and notice costs for this 18.4 million person class and any costs proven in excess of $8 Million are deducted from the balance of the Cash Settlement Amount. The parties also agreed Class Counsel could apply for up to $15 Million as attorneys' fees and costs.
Following ample notice, the cash award is $10,036,310.10. This response leaves a delta of over $17. 7 Million in cash.
We must also consider the direct benefit for Class Members who chose the voucher over the cash payment. These Class Members presumably view the voucher as equal to cash, or they would not have selected the voucher.
At the May 20, 2016 Fairness Hearing, Class Counsel projected $11.9 Million for administrative charges based on the mailing of vouchers, a $2.5 Million increase from their Claims Administrator's May 13, 2016 sworn declaration.
We also calculate the present award of attorneys' fees as a present actual benefit. We can fairly value the attorney's fees at $3,035,125.85 as described by Class Counsel in sworn detailed monthly certifications filed after the Fairness Hearing. While paying attorney's fees to Class Counsel and paying notice and administrative expenses is a benefit to the Class, it is presently difficult to accurately value the benefits to the Class from counsel's effort beyond these certain numbers. We do not see any actual benefit to the Class in the $8 Million possibly reverting to Justice Stores until we can quantify this reversion after the one year voucher exercise period.
We value the actual benefit to the Class now at $23,974,283.95 ($10,036,310.10 + $2,902,848 + $8,000,000 + $3,035,125.85).
When a proposed settlement provides an award of coupons and injunctive relief, Congress mandates we award attorneys' fees attributable to the award of coupons based on the value of the class members of the redeemed coupons.
Unlike cases where the settlement provides for a coupon solely to ensure final distribution or as ancillary relief, the benefit to the Class is now overwhelmingly based on the ability of over 16 million of the over 18.4 million class members to obtain a Justice Stores' merchandise through a voucher they did not ask for at Justice Stores for one year.
The Act specifically addresses attorney awards calculated on a mixed settlement, with a specific reference to the injunctive relief awarded to the consumers. The only consistent reading of the Act is Congress intended to address mixed settlements, such as ones where counsel contemplate offering 5% in cash and 95% in coupons.
Justice Stores' vouchers, as with Southwest Airlines' "vouchers" found by a court of appeals to be coupons, have modest value ". . . when the coupons expire soon, are not transferable, and/or cannot be aggregated."
Class Counsel argue we are not reviewing a "coupon" settlement. They argue all Class Members have a choice of cash, albeit at a dollar value lower than the voucher. They argue it is unfair to wait for their attorneys' fees because the vast majority of Class Members chose, by inaction, to accept a voucher. They argue this settlement should not be considered a coupon settlement because they negotiated a choice of cash or a voucher. Class Counsel argues they do not require Class Members to accept a coupon settlement and their voucher is more akin to a gift card than a coupon.
Their argument is facially attractive. But it ignores the reality of their negotiations and requires blinders on the fiduciary obligations when negotiating the settlement. Under Class Counsel's argument, they satisfy fiduciary obligations and can recover a percentage contingent fee simply by providing a choice after agreeing with their adversary the choice will not meaningfully and actually benefit the Class.
Class Counsel's reliance upon O'Brien v. Brain Research Labs
We find Class Counsel's characterizations of the automatic vouchers as equal to cash ignore their central role in negotiating this settlement. Rather than require cash for all consumers, or allow consumers to redeem coupons for cash at a later stage, they agreed to a voucher program which requires the consumer to return to Justice Stores to obtain the value of their negotiated settlement. Class Counsel cannot claim surprise. Justice Stores from day one negotiated for the voucher believing, as it candidly conceded at our Final Fairness Hearing, between 2% to 3% of the consumer Class will redeem the automatic voucher. The most optimistic cash outlay estimate involved approximately 5% of the value. Class Counsel knew, under its fiduciary duty, an agreement to settle would result in the vast majority of the negotiated consideration paid in voucher.
Our observation as to coupons does not diminish the reasonableness of the settlement. The vouchers, as all concede, have a face value exceeding $380 million. But even wearing their rosiest glasses when signing the Settlement Agreement, Class Counsel expected a maximum cash payment of $27.8 Million or less than seven percent (7%) of the potential direct benefit. As shown, only approximately 2.5% of the settlement is paid in cash. Offering a choice to all Class Members militates in favor of finding the settlement is fair, adequate and reasonable. But Class Counsel cannot realistically argue they expected more than a small percentage of the Class Members to elect cash and an even smaller percentage to redeem vouchers.
Class Counsel also knew the 18.4 Million Class Members would not select the cash option; if all Class Members did select cash, they would receive less than $2 cash from a capped $27.8 Million Cash Settlement Fund. Based on their present admissions, the parties could not argue $2 cash is fair consideration. We approved the settlement as fair based on the detailed choice between cash and a higher face value in the voucher when all counsel rationally anticipated the vast majority of consideration would be paid by voucher.
We also cannot ignore the automatic vouchers act like a coupon. Over 16 Million Class Members will receive a voucher requiring them to purchase more product from Justice Stores. The voucher expires, like a coupon, on a date certain. Justice Stores focuses on a niche market of pre-teen merchandise. Its customer quickly grows up and, unlike other retailers, Justice Stores does not sell merchandise for the older consumer. As described earlier, we found the parties' considered decision to offer the Class Member a choice of cash instead of a voucher materially supports our fairness finding. But we cannot blindly mischaracterize this voucher as cash-like. Unlike a gift card redeemable at any retailer, which may be closer to cash, Class Counsel agreed to a twelve (12) month voucher which can only be redeemed at Justice Stores. Class Members need to buy more product at Justice Stores to get the discount. We are not suggesting there is no value to this voucher, but it is not cash and not a gift card. Unlike a freely transferable Wal-Mart gift card with no expiration date as in In re Online DVD-Rental Antitrust Litigation
In sum, this fair recovery is more similar to a very good sale for the vast majority of consumers who we know purchased tween merchandise from Justice Stores between January 1, 2012 and February 28, 2015. The parties recognized this distinction in the Settlement Agreement providing Hawaiian and Alaskan consumers with a "gift card" "instead of a voucher".
Class Counsel asserts an actual benefit of $50.8 Million based on their negotiation skill in setting their Cash Settlement Fund at $27.8 Million. The problem is the reality, not the capped speculation. If the actual benefit were all cash at $27.8 Million, as in their cited authorities, they may have a fair argument based on the low response rate from Class Members. Class Counsel's cited comparator cases, with one exception, involved exclusively cash payments to the class. The court in those cases could easily set the present value of cash as an actual benefit. In the one exception, the court awarded a 30% contingency when defendant agreed to redistribute unclaimed funds through coupon benefits and the court found the coupon as a means of redistribution "is not a primary or substantial part of the bargain."
We value the actual benefit as the cash a.1d the cash value of the vouchers chosen by the Class Members. But the vast majority of potential benefit is provided by a voucher. A fair contrast is presented in Weiss v. Mercedes-Benz
Class Counsel admits the currently calculable benefit now is approximately $12.9 Million including cash and actual benefit of the chosen vouchers. We are not aware of a person who would pay a contingent fee based on a $27.8 Million recovery when she is only getting $12.9 Million now. We don't view counsel as being penalized; they hired financial experts, consulted records and estimated a compromise. Their estimate is way off today but they expect the actual benefit through redeemed vouchers will increase over time. Moving forward, Class Counsel and Justice Stores have differing hopes as to the number of redeemed vouchers; true to their fiduciary duty, Class Counsel will now recover on a percentage of the redeemed vouchers they negotiated for the Class Members and Justice Stores will be required to honor the vouchers up to the maximum amount of approximately $400 Million.
Applying the Act, we will award a lodestar with a multiplier to the actual benefit now. The Act "forecloses using the value of all of the coupons made available to the class as a basis for the percentage award, insisting instead upon a percentage of the coupons claimed by the class . . ."
After examining the reasonableness of the billed hours and hourly rate, and as contemplated by the Act, we can set a multiplier on the lodestar to, among other things, "reflect the risks of nonrecovery facing counsel . . . as an incentive for counsel to undertake socially beneficial litigation, or . . . reward counsel for an extraordinary result."
