{"id":761,"date":"2023-08-27T15:31:59","date_gmt":"2023-08-27T19:31:59","guid":{"rendered":"https:\/\/blogs.duanemorris.com\/classactiondefense\/?p=761"},"modified":"2023-08-28T11:14:28","modified_gmt":"2023-08-28T15:14:28","slug":"read-it-and-weep-subscribers-attorneys-fee-award-delays-approval-of-settlement","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/classactiondefense\/2023\/08\/27\/read-it-and-weep-subscribers-attorneys-fee-award-delays-approval-of-settlement\/","title":{"rendered":"Read It And Weep, Subscribers – Attorneys\u2019 Fee Award Delays Approval Of NYT Settlement \u00a0"},"content":{"rendered":"

\"\"<\/a>By Gerald L. Maatman, Jr. and Katelynn Gray<\/strong><\/p>\n

Duane Morris Takeaways<\/em><\/strong>\u00a0\u2013 In Moses v. N.Y. Times Co., No. 21-2556, 2023 WL 5281138 (2d Cir. Aug. 17, 2023), Objector-Appellant Eric Isaacson (\u201cIsaacson\u201d) was successful in appealing an order of the U.S. District Court for the Southern District of New York approving a class action settlement, and attorneys\u2019 fee award, and an incentive award in a class action against the New York Times (the \u201cNYT\u201d) alleging violations of California\u2019s Automatic Renewal Law. The Second Circuit\u2019s opinion<\/a> is a case study for corporate counsel on the attributes of class action settlements that courts are apt to reject during the approval process.<\/em><\/p>\n

Background Of The Case <\/strong><\/p>\n

Plaintiff Maribel Moses (\u201cMoses\u201d) brought a class action on behalf of similarly-situated subscribers in California against the NYT alleging it violated the California Automatic Renewal Law (\u201cARL\u201d) by enrolling consumers who sign up for a NYT subscription, either through its website or the App, in a renewing subscription without providing the requisite disclosures and authorizations.<\/p>\n

The parties engaged in informal discovery and mediation right off the bat and reached an agreement which settled the claims of 876,606 persons.\u00a0 Under the terms of the settlement agreement, NYT agreed to implement business reforms to comply with the ARL, and to provide class members with Access Codes valid for a one-month free subscription to a NYT product, or a pro rata<\/em> cash payment. A $1.65 million non-reversionary settlement fund was established to pay all approved claims, attorneys\u2019 fees of up to $1.25 million, and a court-approved incentive award to Moses of up to $5,000.<\/p>\n

The district court preliminarily approved the settlement agreement on May 12, 2021 and conditionally certified the class for settlement purposes.\u00a0 Of the 876,606 persons, three class members, including Isaacson, objected to the settlement.\u00a0 Isaacson\u2019s arguments were focused on the fairness of the settlement, the attorneys\u2019 fees calculation, and the lawfulness of the incentive award.\u00a0 In approving the settlement, the district court applied a presumption of fairness standard and found it was reached in \u201carm\u2019s-length negotiation between experienced, capable counsel . . . after a nine-hour mediation before a neutral third party.\u201d\u00a0 Id<\/em>. at 8.\u00a0 The district court further found the relief afforded to the class was \u201ccommensurate with the harm alleged\u201d and that the incentive award was appropriate under Second Circuit precedent.\u00a0 Id<\/em>. at 9. With respect to the proposed attorneys\u2019 fee award, the district court found the Access Codes were not coupons under the Class Action Fairness Act\u2019s (\u201cCAFA\u201d) coupon settlement provisions, which includes various restrictions on the award of attorneys\u2019 fees. Instead, the district court looked to the value of the entire settlement in determining whether the award was appropriate and ruled that given its face value of $5,563,000, $1.25 million in attorneys\u2019 fees (22.5% of the total face value of the settlement) was reasonable.\u00a0 The attorneys\u2019 fee award constituted 76% of the $1.65 million settlement fund.<\/p>\n

Isaacson appealed the judgement to the Second Circuit.<\/p>\n

Second Circuit\u2019s Decision To Vacate The District Court\u2019s Judgment<\/strong><\/p>\n

In vacating the district court\u2019s judgement, a three-judge panel of the Second Circuit agreed with Isaacson that the district court applied the wrong legal standard when it approved the proposed settlement and wrongly concluded that the Access Codes were not \u201ccoupons\u201d under the CAFA.<\/p>\n

