CAFA Governs Attorneys’ Fees in Class Settlement Involving Michaels’ Vouchers

          An interesting opinion by U.S. District Judge William G. Young:

• provides a definition of “coupons” as used in the Class Action Fairness Act;
• makes sense of the “poorly drafted” CAFA provision regulating attorneys’ fees in so-called coupon settlements; and
• incidentally speculates on the relationship between MDL case assignment, the potential loss of judgeships in a district, and the strictness of a district judge’s scrutiny of attorneys’ fees in class action settlements.

Tyler v. Michaels Stores, Inc., No. CV 11-10920-WGY, 2015 WL 8484421 (D. Mass. Dec. 9, 2015).

            This class action, based on Massachusetts consumer law, alleged that Michaels “asked customers for their zip codes as part of credit card transactions to reverse engineer those customers' addresses using commercially available databases, and then used those addresses to carry out aggressive and unwanted marketing campaigns.”  [Internal quotation marks omitted.]  After Michaels moved to dismiss, the federal court certified legal questions to the Supreme Judicial Court of Massachusetts, which held plaintiffs’ allegations sufficient under state law. 

            After discovery, the parties settled and the court approved the settlement, reserving a ruling on class counsel’s request for fees.  Under the settlement, class members were to receive a $10.00 or $25.00 “voucher” to be used on any merchandise in Michaels’ physical stores, with certain restrictions on use.  The face value of the vouchers was $418,000.00.  The value of the vouchers actually redeemed by class members was $138,620.00.

            Class counsel requested fees and costs of $425,000.00, asserting that Massachusetts law, not CAFA, governed the fees request because the vouchers were not “coupons” as used in CAFA, 28 U.S.C. § 1712, which applies to settlements that “provide[] for a recovery of coupons to a class member.”  Surprisingly, CAFA does not define “coupon.”  Surveying other cases, the Court “essay[ed] such a definition: when class members must transact business with the defendant to obtain the benefit of the settlement, the settlement ‘provides for a recovery of coupons’ under section 1712. In other words, coupons must be redeemed; conversely, if an award must be redeemed, it is a coupon.”  Under that definition, the Michaels vouchers were coupons, and section 1712 applied to the fees request.

            That didn’t settle the matter, however, because section 1712 is bewilderingly drafted.  (I won’t reprint it here: just read subsections (a), (b), and (c), if you dare, and see if you can decipher them.)  Again after surveying other cases, the Court held that even in a coupon-only settlement, section 1712 “vests the Court with the discretion to choose between using a percentage-of-coupons-redeemed method, or the lodestar method.” 

          Here, the Court chose the lodestar method (attorney hours worked times hourly fee) for two reasons:  “[f]irst, class counsel vindicated the important public policy goals of Massachusetts' consumer protection statute,” and “[s]econd, and most importantly, they obtained binding precedent from the Supreme Judicial Court that will influence conduct far beyond that of Michaels.”  However, the Court warned:

Given the hostility to disproportionately large fee awards to class counsel evident in the legislative history -- at least insofar as fees generated from obtaining coupon settlements were concerned -- counsel may reasonably expect that this Court will generally award attorneys' fees based on a percentage of the actual value of the coupons redeemed by class members, absent the groundbreaking nature of this case.

[Footnotes omitted.]

            The Court found that the requested hourly fee of $650.00 for partners was unreasonable, and cut it to $350.00.  This yielded a lodestar of $312,895.00 in attorneys’ fees, which was awarded along with $14,005.30 in costs.

            In other words, the fees award, even though reduced from what was requested, still ended up being more than twice as much as the value of the vouchers actually redeemed by class members.  Personally, I have no problem with that: in my opinion, the primary purpose of the consumer class action is not to compensate the plaintiff class, but to hold the defendant accountable for violating the law.  Others obviously disagree.   

            Here’s where the Court’s two-page footnote 29 comes in.  The Court’s point appears to be this: at least one pro-business advocacy group has argued to the Judicial Panel on Multidistrict Litigation that the Panel’s decision where to send an MDL should “rest on a district judge’s strict scrutiny of claims for attorneys’ fees in class action settlements.”  In other words, business interests have argued that the more strictly a district judge scrutinizes fees requests, the more that judge should be favored as the transferee court in an MDL.  But why should judges want to be the transferee court in an MDL?  Because all of those transferred cases will now be counted as part of that judge’s, and that district’s, civil caseload.  (When a civil case is filed in one district, and transferred to another district for whatever reason, including MDL, it is counted as a filing in both the transferor and the transferee court.  So, for example, if the Panel transfers 5,000 MDL cases to another district, the transferee district gets 5,000 cases added to its total filings.)  This accrual of cases “tend[s] to immunize that court against the potential loss of a judgeship,” because recommendations by the Judicial Conference to add or subtract authorized district court judgeships are based in part on the number of case filings that district has.

            So the Court in Tyler candidly “confess[ed] that, when awarding attorneys' fees in this case, it contemplated -- but rejected as wholly inappropriate -- an additional consideration: the views of the Judicial Panel on Multidistrict Litigation.”