Three law firms represent the consumers.
Pietragallo Gordon Alfano Bosick & Raspanti, LLP: 2,720.5 hours with a blended rate of $537 per hour, resulting in a lodestar of $1,432,456.25;
Mansour Gavin and Robert Mansour: 2,507 hours with a blended rate of $532.80 per hour, resulting in a lodestar of $1,335,729.60;
Edward J. Westlow, Esq.: 444.9 hours at his standard $600 hourly rate, resulting in a lodestar of $266,940.
Counsel has offered only blended hourly rates more appropriate for a percentage of the recovery award which does not require mathematical precision.
We can review a billing rate of all attorneys in light of rates charged in this District, nature of services provided and Class Counsel's experience necessary to represent the Class.
We cannot find these hourly rates reasonable in all contexts since we do not have fee comparator affidavits. While Michael J. Boni, Esquire opines the aggregate $14.1 Million requested fee is within the range of reasonable awards, Class Counsel does not adduce an opinion as to the reasonableness of their blended hourly rates. Attorney Boni may be correct and we will review his opinion, and any contrary views, when measuring the actual benefit after the vouchers are redeemed.
This case is different than a lengthy litigated case where lower hourly rate attorneys may bill hundreds of hours in addressing several motions, discovery concerns, depositions, written discovery and the wide variety of legal work occasioned by a fifty (50) state class action on common law theories with differing consumer fraud regimes.
Class Counsel described 5,672.4 hours invested on the consumers' behalf. While counsel has not yet submitted comparator affidavits as to the reasonableness of their hourly rates in consumer class actions, for purposes of this initial review, we calculate the lodestar as $3,035, 125.85.
We find, based on Class Counsel's detailed month-by-month description, their effort is reasonable given the work to resolve these claims. We also find, subject to review of the fee affidavits required in the accompanying Order, the blended rates are fair and reasonable for this quality of work particularly given the complex negotiations but, given the lack of a comparator affidavit on the reasonableness of the blended fees in this District or detailed billings, we cannot ascribe any value beyond the billed rates based on this factor.
After extensive negotiations, Class Counsel obtained an actual immediate benefit of $23,974,283 .95 on behalf of 604,623 customers who elected to file a claim out of the over 18.4 million Class members receiving some remedy, including automatic voucher recovery for all class members potentially in excess of $400 Million.
"The degree of success obtained" is considered the "most critical factor" weighed in both a multiplier to a lodestar and percentage of the recovery analysis.
The degree of success must also be measured by other consumer cases awarding full or multiples of purchase price upon confirming a purchase.
We reviewed forty-two (42) filed objections to the settlement. Three (3) persons objected to the lawsuit. In total, forty-five (45) consumers out of 18,422,784 consumers, object to the terms. This is a minuscule percentage. Mere objections do not suffice. Rather, there must be a substantial objection by class members.
While they were limited, several objections required the parties to address the concerns. The objections as to the use of any excess reversionary fund resulted in Justice Stores agreeing at the Final Fairness Hearing to cap their reverter and allow any reimbursement to be reviewed by the Court after periodic accountings in a final distribution. We are now ordering Class Counsel to detail the time and hourly rate for each professional and allowing Objectors who previously raised questions concerning the amount of attorneys' fees to supplement their objection to the calculation of the lodestar.
The objections to attorneys' fees to be paid because the parties reached a settlement earlier in the process lack merit given the difficult burden on plaintiffs to win class certification and then a liability trial. We carefully reviewed the objections relating to the use of vouchers in a consumer settlement and attorneys' fees. While the "clear sailing" agreement on attorneys' fees properly raises questions, we find no valid basis to challenge the fees or settlement when the only evidence is the parties negotiated the fees after reaching terms on the settlement.
We find these objections do not create sufficient grounds to find the settlement for over 18.4 Million persons is not fair, reasonable or adequate. We found no objection rose to the level of finding the settlement unfair.