Federal Rule of Civil Procedure 23(e) requires court approval when settling claims of a certified class and provides that a district court may only approve a class-wide settlement after a hearing and only on finding that it is \u201cfair, reasonable, and adequate.\u201d\u00a0 Acknowledging the nine factors historically used to evaluate the fairness, reasonableness and adequacy of a class settlement, and without displacing them, the panel pointed to the 2018 revisions to Rule 23(e)(2), which include a list of four considerations district courts must<\/u> evaluate, one of which is whether the \u201cproposal was negotiated at arm\u2019s length.\u201d\u00a0 The inclusion of this factor, the panel held, \u201cprohibit courts from applying a presumption of fairness to proposed settlements arising from an arms-length agreement.\u201d\u00a0 Id<\/em>. at 13.\u00a0 Instead, the panel explained, courts must consider all four factors outlined in Rule 23(e)(2) \u201cholistically,\u201d which includes, among other considerations, taking into account the terms of any proposed award of attorney\u2019s fees.\u00a0 Id<\/em>.<\/p>\n

Isaacson argued, and the panel agreed, that the district court erred when it presumed the proposed settlement was fair because it was reached in an arm\u2019s-length negotiation, and further abused its discretion when it failed to evaluate such fairness in light of the attorneys\u2019 fee and incentive awards. Notably, the panel opined \u201cthe error does not automatically require the reversal of the settlement\u2019s approval\u201d, and that it is \u201cpossible\u201d the district court\u2019s errors could be \u201charmless.\u201d\u00a0 Id<\/em>. at 22.\u00a0 In this case however, the panel found the error could not be \u201cwritten off as harmless\u201d given the fee awards were \u201cintimately intertwined with the settlement.\u201d\u00a0Id<\/em>. at 22-23. In fact, the panel pointed out that the amount of attorneys\u2019 fees and incentive payment awarded directly impacted the amount of funds available for pro rata<\/em> distribution to class members. As such, the district court was required to consider these fees, not just separately, but together with the other requisite considerations.<\/p>\n

With respect to the attorneys\u2019 fee award, the panel agreed with Isaacson that the Access Codes were coupons \u201cunder the plain meaning of the word,\u201d i.e.,<\/em> digital vouchers provided to class members valid only for \u201cselect products or services.\u201d Id<\/em>. at 29, 32.\u00a0 The fact that the class members had the option to take cash relief was not of import, the panel found.\u00a0 As such, since the Access Codes were coupons, the district court was required to apply the CAFA\u2019s coupon settlement provisions when calculating the attorneys\u2019 fee awards, which looks to the redemption value of the coupons, as opposed to the face value of the settlement.\u00a0 On remand, the panel said the district court must evaluate the settlement both in light of the fee award and comply with the CAFA\u2019s coupon settlement requirements when determining the amount of such an award.<\/p>\n

The one argument of Isaacson\u2019s shot down by the panel was his challenge to the approval of the $5,000 incentive award. It refused to reverse established precedent in the Second Circuit or depart from Rule 23, which allows incentive awards that are fair and appropriate.<\/p>\n

The panel ultimately vacated and remanded the district court\u2019s order approving the settlement and the attorneys\u2019 fees award. At that same time, it did not opine on the fairness of the settlement or suggest that it must be overturned.<\/p>\n

Implications For Corporate Defendants<\/strong><\/p>\n

The Second Circuit\u2019s ruling is a perfect example of how an attorneys\u2019 fee award that is not thought through can serve to delay, and potentially derail, the class action settlement process. It is not enough to simply consider it on its own, but the proposed attorneys\u2019 fee award must be considered holistically with all the Rule 23(e)(2) factors in determining whether the ultimate proposal is fair, reasonable, and adequate.<\/p>\n","protected":false},"excerpt":{"rendered":"

By Gerald L. Maatman, Jr. and Katelynn Gray Duane Morris Takeaways\u00a0\u2013 In Moses v. N.Y. Times Co., No. 21-2556, 2023 WL 5281138 (2d Cir. Aug. 17, 2023), Objector-Appellant Eric Isaacson (\u201cIsaacson\u201d) was successful in appealing an order of the U.S. District Court for the Southern District of New York approving a class action settlement, and … <\/p>\n

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