United States: Now That That’s Settled: The Status Of Class Action Settlements In The Seventh Circuit After Pella, Radioshack And NBTY

Over the last several months, Judge Richard Posner has authored a triumvirate of opinions reversing the district courts' approval, over objections, of consumer class action settlements—Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014), Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014), and Pearson v. NBTY, Inc., No. 12-1245, 2014 WL 6466128 (7th Cir. Nov. 19, 2014)—each of which could charitably be described as scathing. Among other things, Judge Posner takes aim at the manner in which a settlement is valued for purposes of determining attorney's fees (administration costs and cy pres awards are not part of the value to the settlement class), the method of calculating attorney's fees (a ratio based on actual value to the class, not the maximum potential value), and the manner and content of notice to the class as well as the claims process (simplification is key). While the class action bar awaits the impact of these decisions, there are several key lessons to be learned.

In Pella— a settlement described by Judge Posner as "scandalous"—a class action was brought over allegedly defective windows. After nearly seven years of litigation, the district court granted final approval, valuing class relief at $90 million and approving an $11 million attorney's fee award.  Judge Posner found two issues especially troubling. First, the claims process was structured to depress claims—or in Judge Posner's words, "strew[] obstacles in the path of any owner of a defective [window]." Among the many issues: (i) the claims form was 12-13 pages long, (ii) the claim form was needlessly complicated and made obtaining relief difficult, (iii) the notice was divided into 27 sections, many of which had subsections, and (iv) the notice was "incomplete and misleading." Second, the attorney's fees award was based on an "inflated" value of relief to the class—for which there was no independent valuation. Judge Posner found the total relief to the class worth, at most, $8.5 million. Though he did not say so directly, Judge Posner indicated (perhaps foreshadowing his Radioshack and NBTY opinions) that a fee equal to 56% of the settlement (56% = $8.5m + $11m / $11m) is excessive. And this is not to mention the umbrage Judge Posner took with a provision in the settlement agreement that any money cut from attorney's fees would revert to the defendant rather than the class—a provision he later refers to in NBTY as a "kicker" clause.

Radioshack involved a class action lawsuit brought pursuant to the Fair and Accurate Credit Transactions Act ("FACTA"), which generally proscribes the information that may be displayed on credit and debit card receipts provided to customers at the point of sale. The class settlement provided for a $10 coupon to each Radioshack customer with an offending receipt. All told, the settlement was valued at $4.1 million ($830,000 in claims ($10/claim times 83,000 claimants) + $1 million in attorney's fees + $2.2 million in administrative costs).

In reversing the district court's approval of the settlement, Judge Posner focused his opinion predominantly on the reasonableness of the requested $1 million in attorney's fees, making two key holdings: (i) notice and administration costs are not to be included in calculating the overall benefit to the class (reasoning that they are not direct benefits and thus not rightly included in any valuation), and (ii) the ratio to evaluate the reasonableness of a fee award (as hinted in Pella) is the ratio of the fee to the fee plus what the class members actually received. In applying that ratio to the Radioshack settlement, Judge Posner found the ratio—55% ($1 million + $830,000 / $1 million), after eliminating notice and administration costs—unreasonable in and of itself, and all the more so because no attempt was made by the parties to determine the actual value of the $10 coupons sent to the 83,000 claimants who responded to the notice. The solution, Judge Posner recommended, would be to "chang[e] the relative shares of the settlement received by class counsel and class members without increasing the amount of the settlement." Importantly, in the process of setting the attorney's fee ratio, Judge Posner held that "the central consideration . . . is what class counsel achieved for the members of the class rather than how much effort class counsel invested in the litigation"—in other words, the lodestar method should not be used as a back door justification for increased attorney's fees. To hammer this point home, Judge Posner noted that "the reasonableness of a fee cannot be assessed in isolation from what it buys," (i.e., "no one would think a $1 million attorneys' fee appropriate compensation for obtaining $10,000 for the clients."). Judge Posner also took the time to remind the class action bar that clear sailing clauses—whereby defense counsel agree not to contest plaintiffs' counsel's fee request up to a certain percentage or amount) often create the appearance of collusion and are therefore disfavored.