Class Counsel is well-qualified to litigate this complex class action, and they showed their effectiveness through the favorable settlement with both injunctive relief and compensation for all known consumers of Justice Stores' merchandise during the Class Period.
We cannot discount Class Counsel's effort because they learned of the facts from an insider or whistleblower. Every lawyer needs a client to proceed. Often, a disgruntled employee or insider provides information concerning the internal corporate decisions and actions. Under Twombly, we may look for more specificity and could not expect a consumer claim would last very long if based entirely on "information and belief' of lawyers after walking around a suburban mall.
We recognize the settlement contained no guarantee of 100% compensation for Class Members. We reviewed objections seeking more money which would, according to an objector, be available after discovery. We have no basis to credibly find a higher damages number. A settlement needs to provide the fullest possible compensation. While it would have been much easier to file a single state class, particularly one with treble damages, counsel should not be penalized for seeking a national class. Class Counsel strived to eliminate duplicative or prolonged issues. We specifically directed counsel at our Rule 16 conference to begin settlement discussions. Class Counsel followed our direction and engaged in multiple meetings before reaching a July 2, 2015 agreement in principle. The test is skill and efficiency, not whether a lawyer who has not taken the risk or fully understands the subtleties of dozens of consumer protection regimes could possibly have persuaded Justice Stores to pay more. Class Counsel demonstrated skill and efficiency and their extraordinary effort warrants a fair multiplier.
We now consider, among other things, "the complexity of both the factual and legal issues, the amount of discovery and depositions conducted, the length of the litigation, the amount and quality of work produced, and attempts to negotiate and settle."
Class Counsel decided to pursue the biggest case they could possibly sustain: a national class action based on varying state consumer fraud laws relating to a consumer's reliance on Justice Stores' advertising "40% off'. This decision invoked numerous manageability issues. Counsel described substantial hours in evaluating the varying consumer fraud regimes and manageability issues. Plaintiffs benefitted by allegedly having insider information from a former employee, but counsel may not have met their Rule 11 obligation based solely on one disgruntled employee say-so.
The fact pattern is not overly complex. The consumers allege Justice Stores' uniform national advertising included the "40% off'. The legal issues surrounding reliance in a national state law claims are complex. The law is not established. Two cases from the District of Massachusetts, as well as similar manageability cases, would lead many attorneys to avoid a $3 Million investment of time.
The settlement of these varied consumer issues, as described in affidavits and during our Fairness Hearing, also involved complex negotiations. Class Counsel described numerous contested meetings. Class Counsel reviewed the rapidly developing case law and framed a settlement with a choice of cash and voucher in amounts depending upon the consumer fraud regime for each state. Every consumer showing some evidence of purchase receives both an injunctive and damages benefit. Undoubtedly, Class Counsel wanted more money and viewed their chance of winning at a higher percentage than Justice Stores.
The parties reached an initial settlement fairly early in this case. We recognize the litigation ended within months of filing. The case began in Spring — through a meeting with a whistleblower. The parties did not enter formal discovery but the submitted time entries confirm substantial preparation for discovery.
Even if Class Counsel could have certified a liability class and demonstrated some way for us to manage these varied fraud statutes and then recover a larger judgment at trial, any recovery would be postponed for years. Alternatively, the settlement secures payment for every member of the Class now, rather than the speculative promise of a larger payment years from now. This factor weighs in favor of a fair multiplier on attorneys' fees.
Class Counsel worked on a contingency fee basis since inception, undertaking significant risk of non-payment.
We specifically described Class Counsel's investment of their stock-in-trade, i.e. time, above. This investment is appropriate for a fifty (50) state class action particularly when the parties were on a trial track and beginning to prepare discovery at the same time they were attempting to negotiate a multi-faceted settlement.
Class Counsel faced considerable contingent risk in pursuing this national consumer class action. Counsel committed substantial time and resources to this litigation on a purely contingent basis, expending over 5,672 hours of work and investing over $3 Million (not including hours incurred after May 31, 2016) without compensation and without any guarantee of receiving compensation.
Ignoring the possibility we would follow the Act and apply the lodestar to the actual benefit today and a percentage of the fund to the voucher redemption, Class Counsel offered no guidance on a multiplier to a lodestar. As a cross check on a percentage recovery, our Court of Appeals has suggested a multiplier of 3 is an appropriate ceiling for a fee award.
We find Class Counsel reached a fair settlement in a national class action which faced long odds at liability certification due to trial manageability and in defeating the reasoning already applied by judges. They used the national leverage and substantial risk to Justice Stores to reach this settlement. Supported by pre-suit diligence and research, experienced counsel realized a settlement may be in all parties' interest. The parties did not specifically value the injunctive relief leaving us unable to ascribe a dollar value, but we find the agreed ending of the alleged misleading advertising shortly after this case began has value if only to put an end to the continuing claims.
Class Counsel cite authorities for a multiplier ranging from 4.3 to 15.6. All of their cited authorities, with the exception of Weiss v. Mercedes-Benz addressed above,
We find no basis to award a multiplier above 2. Class Counsel engaged in extraordinary work to reach a complex settlement structure in a fifty (50) state consumer action in which they had some, but not great, hope of success of recovery on a national class basis. They took the risk of investing the time of largely their most experienced litigators to resolve the thicket of fairness issues. Their work, particularly their ground work in negotiations, offers a lesson to class action counsel seeking early common ground under Fed.R.Civ.P. 1. But given the limited time involvement and relatively straightforward facts compounded by the advantage of having possible insider information reducing a need for extensive fact finding, we find no basis for a higher multiplier. Under the Act, Class Counsel may also recover under a percentage of the recovery based on the redeemed vouchers less the $2,902,848 we ascribe to the present value of the voucher affirmatively chosen by the Class.
On balance, we find a substantial basis to find an extraordinary effort warranting a
The three Class Counsel law firms seek $82,436.27, $71,917.72 and $5,399.21 respectively for reimbursement of costs.
Class Counsel seeks an award of $6,000 for each of the eight (8) plaintiffs. This award would be, based on the calculations supporting the fairness of the settlement and lacking contrary facts, a several hundred timed multiplier on their recovery as a class member. After our inquiry during the Fairness Hearing, Class Counsel submitted affidavits describing the efforts of each Plaintiff other than Ms. Sinkler.
Our Court of Appeals recognizes incentive awards are not uncommon in class action litigation.
"A rubber-stamped approval by the Court of any unjustified incentive award is fodder for abuse . . . because `[i]f class representatives expect routinely to receive special awards in addition to their share of the recovery, they may be tempted to accept suboptimal settlements at the expense of the class members whose interests they are appointed to guard."
In applying these factors, we find no basis for a $6,000 incentive fee to any Plaintiff. We have no evidence of financial or social risk as they are eight (8) of over 18.4 million consumers with no ongoing relationship at risk. They expressed no personal notoriety. No Plaintiff submitted proof of investing time or costs. Their efforts can generously be described as "monitoring" the progress by reviewing the settlement terms and talking to their lawyers. We cannot approve incentive awards based on run-of-the-mill assistance. We require more extensive involvement.
Ms. Rougvie began speaking with Class Counsel in February 2015 and had twelve (12) conversations with her lawyers for an average of thirty minutes. She discussed the facts of her case, reviewed pleadings, described her concerns for her privacy in filing in a public forum, and initially prepared for depositions. She is the named lead counsel for all proceedings since June 2015. She also reviewed aspects of the settlement. We find she provided services and is entitled to a $2,500 incentive fee.
Ms. Bolton and Ms. Bell spoke with their lawyers on multiple occasions beginning in February 2015 from five minutes to an hour to discuss status of the case, strategy and proposed settlement. They described their experiences at Justice Stores during the Class Period. They met with Class Counsel in Austin, Texas, requiring both Plaintiffs to travel. They discussed a concern with privacy in a public forum. They began preparing for testimony in deposition or trial. We find Ms. Bolton and Ms. Bell provided services and are each entitled to a $2,000 incentive fee.
Mrs. Cowhey began talking to Class Counsel in February 2015 about her experiences shopping at Justice Stores during the Class Period. She believed Justice Stores deceived her. She described her understanding of the "40% off," her shopping patterns, purchases and provided documents and samples of the purchased tween merchandise. She also addressed the legal foundation for the claims, legal strategy, potential defenses and settlement discussions. She agreed to be the named plaintiff for the Pennsylvania class leading to our retaining venue. She met with Class Counsel at least three times for at least an hour each time. Mrs. Cowhey also spoke to Class Counsel several times on the phone. As Mrs. Cowhey provided both factual and legal input and, for a period of time, served as the named Plaintiff in this District, we find Mrs. Cowhey is entitled to a $3,000 incentive fee.
Ms. Mehigan spoke with Class Counsel several times concerning her shopping patterns, the case status and strategy and proposed settlement terms. She provided proof of purchase. She reviewed and approved the settlement. She agreed to be named as the lead plaintiff and this case remained captioned under her name for many months. We find Ms. Mehigan provided services and is entitled to a $2,500 incentive fee.
Ms. Fubiak spoke with Class Counsel several times concerning her shopping patterns, the effect of the sale advertising, status of the case, strategy and proposed settlement terms. She provided proof of purchase and later reviewed and approved the settlement. We find Ms. Fubiak provided services and is entitled to a $2,000 incentive fee.
The request for Caroline Mansour raises a different question. Ms. Mansour is the daughter-in-law of one member of the Class Counsel and sister-in-law of another Class Counsel. Her father-in-law swears she provided effort. She would have been subject to discovery particularly into her appropriateness as a class representative given her family's role as Class Counsel. She discussed the facts of the case, strategy, reviewed pleadings, and raised concerns about her privacy in a public forum.
Notwithstanding her efforts, we cannot abandon our obligation to find she does not satisfy the adequacy inquiry under Rule 23(a)(4). The relationship casts doubt on Ms. Mansour's ability to "place the interests of the class above that of Class Counsel."
We have no information on services provided by Ms. Sinkler and decline an incentive fee for her.
As first conceived decades ago by creative lawyers, many from this District, class action treatment of an alleged national deceptive practice inflicting relatively small losses upon millions of consumers is warranted upon fully satisfying Rule 23 and particularly protecting the interests of absent class members. Eight consumers and their experienced counsel filed an innovative lawsuit against Justice Stores looking for class action resolution of these relatively smaller damage claims for over 18.4 million consumers. By any measure, they faced an uphill battle in certifying a liability class and proving damages. To their credit, they obtained pre-suit material information and, with our urging, opened settlement discussions early in the litigation arc. Experienced courtroom lawyers fairly valuing the potential liability and manageability issues based on extensive data vigorously disputed settlement terms. After several rounds of negotiations over months, they reached a settlement despite the case law on liability and manageability entitling the over 18.4 million consumers to choose between cash or, if they wished to shop at Justice Stores again, a voucher. We find substantial grounds to certify the Settlement Class and opine the settlement is fair, reasonable and adequate. This settlement is more than reasonable. Less than fifty (50) persons objected with similar arguments. The parties addressed and cured meritorious objections and the remaining objections are overruled. The settlement is not perfect, but none are. Knowing the precise values, we can fairly evaluate the settlement consideration.
Awarding attorneys' fees for this effort is a different question. Facing the intersection of our Court of Appeals' guidance on reviewing the direct benefit and Congress' mandate in the Class Action Fairness Act, we must evaluate the actual benefit to the Class both for the approximate 3.3% of Class Members who chose a remedy, and for the 96.7 % who receive an automatic non-transferable voucher for a purchase of tween merchandise at Justice Stores within one (1) year. Having valued the direct benefit to the 3.3% of the Class now, we award Class Counsel's proffered lodestar with a 1.75 multiplier and award a limited incentive fee to six (6) plaintiffs. We allow the parties to return for additional distributions from the $50.8 Million Cash Settlement Fund detailed in their Settlement Agreement under a percentage of recovery method based on the redeemed vouchers. In the interim, we expect quarterly accountings on the progress of their agreed voucher program and ongoing administrative costs. After the vouchers expire and we review the actual benefits to the remaining Class Members, we will distribute the balance of the Cash Settlement Fund.