Finally, in NBTY—a class action alleging false labeling of glucosamine pills—the district court approved a $5.63 million settlement, which included nearly $2 million in attorney's fees, $1.5 million in administration costs, $1.13 million to cy pres, and $865,284 to the class members. Judge Posner first took aim at the attorney's fees, finding that the settlement was improperly valued at $20.2 million, where the class in actuality received less than $900,000 in total compensation (comprised of 30,245 claimants—or one-fourth of one percent of the total class size). Judge Posner reiterated that the relevant valuation is the actual value to the class, not "the maximum potential payment that class members could receive." To that end, Judge Posner not only found the $1.13 million in cy pres to be worthless to the class, but found that there was no merit to the award to begin with because "a cy pres award is supposed to be limited to money that can't feasibly be awarded to the . . . class members." Using the Radioshack ratio, Judge Posner calculated it to be 69% and concluded it was "outlandish." He suggested that the proper ratio "should not exceed a third or at most half of the total amount of money going to class members and their counsel." Like in Pella, the parties agreed to a kicker clause, to which Judge Posner again took exception.

Second, Judge Posner was also critical of the claims process, which he found "discourage[ed] the filing of claims." Specifically, the claims form "required the claimant to list cash register receipts or other documentation indicating the date and place at which he or she had bought the product," included a warning that false claims might be subject to prosecution, and required claimants to certify his or her claim under penalty of perjury—all this to receive $3 to $5 per bottle of pills purchased.

Few courts have yet to apply Pella, Radioshack, or NBTY. One court—Myles v. AlliedBurton Security Services, LLC, No. 12-cv-05761, 2014 WL 6065602 (N.D. Cal Nov. 12, 2014)—has taken to heart Judge Posner's holding that administration fees are not a benefit to the class and should not be considered in determining a reasonable attorney's fee. And a second court—Fritzinger v. Angie's List, Inc., No. 12-cv-01118, 2014 WL 4680898 (S.D. Ind. Sept. 22, 2014)—expended considerable effort calculating the actual benefit of the settlement to the class in approving a fee award equal to a 24% Radioshack ratio.

While these rulings will no doubt cause many in the class action bar to rethink ongoing and future settlement negotiations, it remains to be seen whether these opinions are taken as gospel, or whether they are taken as broader guiding principles. That said, the overarching theme of these opinions is clear: maximize value to the class and minimize the appearance of attorney collusion (i.e., no clear sailing or kicker clauses). From this theme, a few general lessons stand out for future settlements in the Seventh Circuit. First, class notice will need to be as robust as possible (and the costs for such efforts should not be borne by the claimants) and the claims process will need to trend towards simplification. Second, counsel will likely need to provide the court a detailed valuation of the benefit the settlement provides the class, which may be helped in some instances by an independent expert and non-reversionary funds, to support class counsel's fees. Third, cy pres awards should be limited to circumstances in which the money cannot feasibly be awarded to the class members. And fourth, class counsel may have to be prepared to settle for a more modest fee, given that notice and administration costs are not to be considered value to the class, not to mention the fact that the Posner ratio will examine the reasonableness of the fee request based on the claimed value (not the potential value). These considerations may factor into plaintiffs' counsel decision to bring and to litigate consumer class action cases where the individual recovery is fairly modest as their ability to recover their time and cost expenditures may be more limited; as Judge Posner noted in Radioshack, "some cases should not be brought, because the litigation costs will exceed the stakes."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
3 Dec 2018, Other, Los Angeles, United States

National Contract Management Association’s Government Contract Management Symposium

20 Feb 2019, Seminar, Orange, United States

The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

21 Feb 2019, Seminar, Orange, United States

The seminar is designed to provide a guide to Human Resource Officials, Personnel Specialists, Consultants, Supervisors and other management officials through the ever-increasing maze of state and federal employment discrimination laws.

Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Sheppard Mullin Richter & Hampton
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions